Visa's smart card

Latin CEO: Executive Strategies for the Americas, Sept, 2001 by J.P. Faber

In Latin America, Visa is the dominant credit card, with greater market share than all rivals combined. Now, the firm's president for Latin America is turning it up a notch -- pushing Visa into an electronic future where cash is old fashioned, e-commerce is secure and credit cards are smarter than ever.

JONATHAN SANCHEZ-JAIMES envisions an future where cash is the enemy. So, for that matter, is anything made of paper. On a tour of Visa International's new Miami headquarters for Latin America and the Caribbean, he proudly remarks that 29 tons of paper were disposed of in the move from their previous building -- though that's still not enough.

"You see these files here? They can all be eliminated, making room for another two workstations," he says. Visa's corporate communications manager Fran Valmana comments, "People around here are hesitant to push the 'print' button, For anything."

Sanchez-Jaimes' aversion to paper currency comes from his conclusion that it is an inefficient mechanism for what he calls the "exchange of values." That idea is a fundamental construct For the future of Visa, which is no longer simply in the business of providing credit cards. That passed away long ago in Latin America, where most of the cards issued are debit cards that draw from existing bank accounts. What Visa is in the business of providing now, says Sanchez-Jaimes, are "payment solutions." And when it comes to payment solutions, cash -- along with its paper sister, checks -- are dinosaurs headed For extinction.

"Cash is highly inefficient. It is extremely insecure," he says. "For example, we have a [card] designed For the small- and mid-sized retailer to pay For the goods that they in turn sell, like soft drinks, potato chips, bread" -- the kinds of things that retailers formerly paid for in cash. One problem is that such transactions have "been limited to whatever cash that person has on hand, so it limits economic growth," says Sanchez-Jaimes. "And, more importantly everybody knows that those trucks at the end of the day are running around with a lot of cash, because that's how they get paid. They're subject to being held up."

The net result is that value leaks from the economic system. "The more physically cash-intensive a business is, the more expensive it is to handle, because you have a lot of transaction costs in the process," says Sanchez-Jaimes. "And you have a very large informal economy that tends to limit the ability of a government to provide the kind of economic policies that make sense to grow that market."

The battle against cash and checks is so all-consuming For Sanchez-Jaimes that Visa does not even position itself against competitive cards in Latin America, namely MasterCard, American Express and Diners Club. In one sense, Visa doesn't have to. Its market share in the region is already larger than all its competitors combined, almost two-thirds of all cards issued. "We do position ourselves against cash and checks, very explicitly very strongly" he says. "Our ads for Visa Cash [cards] very clearly are positioned against having change and having bills. Our competition on our debit cards is very clearly checks. But we see no need to position ourselves against other brands, because for the most part, if our products are better, the consumer will know it."

To understand how Visa International operates in Latin America and the Caribbean, it may be necessary to understand the corporation's history and its structure. Unlike American Express, Visa is not a publicly traded company run from the top down in order to make profits for its shareholders. It is, rather, a membership organization, composed of ember banks worldwide. It is divided into six semi-autonomous regions around the globe, Latin America and the Caribbean being one of them. Each region collects a percentage of revenues from member banks, which Visa then uses to pay for marketing, research and development, and new product launches. While Visa International was founded only 27 years ago (indeed, the name Visa was adopted in 1977) it is today the world's leading credit and debit card brand, with 1 billion Visa cards issued and US$1.8 trillion in sales at the close of 2000.

All of Visa's member banks must abide by rules and regulations that are designed to protect the integrity of the brand, and to coordinate their global payment systems. But there is substantial latitude in how each bank controls its cards, Individual banks set interest rates for revolving credit. When inflation was high in Mexico, for example, some banks set interest rates at 50 percent or higher.

It may be banking giant Chase's motto that "the right relationship is everything," hut no company has incorporated that concept better than Visa. Its very existence depends on its member banks, and how they issue, promote and use the card within any given market. "From a consumer standpoint, the [different card brands] are very similar, with a lot of overlap in terms of merchant coverage," says Michael Auriemma, president of New York-based Auriemma Consulting Group, which specializes in the credit card market. "The difference really comes down to the issuers -- the banks -- and the services they offer." Echoes Francisco Cacho, director of credit cards at Mexico's Banca Serfin, "The difference [between brands] for the consumer is not on the side of acceptance, but rather [bank] issuer promotions and membership benefits."