CARL PASCARELLA
ABA CONFERENCE, SEPTEMBER 21, 2004
Thank you, for such a warm welcome. I’m delighted to be here.
This morning I’d like to talk — not just about how far we’ve come in the bankcard industry, but how far we can go.
In my mind, you’ve picked a perfect theme for this conference: “Play Your Cards Right.” It’s both a metaphor and a mission – because if we do in fact play our cards right, we’ll continue to revolutionize the way we do business. We’ve got no choice but to change – because the status quo isn’t an option.
The financial services sector is more competitive than it has ever been, and we’re witnessing some of the greatest changes in the history of our industry. Then again – maybe it’s not too remarkable that an industry born in most of our lifetimes would undergo continuous re-invention. Consider that when I joined Visa USA in 1993, plastic’s share of consumer spending in the U.S. was roughly 15 percent. Fast-forward to today, and that share has doubled, to 30 percent. Within that universe, 440 million Visa cards are generating more than $1 trillion in annual volume. And, by 2007 cards are expected to overtake cash and checks as the preferred form of payment.
In the 45 years since the credit card was introduced, we’ve seen a revolution in payments: In technology – where antiquated forms of paper currency are being replaced by electronic payments; in what I call the “trust factor” – or people’s willingness to rely on a card everyday, everywhere; and in the value-add that cards and electronic payments deliver to consumers, businesses and merchants alike. I’m proud that Visa is leading this revolution and taking its vision to a new level – redefining not just “the way people pay,” but how we think about, access, mobilize and exchange value.
Of course, in times of intense change the big challenge is knowing which new paths lead forward to the future – and which ones offer nothing more than detours and dead-ends.
That’s especially difficult now, with so much noise in the marketplace.
However, if there’s one thing I could single out to explain what makes Visa and our Member partners so successful in these turbulent times it’d be this: Collectively- we keep focused. Simplistic as it may sound, focus is especially important in these distracting times, for one very basic reason: To lose sight of consumer demands and merchant needs is to lose sight of the opportunity before us.
And the opportunity is huge. Roughly $19 trillion dollars in annual consumer and business spending is now taking place by cash and checks. But taking advantage of that opportunity won’t be easy. Not when you look at the dynamics of the payments marketplace. You know the names as well as I do: Discover, Amex, MasterCard, NYCE, Star, Paypal, Safeway SmartCheck, DebitMan, Certegy eCheck, and the list goes on.
We’ve never seen such a mix of new entrants and established incumbents competing for the transaction business. We’re also seeing companies like First Data and GE Consumer Finance trying to build business – quite literally – on the backs of Visa cards.
Yet, despite so much competitive pressure, we’re continuing to grow… and we’re doing it by remaining focused on what we do best: Delivering choice to consumers in how they pay, when they pay, and where they pay.
That’s not to say that the past year hasn’t had its share of challenges, and then some. In the 12 months since we last met, there have been many questions – questions about the merchant settlement, and about the future of debit, to name a few.
Yet here we are today… Steady, strong and growing at record rates. In the first 6 months of this year alone, Visa posted exceptional sales volume growth of nearly 20 percent compared to 11 percent for the same period last year. In fact, Visa has gained share in all segments of our business for the last 7 consecutive quarters. These results are a testament to the unwavering partnerships we’ve forged with financial institutions, both big and small. Which makes our results your successes.
Our shared success is rooted in our unique structure that allows us to deliver the most balanced value proposition to all participants in the payment system. So, when your focus is delivering the payment solutions that enable banks to compete aggressively for their customers. And, when the discipline that drives that focus is in your DNA. Then, the issues you face stay in perspective. Take for example, the pending Supreme Court decision related to the Visa DOJ litigation. As I’ve said many times, I believe that Visa’s By-law 2.10(e) promotes competition.
But regardless of the outcome in the courts, we always have and always will provide a better value proposition than Amex. Nothing that happens in the courts is going to change that fact. In the long history of Visa/Amex competition, every time we go head to head, Amex loses.
Let me take you down memory lane.
Amex started issuing charge cards and building equity in the Amex brand in 1958. That was roughly 18 years before the Visa brand appeared on the scene. Back then, Amex was the big brand on the block.
Visa was just an upstart clawing to gain customers and share. In a bold move, Visa threw down the gauntlet. Our goal was to establish a competing brand that provided better payment products with more choices – and overtake Amex.
And despite the brand cache that Amex built over those 18 years, Visa – by listening to consumers, issuers, acquirers and merchants, and by providing the payment choices that met their needs – overtook Amex in the credit marketplace…
That’s not to say that we weren’t helped by the fact that Amex hung on to a myopic strategy of exclusivity, refusing to mass market its cards through co-branding and other opportunities.
Yet – decades later – despite our lead, Visa continues to vigorously compete just as we did as a young, upstart brand some thirty years ago.
In fact, today I’ll let you in on a little secret. As part of our overall growth strategy – Visa has quietly embarked on an intensive effort to challenge Amex on the businesses they consider their bread-and-butter…small business products and credit cards aimed at affluent consumers.
Amex has built its business on these customers and – until recently – held a huge lead, but frankly, a lead they took for granted. Take small business for example – in 1997 Amex commanded more than a 70% volume share versus Visa’s 15%.
But working with our Members, we developed a highly competitive package for small businesses – offering: the Visa Extras rewards program, full flexibility between debit and credit, and unparalleled acceptance, giving the small businessperson maximum control over how, where and when to pay. And we created a single statement to make record keeping easy for small businesspeople who don’t have an accounting department to fall back on. The result:
As of the first quarter of this year share of small business card volume showed Visa at 39 percent and Amex at 41 percent. In just a few short years, Visa Members closed the 55-point share gap to just 2 percentage points.
And make no mistake- Visa will be the leader in the small business segment in early 2005.
How can I be so confident? Because we have signed agreements in place with some of the leading financial institutions in the U.S., institutions that recognize Visa can help them bring greater value to their small business customers.
But, that’s not enough. We can – and will – do better. In fact – we’ve set a goal that after taking the lead we’d capture over 50 percent of small business volume by the end of 2006. You heard me right – a 50 percent volume share of a segment that’s crucial to Amex’s bottom line.
So while Amex is busy hyping potential bank deals that nibble at the edges in credit, Visa Members have literally been eating their lunch in the small business arena with Visa credit and debit products.
And don’t think my prediction of success in small business is an anomaly. It isn’t.
Just look at what we’re doing with affluent cardholders, once the preeminent domain of Amex. Visa and our Members have been building relationships with new affluent consumers – people with household incomes above $125,000. We’re offering a Visa-branded product that goes head-to-head with the Amex Gold card on features and benefits. That’s Visa Signature, which last year accounted for more than $86 billion in volume with only modest marketing support behind it.
We recognized early on that the key to meeting the needs of the “new affluent” is understanding their mindset: These aren’t folks looking for status symbols. They’re self-made people who’ve climbed the economic ladder through hard work. They’re affluent – but they don’t see themselves that way. They’re looking for products and services that help them spend more time with family, pursue their interests, and that give them added ease, convenience and value.
If Visa Signature’s Concierge service helps them get: tickets to a sold-out Andrea Bocelli concert in Italy; box seats for 20 people at the Redskins/Cowboys game on Thanksgiving; or tickets to a popular Broadway show, like The Producers – that matters.
And, if Visa Signature’s Dining Privileges helps a cardholder get a table on a Saturday night at hot spots, from New York City’s Alain Ducasse to LA’s Spago, then we’re on the way to becoming that cardholder’s best friend.
And one more thing. Affluent cardholders don’t want to worry about their card being accepted wherever they’re going, whether that’s around the corner or around the world. Their minds rest easy because they know that Visa Signature is accepted at millions more places than Amex. In a world where cardholders expect us to be “Everywhere they want to be,” American Express just isn’t there.
And, in developing the Visa Signature product, our listening did not stop with cardholders. We have developed a flexible platform.
Visa Signature has a robust baseline offering that allows Issuers to add their own enhancements, tailored to the segments they want to serve. It’s a powerful combination…
Today, among cardholders with annual household incomes of more than $125,000, Visa is the market leader, with share of spending at 37 percent compared to Amex’s 19 percent. But we’re not resting, earlier this year we turned up the heat on Visa Signature with a national integrated marketing campaign.
And, with year-to-date Visa Signature volume growing at more than 30 percent over 2003 we know we’re on the right track.
Let’s face it; American Express is a niche player. Its primary focus remains fixed on the commercial and high-end consumer credit arenas.
By contrast, Visa is a payments company that enables its financial institution owners to unlock the cash and check opportunity by offering the widest array of payment cards and services.
In addition to debit, credit, commercial and small business cards, Visa also offers Prepaid cards, that range from gift cards to travel money; Visa Commerce, an electronic payment service for high-dollar B-2-B transactions of up to $10 million; and even POS check-electronification, that enables merchants to process paper checks faster and cheaper. Simply put, if there’s a payment to be made, Visa’s aim is to make it the most secure, convenient and rewarding experience it can be for all parties involved.
And, when it comes to focus, we have one great competitive advantage. It’s not our leading brand, nor our unparalleled processing systemsâit’s the luxury of not having to satisfy Wall Street.
Instead of measuring our success by share price, market cap, or even our own profitability… Visa’s success is measured by our ability to satisfy Members, merchants and cardholders.
The real irony is… even though the Nilson Report recently ranked Amex number one in credit volume ahead of both JP Morgan Chase and Citigroup
Amex claims they’ve somehow been harmed by not being able to partner with banks. Yet, outside the U.S. – where it’s always been possible for Amex to partner with any of Visa’s 7,000 non-U.S. Members, Amex claims to have approximately 85 deals, not all involving card issuance. That’s not necessarily the numbers that revolutions are made of.
It’s clear, American Express doesn’t have an access problem; they have a product problem. And neither court decisions nor bank partnerships are going to solve it. But the question remains, will the Supreme Court grant our petition for review? I hope so, since I believe a review of this industry issue is important.
However, if our petition is denied, we certainly expect some banks to experiment with Amex – just like CIBC did in Canada – only to see the partnership collapse after Amex issued a product that competed with its “partner.”
I’ll predict that most financial institutions recognize American Express for what it is: A competitor intent on cross selling. But don’t take my word for it. Ken Chenault, Amex’s CEO, said as much in a recent BusinessWeek story, when he said, “AmEx intends to be “the No. 1 provider to high-spending customers for both cards and financial advice.”
Now, you can partner with financial institutions, or you can compete for their best customers. But you can’t do both. Yet Amex is out selling itself to banks with the promise of greater income based on their higher merchant discount fees.
But you have to ask yourself, is that model sustainable?
Since Amex’s high discount fee is the likely reason so many merchants don’t accept American Express in the first place.
And, if your card is not welcomed at millions of locations — in times when people are growing more mobile and global every day — you’re falling short of the acceptance that cardholders have come to demand.
It’s quite a dilemma: Amex can attempt to align with banks but to do so it has to charge merchants more and deliver a less accepted card to consumers.
At Visa, our approach is different: It’s been borne out of decades of experience in delivering a superior and balanced value proposition to financial institutions, merchants and consumers.
Here’s how I see it: Visa’s chasing cash and checks and our competitors are chasing us. As I said at the beginning of my remarks, we’re in the midst of a payments revolution. And while today credit and debit cards are an integral part of everyday life, when it comes to the world of electronic payments, we’ve only just begun. Together with you, our Member partners, we’re well on our way to truly laying claim to the title of “the world’s best way to pay.”
That’s our collective destiny. The question is how do we achieve it? From where I stand, the answer lies not in the bravado of competitors’ unproven claims nor in some apocalyptic paradigm shift…
The answer ties directly back to the point I made earlier – in keeping our collective focus. It means rededicating ourselves to the very fundamentals of our partnership that have enabled bankcard issuers to achieve such astounding success.
It means following a simple and clear growth strategy of giving consumers more choice and more value in how they pay; and enabling them to exercise that choice at the greatest number of locations.
It means transforming the plastic in our pockets into both value and information exchange tools, in ways that range well beyond the financial and commercial. And, it means rising to the innovation challenge and expanding the options and functions of the products we provide. Because, no matter how well accepted we are, and no matter what sort of allegiances we can claim, we – collectively – can’t rest on our laurels.
We must continue to work in strong partnership. And we must realize that with this payments revolution that we’ve created, comes rising expectations – expectations among your customers, your merchants, and your shareholders.
The good news is you’re not facing these expectations alone. You have a trusted partner in Visa. Our assets – the Visa brand and payment system – are yours. They exist to help you maximize your profitability and enhance your position in the financial services industry.
For nearly two decades, Visa has made a brand promise to consumers that we’d be “everywhere they want to be.” But, we view it as more than just an advertising slogan — it’s also our partnership promise… A promise that I renew with you today…that Visa will work on your behalf to continually evolve and improve the Visa payment system that you’ve created and ensure your rightful place at the center of the new era of electronic payments.
Thank you.
