Summary
The termination of Visa's president reflects the crisis in the bankcard industry. Since its IPO, investors, issuers and merchants been waiting for Visa to lead the industry to new heights. That has not happened. In fact, things have gotten worse. Cardholders, merchants, Congress and states are in rebellion against the industry, which has all but given up on innovation.
Analysis
The bankcard industry is on life support and desperately seeking a cure of its many ills. Arguably, its problem is that it is a prisoner of a structure that can no longer satisfy its three major constituents: issuers, cardholders and merchants. All three are losing money and down scaling their reliance on bankcards. And that spells big trouble for Visa. Visa has ignored the interests of the latter two for decades, favoring issuers at their expense time and again. Visa has to win them back, even if that means being less deferential to issuers. It has to set new standards for use of its cards that force issuers into better protect consumers than the destructive nonsense Congress has enacted with the new CARD Act. It also has to consider opening its system to merchant financial products. Since its inception, Visa has only admitted banks into its membership and has only processed their products. A more merchant-friendly Visa will have to treat players like Walmart, Apple, Verizon, et al with more respect. The old way of doing things must go. If more dismissals occur among Visa's senior managerial ranks, investors should be hopeful that the company has learned its lesson. If not, look for the bankcard crisis to worsen.
Duncan MacDonald consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
