Use of ‘Plastic’ Changing Rapidly
The credit card industry is anything but static these days, with new products and services coming at a fast pace.
Carl F. Pascarella, who has been president and chief executive of Foster City, Calif.-based Visa USA for a decade, calls this “a revolutionary time.”
“The technology is changing so rapidly that I think we’re on the edge of significant breakthroughs” in how credit and debit cards are used and processed, he said.
Pascarella spent more than a decade with Visa’s Asia-Pacific division in Tokyo before moving back to the United States, where he now heads Visa’s largest regional operating unit. It’s a non-stock corporation owned by the nation’s banks.
Visa USA has just passed the $1-trillion mark in transactions per year; it reached the $1-billion level in 1971. Debit, credit, prepaid and commercial transactions are processed at a rate of $32,000 a second.
The industry has weathered serious legal challenges. Visa and MasterCard in October 2001 lost an antitrust case brought by the Justice Department that is on appeal. This year, the card companies agreed to settle a class-action suit brought by Wal-Mart Stores Inc. and other retailers, which alleged that the companies’ policies forced them to pay more for debit card usage because of the linkage to credit cards. Visa agreed to pay $2 billion and MasterCard $1 billion and both lowered transaction fees to settle the case.
Pascarella spoke about Visa and directions in the industry.
Question: You recently said, “We’re no longer a credit card company, we’re an electronic payments company.” So just where are you taking Visa USA?
Answer: If you take a step back, Visa when it started was primarily a credit card company. In the mid-1990s, we made a concerted effort to mainstream debit. And today, debit is 51% of our transactions and about 30% of our sales volume, and it’s growing about 25% year over year.... We’ve put a lot of time and effort into developing a commercial suite of products. They’re growing at significant rates. So while credit is important, we look at ourselves as providing a payment solution overall.
Q: The key is to get people to stop using cash and checks, right?
A: Personal consumption expenditure is about $17 trillion, and we’re 12% of that on our own. All the other card programs are roughly 12% as well, combined. So if you look at that, we’re just scratching the surface. What we’re all about is growing the entire payments industry. The growth engine is all about providing value to consumers and giving them the opportunity to use whatever payment device they want to use whenever they want to use it. We’ll never get to a cashless or a checkless society. What we’re looking for is less cash and less checks.
Q: How has the industry been affected by the recent court ruling in the Wal-Mart case?
A: First of all, we’re very, very happy to have Wal-Mart behind us. We at Visa have three major parties to make the whole value proposition successful -- the consumer, naturally; the merchant; and the banks. I think now with that lawsuit behind us, we have an opportunity to go back and work with the merchants the way we have in the past ....The merchants are interested in ... guaranteed payment, they’re interested in the consumers being able to get through the store and buy their goods or services.
Q: What innovations do you see coming in the card business?
A: We have to take what we have today to the next level, over the horizon, to new payment devices. Recurring payments, and -- it’s all about using the Visa structure of the products and the services we have, the infrastructure of our telecommunications network, the infrastructure of our clearing and settlement.
Among the products and services we have is the payroll card. So many people today are un-banked -- they don’t have bank or checking accounts. So we’ve offered to corporate entities the opportunity to pay their employees with a Visa payroll card. That payroll card is reloaded, and they [workers] can use it everywhere Visa is accepted. So instead of having to go to a check-cashing service, and paying a fee there and carrying around large sums of money, they now can carry a Visa payroll card, which is safe and secure.
Q: Why not one card that can validate a check today, work as a debit card tomorrow and a credit card the next day?
A: That would require chip cards, which have been very slow taking off in the United States. The reason is that we haven’t had a compelling value proposition that would make it cost efficient. We have the lowest telecommunications costs in the world. The reason chips are as prolific as they are in Europe is because the cost of telecommunications is so high, and it’s very hard to validate transactions using telecommunications. That’s why they use the chip in terminals. It doesn’t transmit it anywhere; it validates and controls the transaction at that terminal.... A chip has 80 times the data capacity of a magnetic stripe, so you would be able to put all your relationships on a chip. But again, we have to have a compelling value proposition to get that technology in the marketplace.
Q: Isn’t business use of cards another growth area?
A: Small business to us is very important, and it’s one of the fastest-growing segments of our business. Three to four years ago, we virtually were abdicating that market to American Express. We’ve moved significant market share in the small-business area, in the middle market and in the corporate area away from American Express and into the banking system.
Another of the things that we’ve done is the Visa commerce program. This is primarily for big [business to business] purchases
Q: Consumers have some concerns about credit cards, notably taking on too much debt. What can Visa do about this?
A: The interesting thing about that is that a financially uneducated consumer -- people who don’t understand the responsibilities or how to deal with credit in the right way -- is not good for Visa, is not good for the banks, is not good for the merchant because everyone loses. So it’s in everyone’s best interests to make sure that we have an educated consumer that understands how to use credit prudently. We have been very aggressive in working with credit counseling organizations. We have a program that we call Practical Money Skills for Life. So we’re all about educating consumers.
Q: What’s the most unusual thing you’ve purchased with your Visa credit card?
A: We’ve paid for horse shoeing. My wife rides a lot. I’ve bought a lot of stuff in Asia in the markets -- pottery, watches, various and sundry things.
