Visa’s Acquisition Spree Is Part Of A Well-Thought-Out Strategy

by Trefis Team
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Since the beginning of fiscal 2019, Visa (NYSE: V) stock has been defying overall market trends to steadily head upwards. The payment industry leader saw its stock gain nearly 20% since October 2018 even as market indices managed single-digit growths. The rally over recent months can be primarily attributed to improving prospects for Visa’s Revenues in the future in light of a string of strategic acquisitions by the company.

Visa earns its revenues from transaction processing, domestic assessments, international transactions, and other value-added services.  Trefis highlights key components of Visa’s revenues and the trends in underlying drivers in the interactive dashboard along with our expectations for FY 2020.

A Quick Look at Visa’s Product Portfolio

  • Visa’s product portfolio broadly includes digital products, contactless technology, merchant products, and risk management solutions.
    • Visa Direct is the prominent digital product that provides access to Visa’s transaction processing platform, VisaNet.
    • Due to the growing popularity of online and mobile transactions, Visa Checkout is a dedicated digital product that ensures secure online payments.
    • Visa Token Service and Secure Remote are other digital products that secure personal account information by utilizing various encryption solutions.
    • CyberSource platform is a merchant payment acceptance solution that provides an omnichannel (online, mobile, and in-person) payment acceptance service.
    • To maintain consumer confidence in digital payments, Visa’s risk management solutions ensure that transactions remain secure and identify security breaches.

Each of Visa’s Recent Acquisitions Enhances The Capabilities Of Specific Portfolio Offerings

Earthport

  • Growth in e-commerce and increasing competition in international payment processing market lead Visa to acquire Earthport for $320 million in May 2019.
  • With the acquisition of Earthport, Visa strengthened its international transaction payment capabilities by including an independent automated clearing house (ACH) network in its product portfolio.
  • Traditional payment methods for cross border payments, such as wire transfer, cost nearly $25 per transaction.
  • Earthport’s independent ACH offered a cheaper alternative (Earthport had a revenue target of £2.00 – £3.00 per transaction).

Verifi

  • Visa acquired Verifi for an undisclosed sum in September 2019.
  • Verifi offers a faster solution to resolve chargebacks and reduce costs for merchants and issuers.
  • A chargeback refers to the return of payment to the cardholder due to technical issues or fraud.
  • Per a report by Verifi, chargebacks cost related parties nearly $31 billion in the U.S, which is roughly 1.5% of Visa’s U.S. network volumes (In 2017, the dollar value of transactions on Visa network in the U.S. was of $2 trillion).
  • To save on merchant and issuer costs and develop trust among network participants, Visa enhanced its risk and fraud management suite with Verifi.

Payworks

  • As a part of its strategic partnership, Visa has been enhancing its CyberSource platform with Payworks since 2018 before acquiring the latter in July 2019.
  • Payworks’ Pulse offers a solution for POS software providers and payment service providers to accept payments through multiple channels by integrating its payment gateway in their software.

With Earthport, Verifi, and Payworks, Visa strengthened its digital product, risk management solutions, and merchant product categories, respectively. These deals enhance Visa’s offerings considerably, and should have a positive impact on Visa’s revenue growth figures as the company complements existing revenue drivers with newer ones in the evolving payments industry.

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