Visa Rethinks Transactions, And The Devices That Make ThemVisa Rethinks Transactions, And The Devices That Make Them

Visa is introducing customized incentive and reward programs and testing a service to let customers use mobile phones as credit or debit cards. Years in the planning, the initiatives represent a shift in Visa's business model from supporting plastic cards to network-based services that handle many types of transactions from many different devices.

Visa is preparing to go public early next year, and its IPO is expected to generate billions of dollars to help advance the company's market-leading position in the competitive and increasingly litigious business of processing credit cards. During a tour of Visa's newest U.S. data center (the company requires visitors not to divulge its location), company executives said the capabilities will let banks and merchants offer services based on more detailed consumer data, including recent purchases, buying habits, and retailer loyalty.

Visa recently completed a modernization of its payment-processing systems that included closing down a West Coast data center and moving those operations last year to one in the central United States. The new facility processes $1 trillion in transactions annually.

Foreseeing that more consumers want to use mobile devices as payment instruments, Visa is testing that capability with Wells Fargo. Using handsets from Nokia and wireless service provided by Ztar Mobile (which resells airtime over the AT&T network), a small group of Wells Fargo employees is making payments, receiving coupons and other special offers, and managing their accounts over the air. The test will be extended to a few hundred Wells Fargo customers later this year; users will also be able to use Short Message Service messages to automatically transfer funds from one bank account to another.

Mobile payments have taken off most rapidly in Japan and South Korea. Korean telecom company SK Telecom recently began offering customers the ability, via several credit card issuers, to make mobile-phone payments at some 50,000 merchants using Visa's mobile platform, says Pam Zuercher, VP of product innovation at Visa.

Using "account-level processing," Visa's payment-processing system now manages transactions in real time using the entire 16-digit credit card number, rather than the six-digit bank identification number that had been used. The change lets consumers carry their account numbers with them if they move to more exclusive cards, and lets merchants offer new services and benefits, such as on-the-spot discounts. "This allows us to take a specific action in real time based on consumer behavior at a specific merchant and a specific location," says Jim McCarthy, head of consumer products for Visa USA.

These moves come as credit card processors come under more scrutiny after several large thefts of consumer credit card information. TJX, which owns T.J. Maxx and other retailers, took a $20 million charge in its most recent quarter stemming from an IT security breach involving 45 million credit and debit card numbers.

Layers Of Protection
Pushing account information to mobile phones is more prone to fraud, but Visa has added layers of protection, says Zuercher. In the case of a lost or stolen device, Visa can remotely disable mobile payments. And, with SMS payments, no financial data gets transmitted: SMS merely signals Visa to transfer funds.

Following the IPO, the new Visa Inc. will comprise Visa USA, Visa International, and Visa Canada. Visa Europe plans to remain a traditional member association owned by financial institutions. Visa Inc. will become the third standalone, publicly traded credit card processor, along with MasterCard and Discover Financial Services.