Though several pundits in the media have beenquick to conclude that Visa is entering the merchant acquiringbusiness (again-remember CyberSource?), it just isn’t the case.Though the temptation will always exist to label the card networkas the ultimate threat to the existing merchant acquiring business,Visa has proven time after time it intends to be “Switzerland”indefinitely. In fact, the new CMS exemplifies the ideas MercatorAdvisory Group’s analysts have been espousing for years regardinginnovation and delivering more value to both merchants andcardholders.
First, the new joint-venture only impacts the way a (relatively)small segment of card transactions are handled. The configurationwill affect transactions on Visa cards issued by JPMorgan Chase atmerchants acquired and processed by Chase Merchant Services(presumably run on the Chase side by Paymentech). This does notsupplant (immediately) an existing acquirer/merchant relationshipwith a new one that makes Visa a party to the merchant agreement.Nor is this the creation of some kind of new Visa payment method.This is a technology play that will enable the delivery of servicesthat are potentially more valuable to both merchants and consumers,such as the bespoke “targeted offers” mentioned in theannouncement. And, Chase’s Visa cards will still be Visa cards,accepted at any Visa merchant regardless of acquirer.
More significantly, though, is the “legalization” of so called”on-us” processing, or the closest approximation of it that canexist in the Visa world. Transactions will still be put through theinterchange system, but the new platform will be only an extensionof the greater card network. If we were to think in cloud computingterms, Visa is offering a “private cloud” for Chase to serve itsmerchants when those merchants accept its cards. This private cloudruns in tandem with the shared cloud we know as the traditionalcard network, where any issuer’s bankcard gets routed when it isaccepted by any acquirer’s merchant.
Questions for consideration: Does this new agreement with Visareally present an advantageous pricing opportunity for CMS sincethe acquiring expense and the issuing revenue associated withinterchange would be a wash? If CMS were to offer cut-rate pricingon merchant card acceptance and Chase Card Services were to bow tolower interchange revenue, would Chase’s card programs suffer? Oris this a real shift to a “merchant-funded” model of card programrevenue generation? Since this is ostensibly Chase’s own network,would Chase’s debit cards be exempt from Durbin regulated pricing(the way that other three-party networks’ cards are) when acceptedat Chase-acquired merchants?
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