The credit card networks have saturated most major markets and are increasingly looking to partnerships to increase growth opportunities. As the following report describes, Amex, Mastercard, and Visa have been active in linking up with other companies.
In 3Q16, Visa signed a multiyear debit agreement with Lloyds Banking Group and RBS. The company also entered into a multiyear credit and debit agreements with Nationwide and Barclays. Notably, Visa ended 3Q16 with 15 million customers in 21 countries. The company’s Visa Checkout program has seen participation from 1,400 financial institutions with $162 billion in volumes.
It also announced new advertising solutions in an effort to help merchants understand the needs of new and existing customers. Visa (V) is leading the pack by deploying resources to incorporate new technologies in the payments space. The company has innovation centers in various locations including San Francisco, Singapore, Miami, London, Dubai, and Bangalore.
By comparison, MasterCard (MA) expanded its existing partnerships with US Bank and Regions Bank. The company also renewed its consumer credit co-branding with PayPal (PYPL). It is also expected to get more business from China, which is expected to open its market for global payment processors. MasterCard has already made some progress in China by signing new agreements with banks, including HSBC Bank, China Construction Bank, ICBC (Industrial and Commercial Bank of China), and Postal Savings Bank of China.
American Express’s (AXP) US Card Services segment’s total expenses fell 7% to $2.0 billion, as compared to $2.2 billion one year previously. The company is investing in technology advancements, marketing, incentives, and higher service costs. The company has also been spending on new partnerships, including that of Charles Schwab (SCHW), one of biggest brokers in the United States, and Sam’s Club, a retailer in the US. Payment processors are spending on rebates and marketing expenses in order to gain new business.
Transaction volume and critical mass are typically two attributes that contribute to sustainable and profitable results for payments vendors. It can be faster and less costly to partner compared with internal growth. In recent months, we have seen several examples of new co-branded credit cards within retail (Costco) and travel Jet Blue) that can capture more market share. Sometimes lower fees are acceptable in exchange for low volume. Witness the PayPal agreements with Visa and Mastercard. Expect more of the same, especially as these deals have a finite duration, at which time the terms and results can be re-assessed.
Overview by Raymond Pucci, Associate Director, Research Service at Mercator Advisory Group
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