There’s the payment and then there’s everything that happens around it. That’s why financial services companies, from insurance to FinTechs to enterprise-grade banks, add services to protect, analyze and optimize each transaction. For example, Visa’s value-added service (VAS) offerings now contribute roughly a quarter of the company’s $8.8 billion in overall sales in the most recent quarter, at $2.1 billion, up 23% year over year.
Visa Executive Vice President, Global Head of Value Added Services Antony Cahill told PYMNTS’ Karen Webster that the growth comes as issuers look to reimagine their transaction and account experiences as payments economics and customer expectations are changing across the world.
Breaking down the business, Cahill noted that a third of the company’s VAS activity — across more than 250 products and services — is tied to helping client firms (including merchants) address the “pain points” of payments. “And two-thirds,” he added, “comes from helping our issuers move into great new areas of opportunity — to reframe their business and open up new revenue pools.”
And that’s aimed squarely at growing their Gen Z ranks.
Though banks typically generate the majority of their income from older and more financially established consumers, refocusing their product mix for younger cohorts a high priority. Particularly since they have more digital-first and digital only payments and banking options to choose from.
“Generation Z was born digitally native,” Cahill told Webster. “They’ve never known an experience without their handheld mobile devices — and their lives revolves around those devices.”
Today, the very definition of a customer experience revolves around that mobile form factor, and with that comes a different set of expectations of what a banking experience looks like. From Visa’s perspective that includes a more streamlined and secure way to move between different payments modalities — debit, credit, prepaid, installments — without having to jump between different schemes.
Making digital-first banking more than a talking point, Cahill said, means that banks must design — or retool — their products with that as a starting point. For instance, a mortgage application might start online, but end up being signed in a branch setting. That isn’t a consistent experience today and is very use-case specific, but very much reflects how consumers think about the how the physical experience just becomes another touch point on their digital journey.
Easier said than done, Cahill said, particularly since the vintage of most bank tech stacks is at least 40 years old.
“Banks are looking at their future technology needs, and they are looking for cloud-based infrastructure — and for composable solutions,” he told Webster.
A cornerstone of helping banks deliver that strategy is what Cahill describes as the strategic extension of Visa’s debit processing capabilities globally, the thesis behind the acquisition a year ago of cloud-banking platform Pismo. The acquisition gives Visa debit issuing and processing capabilities on a global scale and with it a set of capabilities that helps issuers move new products into markets more quickly.
Cahill points to the recent launch of the Flex Card — an all-in-one digital credential — as a recent proof point for how Visa DPS is helping banks do that. Visa DPS is the largest issuer processor in North America, something Cahill said is probably a well-kept Visa secret.
Cahill was brought in a year and a half ago to organize the portfolio of value-added services that had been developed or acquired over the years into a stand-alone business unit. Before joining Visa, he had been a VAS client as a top exec at two of Australia’s biggest issuers.
“[Visa’s] been structurally moving to ensure that our capabilities are available in as many markets, and that we operate as globally as possible,” said Cahill.
The 250 VAS offerings include everything from Verifi, which helps merchants prevent and resolve disputes and chargebacks, to open banking, through the company’s acquisition of Tink. Elsewhere, risk and authentication innovations help client firms regardless of payment rails and payment types.
“A VAS score can be used not just to score a Visa transaction — but a transaction that’s coming in from another rail or scheme,” he said, including real-time payments that use the RTP rails operated by The Clearing House.
Having both built and bought those technologies that Visa is in turn delivering to clients, Cahill noted that issuers are growing their competitive edge. It speaks to Visa’s take on the “buy, build or partner” debate that has become so important as FinTechs look to up level their game. According to Cahill, Visa carefully balances between developing solutions in-house, acquiring cutting-edge technologies and forming strategic partnerships. This approach has seen Visa make several key acquisitions over the years, including the purchases of Verifi, CyberSource and European open banking platform Tink, along with Pismo in June of 2022, enhancing the firm’s capabilities and expanding its market reach rapidly.
“We are very intentional about our approach,” Cahill said. “Building capabilities in-house is often our preference due to our robust engineering resources. However, acquiring external technologies or forming strategic partnerships are equally pivotal when they offer us a significant competitive edge or faster market entry.”
Like most companies in the financial services industry, Visa navigates a complex ecosystem where cooperation and competition often intersect. As Cahill noted, Visa frequently works closely with partners in some areas while competing with them in others.
This “coopetition” dynamic is exemplified by Visa’s acquisition of Pismo, which provides issuer processing and core banking capabilities that may compete with some of its existing FinTech partners. However, Cahill believes this approach benefits the broader payments ecosystem, emphasizing his belief that the industry is mature enough to understand these multifaceted relationships. The company positions its expanded capabilities, like the Visa Acceptance Platform, as tools that even competitors can leverage.
The diverse needs of Visa’s client base are met through the breadth and depth of the company’s offerings, said Cahill. Many issuers are also acquirers, he said, and so may opt to use facets of Visa’s Acceptance suite. And some operations — such as open banking platform Tink — are bringing new capabilities to new markets, such as the U.S. as it helps issuers create more efficient account to account on and off ramps.
There’s a metaphor to be gleaned, said Cahill, where the 250 VAS feature now part of Visa’s portfolio might be likened to a complete set of multivitamins. Or personal trainers. Tink and Pismo, he said, help Visa’s partners maintain “maximum fitness and improve their service levels and customer experience.”
The industry has “never moved faster,” he said. “It’s never been more competitive, and consumer expectations have never been higher.”
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