VISA Inc. is one of the most dominant and recognized players among digital payment brands, all around the globe. It is known for providing transactions between consumers, banks, financial institutions, governments and businesses. VISA helps its consumers make fast, reliable and secure electronic payments all over the world.
In this business case study, we will be looking at the business model of VISA including how credit card payment processing works and then we’ll look at its Product and Services, Money Making Process, Revenue System, Marketing Strategy, Value proposition, Market Share and at last analysis about its Competitors.
Now before diving into the Business model of VISA, Let’s quickly learn about it as a financial services corporation.
About Visa
Visa Inc. is a multinational financial services corporation, founded by Dee hock in the year 1958. It is headquartered in Foster City, California, United States.
It was launched as the BankAmericard credit card program which was a strong campaign against the competitor Master Charge (presently Mastercard). The facilities are highly secured and insured against natural disasters crimes and terrorism. They can be operated independently without the help of external utilities also they can handle up to 30,000 simultaneously transactions and up to 100 billion compulsions each second.
An interesting fact about visa is that they do not issue cards, extend credit, or set rates, and fees for consumers. They provide renowned financial institutions with Visa-branded payment products that they then use to offer credit, debit, prepaid and cash access programs to their customers.
Presently, they are established across all over the world and nearly all visa transactions are processed through companies directly operated VisaNet at one of four secure data centres.
Based on the annual value of card payments transacted and the number of issued cards, In 2015 China UnionPay was surpassed by Visa and became the world’s second-largest card payment organization.
Now, we can dive to the beginning of the business model that is the working of the visa credit card payment process.
Business Model Of Visa
VISA operates and serves in a two-sided market. On one end, it caters to the cardholders, issuers and issuer processors and on the other end, it works for the businesses or merchants, acquirers and acquirer processors.
Visa classifies the banks and financial institutions as Issuers or Acquirers. Visa never issues cards to its cardholders & does not solicit business owners to accept its cards. These are the responsibilities undertaken by the issuer and the acquirers respectively.
A typical VISA transaction looks like this:-
- Cardholders are the individuals who possess a Visa payment card.
- Merchants are the businesses that accept Visa cards as payment from Cardholders.
- The financial institutions that issue Visa cards for the cardholders to use are known as Issuers.
- Issuer Processors are institutions that have the technological infrastructure to handle transaction processing for Issuers.
- The job of the issuer or issuer processor is to carry out a series of enquiry into its account systems to:-
- Assess the potential risk of fraud
- Look at that, the account has a good history of transactions
- Verify if the cardholder has sufficient credit for the transaction
- Based on all these enquiries, the Issuer stands to approve or deny the transaction and thus create an authorization response message for VISA.
- VISA then transfers the authorization response to the acquirer.
- Acquirers are the financial institutions that convince merchants to accept visa cards. They offer benefits such as merchant discounts.
- Acquirer Processors are institutions that possess the required technological infrastructure used to handle transaction processing which is done for the acquirers.
- The acquirer or the acquirer processor transfers the respective results to the merchant/business terminal.
- In case a sufficient balance is available, the payment is accepted and the transaction is successful.
- The issuer bills the cardholder monthly, for all his transactions.
A wide variety of products and services are available at VISA Inc., let’s have a keen understanding about the same in the next section of the business model of Visa.
Products and Services provided by Visa
Visa is globally known for its credit cards, which are used by millions of consumers. But apart from that, they provide an unusually broad range of services which include:-
- They do the authorization, clearing, and accounts settlement services for financial institutions and businesses availing their services.
- Providing credit, debit, and prepaid card services to its consumers as well as different businesses.
Products:
- Visa-branded Credit cards
- Debit cards
- Commercial Cards
- Prepaid Cards
- Mobile and Money Transfer products.
Services:
- Authorization
- Clearing & Settlement services
- Mobile Financial services
- Mobile Payments
- Money Transfer
- Top-up services
There’s a lot to learn from the money-making process of financial institutions, we’ll go through that in depth.
Money Making Process of Visa
Visa makes money from the transaction fees it charges to its merchants or businesses. For Example, imagine a ₹1000 payment from a cardholder to the merchant. In case the merchant fee is 3%, the merchant would get ₹970 from the transaction.
The balance of ₹30 would then get unevenly split between the issuer and acquirer, depending upon the decided interchange fee. In case the interchange fee is 2%, the issuer will keep ₹20 and the acquirer will keep ₹10. The issuer is known to keep the larger percentage of the merchant fee because of a higher risk of payment default from the side of the cardholder.
VISA makes money on payment volumes, value-added services and transaction processing. It also offers various value-added services. Risk management, loyalty services, debit issuer processing, dispute management, etc are some of them.
Now, let’s take a look at the revenue streams and the popular Four-party payment model.
Revenue Streams of Visa
Visa capture value through these revenue streams, which is also known as, “The Four-party payment model”.
- Service Revenues acquired from banks for their participation.
- Data Processing Revenues for the processes of authorization, clearing, settlement, and transaction processing services.
- International Revenues are from transactions where the cardholder and the merchant or business belong to two different countries.
- Other forms of revenue could be generated through fees for the usage of the Visa brand, account holder service fee, certifications and other licensing.
To create value, VISA has built a global processing infrastructure which is consisted of multiple synchronized processing centres. These are designed and engineered to act as interlinks and to reduce redundancy. Managing payment transactions and the interlinked networks is one of the fundamental roles & services of VISA operations to ensure a safe, efficient and consistent service to the cardholders, banks & businesses.
Moving up next in the business model of Visa, we have their marketing strategy.
Marketing Strategy of Visa
Visa is a technology-driven company and it makes use of various factors such as geographic, psychographic and demographic factors to segment its target audience. They use selective segmentation to target potential consumers. Usually targeting someone with an income to spend and people who need credit.
Visa approaches its target audience through the medium of banks and financial institutions.
Although a visa is a B2B kind of enterprise, no direct relationship with users and merchant implements no specific need for marketing and PR. Nevertheless, they still urge to create trust in consumers by the objective of taking part in consumer advertising regularly.
Through its expansion, VISA works with almost every existing Bank present across the globe. With their utility, they enable power to accomplish greater things from the same attributes of money.
The value proposition is an essential element in the business model of Visa, let’s quickly move to the same.
Value Proposition of Visa
Visa boosts its ability to be secure and convenient for its consumers. Visa improves accessibility through its products and services. It connects consumers and businesses across more than 200 countries and conducts over 150 million transactions per day.
Their vision is to be the best way to pay and be paid for everyone, everywhere and so their tagline conveys “Everywhere you want to be”.
The majority of customers of Visa are of the age group 20 to 40 and the most transaction takes place under the B2C segment and B2B segment for various diversified industries.
Visa is known for its mass marketing, through traditional and Digital Ads. Digital Marketing also plays an important role in this new era of marketing for Visa. Visa has acknowledged the power of digital medium for its marketing efforts & has well-versed leaders and executives to run its marketing operations at all given levels along with its traditional & well reputed & renowned efforts in their traditional marketing techniques & mediums.
Now, we’ll study about the Market Share of Visa.
As of 2020, Visa holds a 45% market share and Rupay holds a 20% market share. And MasterCard’s market share is 35%.
n the USA, the home country of Visa Inc, it is one of the four biggest U.S. credit card networks among Mastercard, American Express & Discover. For the year 2020, Visa’s credit payment in the USA was 1.97 trillion dollars.
There are an estimated 343 million Visa cards inside the USA & over 798 million outside the USA.
The last segment in the business model of Visa, we have its Competitor’s analysis.
Competitors of Visa
In India, Visa has existed for a long time & has earned popularity, reputation & profits across its time being, but now as the times have changed, our nation has come up with its own native and homegrown payment companies & the government has incentivized these local mechanisms. Hence, these UPI based transactions are fetching popularity among consumers as well as businesses both small & big.
Along with local competitors, there are other global competitors, Mastercard, American Express, Discover, PayPal & JP Morgan Chase which are upcoming competitors for Visa. Visa stands strong against its global competitors in all of its existing nations due to its reputation & business practices. Facing competition locally as well as globally in the Indian market, Visa is at a critical stage in its business stage.
Also, homegrown brands such as RuPay are been promoting aggressively. Due to emerging digital payments such as BHIM UPI, Paytm, GPay, etc Visa is facing strong competition in this structure of digital payments.
Conclusion
We are now well aware that Visa holds a strong 45% market share in India and still holds strong against the new upcoming digital payments brands in India. Visa held its grasp due to its marketing strategy and incentivized model of business and now its efforts in the digital marketing era.
Like Visa, all other companies are well aware of the benefits & importance of integrating Digital Marketing practices in their business practices. Also, Digital Marketing Jobs are expected to rise enormously in the next few years.
So, we also now know that Digital Marketing skills are gaining importance in today’s corporate world. You can learn these digital marketing skills too, with our Short term certification courses in Digital Marketing.
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