9 ms·

A History of Visa

324 points by joosters 7y ago

amaccuish 7y ago
I think this is the second part: http://minesafetydisclosures.com/blog/2019/7/23/part-ll-an-overview-of-visa http://minesafetydisclosures.com/blog/2019/7/23/part-ll-an-o...
- ian0 7y ago
  Everything about how they make money and the value of the business model is correct, but i'm not sure its the time to be bullish on schemes: - National switches are surely eroding domestic transaction volume in the markets where they are deployed - Im not aware of a schemes playing a central part in any of the big wallet based payment systems taking over POS - Non-bank / non-scheme pay later systems are growing extremely fast amongst younger demographics at least here in SEA - (Im guessing) that with increased financial literacy the profitability and popularity of credit cards is decreasing There have been some really interesting developments (Eg MC assisting international cash out for large marketplaces), but the core business isn't looking anywhere near as stable as it was 10 years ago.
  - 9nGQluzmnq3M 7y ago
    China is also an interesting example of a large, increasingly developed country where credit cards are barely used: they went straight to electronic payments with Alipay/WeChat Pay. There are a number of companies in SE Asia and India trying to replicate the model, and many are starting to get traction: PayTM, GrabPay, Gojek, etc.
    - MSD1976 7y ago
      As far as I know, most of these payment networks don't extend credit to customers in the same way that Visa's network enables. Consumer credit is a very powerful force that is often under-appreciated, and that benefits all parties involved in a transaction (e.g., consumers, merchants, and banks).
      - riffraff 7y ago
        I feel credit-cards-as-credit is mostly an American thing, basically everyone I know in Europe treats their card effectively as a debit one, the only difference being you could not rent a car with a debit one. Some people don't even know the difference and get surprised when their card cannot be used for some credit usages. (That is just my anecdotal evidence, of course)
        MSD1976 7y ago
        You're definitely right. Different countries have varying degrees of credit vs debit penetration. US skews more credit.
      - ian0 7y ago
        Yep. Typically the the role of credit facilities is supplied by a different class of app, eg. Klarna, Kredivo, Akulaku. Though the wallets are now providing their own, eg Alipays Check Later, Gojek & Ovos Paylater.
ian0 7y ago
Cant mention the history of Visa without mentioning Dee Hock [0], who analysed the ecosystem and deliberately structured it in a way where it could thrive despite the mixed incentives of all the parties that contribute to it [1]. This quote on why he resigned as CEO just as it was proven to be so successful: >> "It’s the organizational concepts and ideas that were essential. I merely came to symbolize them. Such organizations should be management-proof.” If you have dealt with large, completely incompetent organisations and wondered how the hell they actually keep going - theres your answer. If built correctly it's genuinely difficult to mess things up. [0] https://en.wikipedia.org/wiki/Dee_Hock https://en.wikipedia.org/wiki/Dee_Hock [1] https://www.fastcompany.com/27333/trillion-dollar-vision-dee-hock https://www.fastcompany.com/27333/trillion-dollar-vision-dee...
- billman 7y ago
  Agreed. I read his book as a young engineer, an I feel that this has really shaped how I view organisations and the forces that operate within them.
- MSD1976 7y ago
  I wanted to keep it very high-level so that a 10 year old could understand so unfortunately some things had to get left out; like Dee. I did link to his book as part of the further reading/resources at the bottom of the writeup though.
  - boldslogan 7y ago
    Thanks for the write-up. Liked the costco one too. Can I ask what the goal is for your page? There is no about page.
    - MSD1976 7y ago
      Glad you like it. No goal really, just a hobby to keep me busy.
      - santix 7y ago
ggm 7y ago
I was told the decision to use a one-time seeded cryptographic key to sign over the original card partners (when they adopted PKI) and then destroy the private key caused some ructions when the tech execs wanted to keep shards of the destroyed hardware in lucite: sombody was concerned key recovery would be possible.
tyingq 7y ago
Interesting site, cited by lots of sources as a good reference, especially the Costco post. But appears to be anonymous.
- MSD1976 7y ago
  Thanks, but I prefer to stay anonymous for now
  - vogtb 7y ago
    It's interesting (and great!) to see this level of research and attention to detail in a blog. Do you mind if I ask why? Are you gathering potential users for a product, service, or startup in this space?
    - MSD1976 7y ago
      Just a hobby so not really. I have some half-related product/service ideas but nothing concrete at the moment.
jakub_g 7y ago
While Visa and MasterCard are household names in the western world, there's a similar oligopoly (and similar history) in airline bookings system, which is largely unknown to people outside the domain. Majority of worldwide airline bookings go through Amadeus/Sabre/Travelport, who similarly get a cut on each transaction. (The GDS industry has long been thought to decline _just in a few years_ but for now it still stays rather strong - although big airlines are actively trying to get more independent). The net incomes are about order of magnitude lower than credit card industry, but that's still hundreds of millions per year.
- tyingq 7y ago
  Somewhat related, both VISA and the GDS providers have (or recently had) TPF mainframes at the core of their systems.
- massysett 7y ago
  I think airline bookings go through a GDS even if you buy direct from the airline, but why? Airline doesn’t want to build its own computer?
  - karthikb 7y ago
    Tech debt accumulation from the 1950's onwards to now basically. The GDS are integrated with everything from check-in, rebooking, ops center, etc. Lots of companies looking to change this, and some airlines have been able to modernize. But it's a fraught process that can lead to mass cancellations during the upgrade period as stuff breaks.
    - velosol 7y ago
      To whit - Southwest has moved (is moving still?) to Amadeus and there has been a fair amount of reporting on the issues as they happen. https://www.dallasnews.com/business/southwest-airlines/2018/01/24/southwest-airlines-wants-bugs-fixed-new-500-million-reservation-system https://www.dallasnews.com/business/southwest-airlines/2018/...
- 7y ago
russfink 7y ago
Why is this posted on a site about mine safety disclosures?
- MSD1976 7y ago
  The site isn't about mine safety disclosures—it's just a name. A quirky requirement that came out of Dodd-Frank is that ALL publicly traded companies are required to make a disclosure about mine safety, regardless of whether or not they even have mines. So if you look at Visa's 10-K, or Google's, or Chipotle's, they all have a line item for mine safety disclosures.
  - fabioborellini 7y ago
    Are the mines excavations or explosive devices?
    - MSD1976 7y ago
      The former
- elliekelly 7y ago
  I'm guessing it's a tongue-in-cheek nod at the requirement for Mine Safety Disclosures you'll often see as a blank section in company filings. It looks more like a finance/investment website. Edit: For example, page 45 of Apple's most recent 10Q https://www.sec.gov/ix?doc=/Archives/edgar/data/320193/000032019319000066/a10-qq220193302019.htm https://www.sec.gov/ix?doc=/Archives/edgar/data/320193/00003...
  - MSD1976 7y ago
    That is correct
    - elliekelly 7y ago
      Are you the blogger? Your site is great! You've got by far the most comprehensive collection of Hedge Fund quarterly letters I've ever seen.
careykong 7y ago
Is it possible for any decentralized currency to effectively remove the middle man and the fee associated with it or would it be more like the current credit system start using more efficient technologies that make transaction fees cheaper and we keep them around.
raylangivens 7y ago
Interesting stuff. I always knew of the different parties involved in a CC transaction, but this explained in a super simple way. Kudos. Weird that there is no about section and wth is the author ?
wffurr 7y ago
From the conclusion: >> These are the hallmarks of one of the best businesses on the planet. The "best business on the planet" is effectively a tax on economy growth? They don't even reinvest their profits - they return them to shareholders. So the value of the "best business on the planet" is that it takes a percentage of every transaction and funnels it into the personal wealth of Visa shareholders? That kind of platform business should really be run as a non-profit, and instead of paying dividends, should reduce processing fees to where it just covers operating costs and capex. Instead it sounds like it's just a driver of inequality simply because they have a captive market and no real competition. I suppose that's the "best business" under a very specific definition of best. But in terms of making the world a better place, I don't think so.
- rayiner 7y ago
  Building a worldwide payment network creates more transactions and more value than whatever profits Visa makes from it. If a non-profit version didn’t work as well, the loss in economic activity would more than offset whatever was saved in Visa shareholder profits.
- MSD1976 7y ago
  Don't under-appreciate the benefits of having a portable, globally-ubiquitous, safe, instant method of consumer credit that is accepted by millions of merchants. Imagine it's 1920 and you want to buy a sewing machine, which is 3 months salary. You could save up for years, during which time you're not able to sew any clothes. After you've finally saved enough, you walk over to the merchant with a wad of cash. On the way, you get robbed or lose the cash. Tough luck; no sewing machine, no money. And as for the merchant, they lose out on the sale until the time the customer has enough cash. But maybe the merchant is willing to let you spread the cost over time. Great, now you can afford the sewing machine earlier and the merchant can book the sale sooner. But now the merchant has to hire staff to process bills and collect payment, they have to asses how likely each customer is to repay, they have to physically mail invoices and then drop payment off at the bank, etc. And every time the customer wants to make a purchase, they have to go through the long approval process with each individual merchant they shop at. No one likes waiting in lines. Fast forward to Visa/Mastercard...customer walks into practically any store in the world, hands over a piece of plastic (or taps their phone), and walks out with any item. They get an instant, no-questions-asked personal loan. 1. Great for merchants because they reap all the benefits of extending credit (e.g., higher sales) without any of the credit risk/back-office headaches; 2. Great for customers because they can buy anything, anywhere, instantly, regardless of whether they have enough money in their account at that particular moment. And neither party has to worry much about fraud, losing money/getting mugged, getting ripped off, etc. This enables literally trillions of dollars of spend and economic growth. I think that's worth the ~$10b profit Visa makes.
activatedgeek 7y ago
Wow! This is really cool. Quite naturally, I started looking at how other major providers - Mastercard, Amex and Discover caught up to this interbank transaction labyrinth. Here's what I think after a quick look. - Mastercard seems to have been a direct response to the growing popularity and profits of BankAmericard. [1] It started about the same time (mid 1960-s) which probably explains its growth and ability to bring enough banks in its fold. - American Express was founded back in 1850 [2]. If I go by the original article, it appears Amex was not on the credit scene (certainly not the pioneer?) during the Americard boom. Do we know how it compensated and captured almost a quarter of the market in the US [2]? Second-mover advantage? - Discover is the "third largest credit card brand in the United States, when measured by cards in force, with nearly 50 million cardholders" [3]. Two key acquisitions may be explain this - Pulse (an interbank electronic funds transfer network) and Diners Club (the original daddy from the article). There is no citation the Pulse acquisition but I'd assume it is an old network. The Diners Club network probably was a healthy addition to their customer base outside the US. [1] https://en.wikipedia.org/wiki/Mastercard https://en.wikipedia.org/wiki/Mastercard [2] https://en.wikipedia.org/wiki/American_Express https://en.wikipedia.org/wiki/American_Express [3] https://en.wikipedia.org/wiki/Discover_Financial https://en.wikipedia.org/wiki/Discover_Financial
- MSD1976 7y ago
  Yes Mastercard was in response to the success of the BankAmericard. Banks were much more regional in the 1950s-1960s because of a federal law that prevented them from operating outside of their home state. Bank of America was the largest bank in the largest state (California), and had the most successful credit card program (the BankAmericard). When they began franchising the program to other banks, it made sense to concentrate their efforts in states near California. Mastercard (at the time known as Mastercharge) was formed in response by a bunch of East Coast banks. Re: Amex... they were big in the traveler's cheques business around the time that Diner's Club launched. Diner's Club proved the model, and Amex leveraged their extensive traveler's cheque network and wealthy user base to enter the market.
  - wiredfool 7y ago
punnerud 7y ago
In Norway all the banks come together and created BankAccept as an addition to VISA, where they put some extra information on the card and bypass all the VISA fees for usage in Norway. The other Scandinavian countries have done the same. Only if you pay online (with the credit card number) will the fee apply.
- williamDafoe 7y ago
  That's excellent. We have too many blood sucking financial people and they are draining the life out of the USA, producing nothing of lasting value! Credit cards are solved problem for the last 30 years. The fact that they take 3% to 4% of every transaction and then extract a usurious 20% annual interest rate at a time when loan rates are 4% should be criminally prosecuted. A 1% cut and 3% over prime rate interest rate (currently 5.5%) should be mandated by legislation!
  - ninju 7y ago
    The reason for the higher interest rate is due to loss and fraud costs. Traditional loans (car, house, HELOC, etc...) can have much lower rates because if there are assets that are put up as collateral (the car, house) that can be repossessed and re-sold by the bank; while in the case of most credit card purchases there is no recourse for the issuing bank to recover the money that owed to the merchant bank. As long as you live within your means (i.e. pay your balance off every month) a credit card can a convenient payment mechanism
  - opportune 7y ago
    Credit card loans aren't collateralized and can be spent on almost anything so the risk of default (without collecting the principal) is higher, at least in theory. Usually most consumer loans, like car or houses, are easily collateralized. Can't do that with a vacation to the bahamas
  - AnssiH 7y ago
    > The fact that they take 3% to 4% of every transaction and then extract a usurious 20% annual interest rate at a time when loan rates are 4% should be criminally prosecuted. The fees seem to vary a lot by region. Here in Finland majority of cards are VISA/MC (with no local version like described above for Norway), but the card-present merchant transaction fees are low - e.g. ~0.3% for EU consumer debit cards and ~0.9% for EU consumer credit cards.
williamDafoe 7y ago
(Error) Bank Americard actually changed their name because they wanted to expand internationally and having America in the name was not good in every country. That's precisely why they chose the name VISA. MasterCharge got started just a few years after Bank Americard. I feel like they probably changed their name to MasterCard just to respond to their competitor's name change....
- MSD1976 7y ago
  Sorry what's the error? Started by BankAmericard by Bank of America in CA only. They then franchised it to other banks in neighboring states, and eventually international banks (I believe under the BankAmericard brand, or under the other bank's brand). And then in the mid 1970s all the participating banks decided to rebrand under "VISA".
  - option_greek 7y ago
    Did Bank of America retain its original 0.5% agreement with the other banks when they spun off visa ? It seems odd that they would just give up an asset like that for other banks to own it.
forgotmysn 7y ago
for anyone who finds this interesting, I highly highly recommend the book One From Many by Dee Hock. It's the history of Visa, as told by its founder.
- MSD1976 7y ago
  Oddly I didn't like the book very much. Personally thought there were better books out there to understand the history.
akrauss 7y ago
The article shows that Visa is one of the first examples of a digital platform business: - Technology as an enabler - Creates value by standardized digital processes - Strong positive network effect - Stable revenue through transaction fees
kccqzy 7y ago
And funnily enough, recently even Bank of America started issuing MasterCard credit cards. The pioneering BankAmericard that started it all is now a MasterCard.
dredmorbius 7y ago
The Diner's Club origin story is a myth. Unsecured credit lending actually originated with retail department stores. Louis Hyman covers this story in Debtor Nation: The History of America in Red Ink (Princeton UP, 2011). https://www.worldcat.org/title/debtor-nation-the-history-of-america-in-red-ink/oclc/903322856 https://www.worldcat.org/title/debtor-nation-the-history-of-... New Books in Economics podcast interview (Duration: 50:26): Published: Fri, 04 Mar 2011 22:58:43 -0000 Media: https://traffic.megaphone.fm/LIT7526154990.mp3 https://traffic.megaphone.fm/LIT7526154990.mp3 Podcast: https://www.podcastrepublic.net/podcast/425187524 https://www.podcastrepublic.net/podcast/425187524
- MSD1976 7y ago
  No myth. It was the first CARD and line of credit that could be used at multiple merchants. Prior to that, you had a line of credit with each individual merchant.
wodenokoto 7y ago
Part 2: http://minesafetydisclosures.com/blog/2019/7/23/part-ll-an-overview-of-visa http://minesafetydisclosures.com/blog/2019/7/23/part-ll-an-o...

324 points by joosters 7y ago

I think this is the second part: http://minesafetydisclosures.com/blog/2019/7/23/part-ll-an-overview-of-visa http://minesafetydisclosures.com/blog/2019/7/23/part-ll-an-o...

ian0 7y ago
Everything about how they make money and the value of the business model is correct, but i'm not sure its the time to be bullish on schemes: - National switches are surely eroding domestic transaction volume in the markets where they are deployed - Im not aware of a schemes playing a central part in any of the big wallet based payment systems taking over POS - Non-bank / non-scheme pay later systems are growing extremely fast amongst younger demographics at least here in SEA - (Im guessing) that with increased financial literacy the profitability and popularity of credit cards is decreasing There have been some really interesting developments (Eg MC assisting international cash out for large marketplaces), but the core business isn't looking anywhere near as stable as it was 10 years ago.
- 9nGQluzmnq3M 7y ago
  China is also an interesting example of a large, increasingly developed country where credit cards are barely used: they went straight to electronic payments with Alipay/WeChat Pay. There are a number of companies in SE Asia and India trying to replicate the model, and many are starting to get traction: PayTM, GrabPay, Gojek, etc.
  - MSD1976 7y ago
    As far as I know, most of these payment networks don't extend credit to customers in the same way that Visa's network enables. Consumer credit is a very powerful force that is often under-appreciated, and that benefits all parties involved in a transaction (e.g., consumers, merchants, and banks).
    - riffraff 7y ago
      I feel credit-cards-as-credit is mostly an American thing, basically everyone I know in Europe treats their card effectively as a debit one, the only difference being you could not rent a car with a debit one. Some people don't even know the difference and get surprised when their card cannot be used for some credit usages. (That is just my anecdotal evidence, of course)
      - MSD1976 7y ago
        You're definitely right. Different countries have varying degrees of credit vs debit penetration. US skews more credit.
    - ian0 7y ago
      Yep. Typically the the role of credit facilities is supplied by a different class of app, eg. Klarna, Kredivo, Akulaku. Though the wallets are now providing their own, eg Alipays Check Later, Gojek & Ovos Paylater.

ian0 7y ago

Cant mention the history of Visa without mentioning Dee Hock [0], who analysed the ecosystem and deliberately structured it in a way where it could thrive despite the mixed incentives of all the parties that contribute to it [1]. This quote on why he resigned as CEO just as it was proven to be so successful: >> "It’s the organizational concepts and ideas that were essential. I merely came to symbolize them. Such organizations should be management-proof.” If you have dealt with large, completely incompetent organisations and wondered how the hell they actually keep going - theres your answer. If built correctly it's genuinely difficult to mess things up. [0] https://en.wikipedia.org/wiki/Dee_Hock https://en.wikipedia.org/wiki/Dee_Hock [1] https://www.fastcompany.com/27333/trillion-dollar-vision-dee-hock https://www.fastcompany.com/27333/trillion-dollar-vision-dee...

billman 7y ago
Agreed. I read his book as a young engineer, an I feel that this has really shaped how I view organisations and the forces that operate within them.
MSD1976 7y ago
I wanted to keep it very high-level so that a 10 year old could understand so unfortunately some things had to get left out; like Dee. I did link to his book as part of the further reading/resources at the bottom of the writeup though.
- boldslogan 7y ago
  Thanks for the write-up. Liked the costco one too. Can I ask what the goal is for your page? There is no about page.
  - MSD1976 7y ago
    Glad you like it. No goal really, just a hobby to keep me busy.
    - santix 7y ago

ggm 7y ago

I was told the decision to use a one-time seeded cryptographic key to sign over the original card partners (when they adopted PKI) and then destroy the private key caused some ructions when the tech execs wanted to keep shards of the destroyed hardware in lucite: sombody was concerned key recovery would be possible.

tyingq 7y ago

Interesting site, cited by lots of sources as a good reference, especially the Costco post. But appears to be anonymous.

MSD1976 7y ago
Thanks, but I prefer to stay anonymous for now
- vogtb 7y ago
  It's interesting (and great!) to see this level of research and attention to detail in a blog. Do you mind if I ask why? Are you gathering potential users for a product, service, or startup in this space?
  - MSD1976 7y ago
    Just a hobby so not really. I have some half-related product/service ideas but nothing concrete at the moment.

jakub_g 7y ago

While Visa and MasterCard are household names in the western world, there's a similar oligopoly (and similar history) in airline bookings system, which is largely unknown to people outside the domain. Majority of worldwide airline bookings go through Amadeus/Sabre/Travelport, who similarly get a cut on each transaction. (The GDS industry has long been thought to decline _just in a few years_ but for now it still stays rather strong - although big airlines are actively trying to get more independent). The net incomes are about order of magnitude lower than credit card industry, but that's still hundreds of millions per year.

tyingq 7y ago
Somewhat related, both VISA and the GDS providers have (or recently had) TPF mainframes at the core of their systems.
massysett 7y ago
I think airline bookings go through a GDS even if you buy direct from the airline, but why? Airline doesn’t want to build its own computer?
- karthikb 7y ago
  Tech debt accumulation from the 1950's onwards to now basically. The GDS are integrated with everything from check-in, rebooking, ops center, etc. Lots of companies looking to change this, and some airlines have been able to modernize. But it's a fraught process that can lead to mass cancellations during the upgrade period as stuff breaks.
  - velosol 7y ago
    To whit - Southwest has moved (is moving still?) to Amadeus and there has been a fair amount of reporting on the issues as they happen. https://www.dallasnews.com/business/southwest-airlines/2018/01/24/southwest-airlines-wants-bugs-fixed-new-500-million-reservation-system https://www.dallasnews.com/business/southwest-airlines/2018/...
7y ago

russfink 7y ago

Why is this posted on a site about mine safety disclosures?

MSD1976 7y ago
The site isn't about mine safety disclosures—it's just a name. A quirky requirement that came out of Dodd-Frank is that ALL publicly traded companies are required to make a disclosure about mine safety, regardless of whether or not they even have mines. So if you look at Visa's 10-K, or Google's, or Chipotle's, they all have a line item for mine safety disclosures.
- fabioborellini 7y ago
  Are the mines excavations or explosive devices?
  - MSD1976 7y ago
    The former
elliekelly 7y ago
I'm guessing it's a tongue-in-cheek nod at the requirement for Mine Safety Disclosures you'll often see as a blank section in company filings. It looks more like a finance/investment website. Edit: For example, page 45 of Apple's most recent 10Q https://www.sec.gov/ix?doc=/Archives/edgar/data/320193/000032019319000066/a10-qq220193302019.htm https://www.sec.gov/ix?doc=/Archives/edgar/data/320193/00003...
- MSD1976 7y ago
  That is correct
  - elliekelly 7y ago
    Are you the blogger? Your site is great! You've got by far the most comprehensive collection of Hedge Fund quarterly letters I've ever seen.

careykong 7y ago

Is it possible for any decentralized currency to effectively remove the middle man and the fee associated with it or would it be more like the current credit system start using more efficient technologies that make transaction fees cheaper and we keep them around.

raylangivens 7y ago

Interesting stuff. I always knew of the different parties involved in a CC transaction, but this explained in a super simple way. Kudos. Weird that there is no about section and wth is the author ?

wffurr 7y ago

From the conclusion: >> These are the hallmarks of one of the best businesses on the planet. The "best business on the planet" is effectively a tax on economy growth? They don't even reinvest their profits - they return them to shareholders. So the value of the "best business on the planet" is that it takes a percentage of every transaction and funnels it into the personal wealth of Visa shareholders? That kind of platform business should really be run as a non-profit, and instead of paying dividends, should reduce processing fees to where it just covers operating costs and capex. Instead it sounds like it's just a driver of inequality simply because they have a captive market and no real competition. I suppose that's the "best business" under a very specific definition of best. But in terms of making the world a better place, I don't think so.

rayiner 7y ago
Building a worldwide payment network creates more transactions and more value than whatever profits Visa makes from it. If a non-profit version didn’t work as well, the loss in economic activity would more than offset whatever was saved in Visa shareholder profits.
MSD1976 7y ago
Don't under-appreciate the benefits of having a portable, globally-ubiquitous, safe, instant method of consumer credit that is accepted by millions of merchants. Imagine it's 1920 and you want to buy a sewing machine, which is 3 months salary. You could save up for years, during which time you're not able to sew any clothes. After you've finally saved enough, you walk over to the merchant with a wad of cash. On the way, you get robbed or lose the cash. Tough luck; no sewing machine, no money. And as for the merchant, they lose out on the sale until the time the customer has enough cash. But maybe the merchant is willing to let you spread the cost over time. Great, now you can afford the sewing machine earlier and the merchant can book the sale sooner. But now the merchant has to hire staff to process bills and collect payment, they have to asses how likely each customer is to repay, they have to physically mail invoices and then drop payment off at the bank, etc. And every time the customer wants to make a purchase, they have to go through the long approval process with each individual merchant they shop at. No one likes waiting in lines. Fast forward to Visa/Mastercard...customer walks into practically any store in the world, hands over a piece of plastic (or taps their phone), and walks out with any item. They get an instant, no-questions-asked personal loan. 1. Great for merchants because they reap all the benefits of extending credit (e.g., higher sales) without any of the credit risk/back-office headaches; 2. Great for customers because they can buy anything, anywhere, instantly, regardless of whether they have enough money in their account at that particular moment. And neither party has to worry much about fraud, losing money/getting mugged, getting ripped off, etc. This enables literally trillions of dollars of spend and economic growth. I think that's worth the ~$10b profit Visa makes.

activatedgeek 7y ago

Wow! This is really cool. Quite naturally, I started looking at how other major providers - Mastercard, Amex and Discover caught up to this interbank transaction labyrinth. Here's what I think after a quick look. - Mastercard seems to have been a direct response to the growing popularity and profits of BankAmericard. [1] It started about the same time (mid 1960-s) which probably explains its growth and ability to bring enough banks in its fold. - American Express was founded back in 1850 [2]. If I go by the original article, it appears Amex was not on the credit scene (certainly not the pioneer?) during the Americard boom. Do we know how it compensated and captured almost a quarter of the market in the US [2]? Second-mover advantage? - Discover is the "third largest credit card brand in the United States, when measured by cards in force, with nearly 50 million cardholders" [3]. Two key acquisitions may be explain this - Pulse (an interbank electronic funds transfer network) and Diners Club (the original daddy from the article). There is no citation the Pulse acquisition but I'd assume it is an old network. The Diners Club network probably was a healthy addition to their customer base outside the US. [1] https://en.wikipedia.org/wiki/Mastercard https://en.wikipedia.org/wiki/Mastercard [2] https://en.wikipedia.org/wiki/American_Express https://en.wikipedia.org/wiki/American_Express [3] https://en.wikipedia.org/wiki/Discover_Financial https://en.wikipedia.org/wiki/Discover_Financial

MSD1976 7y ago
Yes Mastercard was in response to the success of the BankAmericard. Banks were much more regional in the 1950s-1960s because of a federal law that prevented them from operating outside of their home state. Bank of America was the largest bank in the largest state (California), and had the most successful credit card program (the BankAmericard). When they began franchising the program to other banks, it made sense to concentrate their efforts in states near California. Mastercard (at the time known as Mastercharge) was formed in response by a bunch of East Coast banks. Re: Amex... they were big in the traveler's cheques business around the time that Diner's Club launched. Diner's Club proved the model, and Amex leveraged their extensive traveler's cheque network and wealthy user base to enter the market.
- wiredfool 7y ago

punnerud 7y ago

In Norway all the banks come together and created BankAccept as an addition to VISA, where they put some extra information on the card and bypass all the VISA fees for usage in Norway. The other Scandinavian countries have done the same. Only if you pay online (with the credit card number) will the fee apply.

williamDafoe 7y ago
That's excellent. We have too many blood sucking financial people and they are draining the life out of the USA, producing nothing of lasting value! Credit cards are solved problem for the last 30 years. The fact that they take 3% to 4% of every transaction and then extract a usurious 20% annual interest rate at a time when loan rates are 4% should be criminally prosecuted. A 1% cut and 3% over prime rate interest rate (currently 5.5%) should be mandated by legislation!
- ninju 7y ago
  The reason for the higher interest rate is due to loss and fraud costs. Traditional loans (car, house, HELOC, etc...) can have much lower rates because if there are assets that are put up as collateral (the car, house) that can be repossessed and re-sold by the bank; while in the case of most credit card purchases there is no recourse for the issuing bank to recover the money that owed to the merchant bank. As long as you live within your means (i.e. pay your balance off every month) a credit card can a convenient payment mechanism
- opportune 7y ago
  Credit card loans aren't collateralized and can be spent on almost anything so the risk of default (without collecting the principal) is higher, at least in theory. Usually most consumer loans, like car or houses, are easily collateralized. Can't do that with a vacation to the bahamas
- AnssiH 7y ago
  > The fact that they take 3% to 4% of every transaction and then extract a usurious 20% annual interest rate at a time when loan rates are 4% should be criminally prosecuted. The fees seem to vary a lot by region. Here in Finland majority of cards are VISA/MC (with no local version like described above for Norway), but the card-present merchant transaction fees are low - e.g. ~0.3% for EU consumer debit cards and ~0.9% for EU consumer credit cards.

williamDafoe 7y ago

(Error) Bank Americard actually changed their name because they wanted to expand internationally and having America in the name was not good in every country. That's precisely why they chose the name VISA. MasterCharge got started just a few years after Bank Americard. I feel like they probably changed their name to MasterCard just to respond to their competitor's name change....

MSD1976 7y ago
Sorry what's the error? Started by BankAmericard by Bank of America in CA only. They then franchised it to other banks in neighboring states, and eventually international banks (I believe under the BankAmericard brand, or under the other bank's brand). And then in the mid 1970s all the participating banks decided to rebrand under "VISA".
- option_greek 7y ago
  Did Bank of America retain its original 0.5% agreement with the other banks when they spun off visa ? It seems odd that they would just give up an asset like that for other banks to own it.

forgotmysn 7y ago

for anyone who finds this interesting, I highly highly recommend the book One From Many by Dee Hock. It's the history of Visa, as told by its founder.

MSD1976 7y ago
Oddly I didn't like the book very much. Personally thought there were better books out there to understand the history.

akrauss 7y ago

The article shows that Visa is one of the first examples of a digital platform business: - Technology as an enabler - Creates value by standardized digital processes - Strong positive network effect - Stable revenue through transaction fees

kccqzy 7y ago

And funnily enough, recently even Bank of America started issuing MasterCard credit cards. The pioneering BankAmericard that started it all is now a MasterCard.

dredmorbius 7y ago

The Diner's Club origin story is a myth. Unsecured credit lending actually originated with retail department stores. Louis Hyman covers this story in Debtor Nation: The History of America in Red Ink (Princeton UP, 2011). https://www.worldcat.org/title/debtor-nation-the-history-of-america-in-red-ink/oclc/903322856 https://www.worldcat.org/title/debtor-nation-the-history-of-... New Books in Economics podcast interview (Duration: 50:26): Published: Fri, 04 Mar 2011 22:58:43 -0000 Media: https://traffic.megaphone.fm/LIT7526154990.mp3 https://traffic.megaphone.fm/LIT7526154990.mp3 Podcast: https://www.podcastrepublic.net/podcast/425187524 https://www.podcastrepublic.net/podcast/425187524

MSD1976 7y ago
No myth. It was the first CARD and line of credit that could be used at multiple merchants. Prior to that, you had a line of credit with each individual merchant.

wodenokoto 7y ago

Part 2: http://minesafetydisclosures.com/blog/2019/7/23/part-ll-an-overview-of-visa http://minesafetydisclosures.com/blog/2019/7/23/part-ll-an-o...