Visa made a splash in the tech circle last week when it announced it was acquiring e-payment, risk management and payment security solutions provider CyberSource for $2 billion. The credit card giant didn’t bat an eye at paying nearly 7x trailing revenue and over a 33% premium ($26 per share) on CyberSource’s previous day stock price. We have written quite a bit about electronic and mobile payments and there is no doubt the sector is extremely hot right now.
There are a number of reasons why Visa has decided to enter the e-payment realm with its acquisition of CyberSource. These reasons also serve as clues to where the future of payment technology is heading.
- The acquisition will allow Visa to gain a foothold in the increasingly competitive electronic and mobile payments market. As the payment market continues to expand almost daily, Visa is putting itself in prime position to utilize its already-established brand reputation. There are a huge number of electronic and mobile payment services popping up, many of them start-ups, that do not have the brand trustworthiness and recognition that Visa has built over the years. Probably the largest competitor in the market currently, eBay’s PayPal significantly expanded its global presence in 2009, processing more than $20 billion in transactions in Q4, and continues to grow through supporting a variety of currencies and offering developers use of its API. On the other end, start-ups — specifically mobile startups — are continuing to rake in venture capital investments, such as Matrix Partner’s recent $15 million investment in Zong, and Boku’s $25 million round led by DAG Ventures in January, and are proving to be another source of competition.
- CyberSource’s risk management and payment security services will boost Visa’s ability to detect fraud and points of compromise where card users’ information could potentially be stolen. Visa absolutely has a focus on security with this acquisition, specifically with CyberSource’s secure payment data hosting solutions, a growing need for merchants. The acquisition provides both companies with the resources to help merchants increase revenue through global growth while minimizing monetary loss from fraud. Customer information security is extremely important, especially when it comes to credit card and banking information. Although in a somewhat different vein, Blippy, a site for socially sharing credit card transactions, accidentally allowed users’ credit card information to slip into Google search results, which resulted in huge media backlash and a major overhaul of the company’s security practices. This shows the challenges that startups, which promise users privacy and security, can still make mistakes, and that protecting users information remains extremely important.
- The last, and some might argue, most important point is that the acquisition of CyberSource could be used to help fend off future potential competition from the increasingly influential mobile-powerhouse Apple. Recent news that the iPhone giant has applied for patents for near-field communication (NFC) chips for future models of the iPhone brings with it the prospect that Apple is about to change the landscape for another industry — banking. A recent American Banker article suggested that Apple could eventually forgo the need of banks all together and route users payments through its iTunes payment system. With the addition of NFC, iPhones could become mobile wallets, store payment card accounts and function as contactless credit or debit cards, which could be trouble for traditional banks and credit card companies. Apple already has agreements with companies such as Starbucks, where customers can order from and use their iPhones to pay (although the payment is linked to a prepaid card). Still, the options are increasingly endless.
The industry is still a few years away from mobile payments going truly mainstream, but there is certainly plenty of steam pushing this new technology forward. The U.N. estimated that 5 billion people worldwide will use cell phones this year. As smartphones become more popular and less costly, their adoption rate is set to rise as well, allowing for increased availability of mobile and e-payment options. There is no doubt payment technology will continue to grow in popularity — the question is: who will be the one to start the revolution?