The Surprising Truth About Visa Inc and MasterCard Inc

Recently, The Motley Fool's Matt Koppenheffer interviewed Jason Oxman, the CEO of Electronic Transactions Association.

Oxman has decades of experience as he's worked as the senior vice president of industry affairs at the Consumer Electronics Association, as well as general counsel for the Association for Local Telecommunications Services and vice president at Covad Communications Company. His past and current experiences give him great ability to analyze the climate of the payments technology industry and gauge its evolutionary movements into alternative payments.

In the following video, Matt and Jason delve into the international payments industry and the use of independent sales organizations to further adoptions rates.

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Matt Koppenheffer: One of the things that I've heard as well is the market in the U.S. -- and I'm learning a lot while I'm here, in addition to what I already know -- but the independent sales organizations; the folks that go out and acquire merchants, who aren't running a processing network, that aren't Visa, that aren't MasterCard, that's very prevalent, that's very big here in the U.S. But most of the acquisitions overseas happen through banks.

Jason Oxman: Right.

Koppenheffer: It sounds like that's starting to change, maybe a little bit in Europe before everywhere else. Is that one of the triggers that will increase international adoption, having more ISOs overseas as well?

Oxman: Yes, I think the ISO market, which has grown up and is very mature here in the U.S., is the reason that credit card acceptance is so ubiquitous here in the U.S.

You noted Visa and MasterCard, for example; they operate networks. They are not card issuers, and they do not acquire merchants. They are the network operator, so they do not have direct relationships with the 8 million merchants in the U.S. who accept electronic payments.

It's the ISOs that have those relationships, and there are a large numbers of ISOs in the U.S., many of whom are members of ETA -- we are the ISO trade association, so we represent the ISO industry -- and that ubiquity of ISOs here in the U.S. is why merchants have access to those payment networks.

As you noted, outside of the U.S., ISOs are very rare and, in fact, the way most credit card markets -- in Europe, for example -- grew up was with those state-sponsored, or state-owned, or state-endorsed banks that actually act as the acquirer for merchants, giving merchants access.

In a country that may have, certainly, not as many merchants as there are in the U.S., but may have hundreds of thousands or millions of merchants, the banks don't have the resources to provide service to each of them, so ISOs partnering with financial institutions in Europe ...

We've seen some great companies; EVO is a great company, a New York-based company which is expanding globally, particularly aggressive in Europe because of the opportunity for ISOs to partner with financial institutions and provide service to merchants in Europe, to give them the access they don't currently have to the payment networks.

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  • Report this Comment On May 23, 2014, at 12:27 AM, PhilipCohen wrote:

    “I think the ISO market, which has grown up and is very mature here in the U.S., is the reason that credit card acceptance is so ubiquitous here in the U.S.”

    As a generalization that statement is simply nonsense! You may find it hard to believe but there are no “unbanked” adults in Australia, for a start; literally, everyone has at least an ATM card to access their “banked” funds—even the homeless …

    And from where do you think both the Visa and MasterCard systems originated, or were the property of before their IPOs? A consortium of retail banks! Both these systems were created to service these original “bankcards”, the payments/credit system that eventually killed off the earlier individual in-store credit systems and eventually replaced many cash transactions. Only Amex has so far managed to survive the “bankcard” onslaught, albeit doing only about one-tenth of the business done by MasterCard+Visa; Diners Club, the original credit card, now has ~0.4% of the market …

    Yes, unlike the rest of the world, the US payments industry appears to have a plethora of middleman sucking on its teats—and is that going to reduce or increase the cost to the consumer? Regardless, unless you start keeping your money under the bed, there will always be a retail bank at either end of every transaction—unless you are a small merchant or simply silly enough to be using eBay’s clunky “PreyPal” for receiving payments and you are then leaving your received funds “on deposit” with this uninsured, unregulated, clunky, eBay faux “bank”.

    If I was an ISO I would be fearful of the retail banks eventually looking to cut me out of the loop, just as Visa’s “” and MasterCard’s “MasterPass” digital wallets will undoubtedly eventually cut Johnny Ho’s clunky “PreyPal” operation out of the online loop; PreyPal’s venture into off-line payments is simply too absurd to contemplate—LOL …

    eBay Inc, where the incompetent mingle with the malevolent and the criminal …

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Matt Koppenheffer

Matt is the Managing Director of The Motley Fool GmbH, The Fool's German business. Besuch uns bei!

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