What Could Visa Inc's New Product Mean To the Payments Industry?

Visa (NYSE: V  ) and its rivals realize that while online shopping can be much more convenient that driving to a store, no one has quite figured out a way to make paying by credit card online or in a mobile app as easy as swiping your card at a point-of-sale terminal.

It's a pain to have to take your credit card out of your wallet and type in the numbers, especially in mobile apps, not to mention the feeling of vulnerability that comes with typing your card number, expiration date, and security code.

Hoping to change that, Visa has introduced a new product called Visa Checkout, which is intended to be a digital representation of your Visa card.

The idea is that a seamless, quick and painless payment experience will make more customers choose to use Visa-branded cards when shopping.

How will it compete with a similar product from rival MasterCard (NYSE: MA  ) , and will American Express (NYSE: AXP  ) come up with something similar? And what company has the most to lose here?

The idea behind Visa Checkout
Essentially, Visa's checkout is the most comprehensive way yet for customers to pay with a credit card in one single step.

Source: company

Customers create an account with Visa and store the information from their cards, as well as shipping information, so they literally will have to enter no personal information when shopping.

Then, when shopping on a participating merchant's website or app with the Visa Checkout button (above), all that is needed is a username and password, and Visa Checkout does the rest.

And security is a big priority for Visa.

When you check out, a thumbnail of your own Visa card shows up next to the checkout button for authentication. Visa's senior VP of digital solutions Sam Shrauger said the company will work hard to provide the best security possible to Visa Checkout users.

MasterCard and Amex's efforts
Visa might be a little late to the party here.

MasterCard recently launched its MasterPass product which is now up and running in 10 countries, and provides similar functions as Visa Checkout. In fact, MasterPass also seems more useful in some ways, as it is a "full digital wallet" while Visa Checkout is simply a digital representation of your credit card.

In addition to your credit card and shipping information, MasterPass also lets you store loyalty and rewards cards. And, it is worth noting, both companies' products work with any major credit cards, not just their own.

American Express has not come up with its own digital checkout service, but is definitely heading in that direction.

The company's recent partnership with car service Uber lets users pay for rides in Uber's mobile app with their American Express rewards points. So, it appears that American Express is experimenting with one-click payment solutions, but is yet to unveil anything like Visa and MasterCard's products.

What could it mean to the winners and losers?
Obviously, this could mean a lot to Visa and MasterCard by capturing market share from rival card issuers and other payment processors.

While both Visa Checkout and MasterPass allow any credit cards to be linked, most of the users will likely register Visa and MasterCard credit cards with their corresponding products.

One the other hand, one company that stands to lose a lot from this is eBay's (NASDAQ: EBAY  ) PayPal, which until recently was the only widespread way to pay for online purchases by simply entering a username and password.

In fact, I think the biggest impact here will be a significant and gradual loss of fee revenue to PayPal, as the credit card companies have figured out how to offer a similar way to pay.

However, eBay has managed to stay ahead of the curve so far in the payment processing game, so it'll be interesting to see how PayPal responds to the increased competition.

In regards to whose product will be more successful, it's anyone's guess at this point. However, both Visa and MasterCard will be long-term winners here as more and more consumers adopt their payment solutions.

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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 22, 2014, at 2:09 AM, PhilipCohen wrote:

    It means, goodbye "PreyPal" ...

  • Report this Comment On July 22, 2014, at 9:23 AM, 052D wrote:

    This is why some of the "concept" stock got high during the babble years. just because of the "concept" sounds good on paper, or make sense in your own mind, it does not necessarily translate into market/or making money.

    1). this "checkout" does not make money at all. It is heavily subsidied by Visa, I wonder how much long Visa will see it sinphoh its cash before it pulles the plug.

    2). have you ever tried the "checkout" yourself before you hype the product and proclaim it is a threat to paypal? try it before say anything, it sucks, it is miracle sometimes it actually works.

    3). nowadays, most of purchase is from mobile, do you see Visa on iphone ? that tells you a big story about their product people.

    the list can go on.... how many merchants sign up, what is the transaction volumn etc...., they are so minuscle, it should not mentioned at the same breath as mastercard, paypal, amazon.

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