Executive summary
For convenience of analysis, this paper has been organised under three parts. The first part of the paper discusses about the global payments industry in general. The global payments industry has been growing at a tremendous pace over the last decades and the development of internet technologies greatly contributed to the growth of this industry. The Porter’s five forces analysis of the global payments industry reflects that it maintains a favourable business environment for business houses. In the analysis, it appears that all the five forces of the industry are in favour of the Visa that enjoys massive edge over its market rivals. The second part of the paper identifies a set of competitive advantages for the Visa including strong brand image, strong global presence, global market leadership, powerful financial background, and a strong distribution network. In the third part, the paper explores the future challenges to Visa that can have negative impacts on the long-term sustainability of the organisation. The major future challenges to the company include stringent economic policies worldwide, emergence of new potential players like Apple Pay, and development of mobile payments technology.
It is identified that the intensity of competitive rivalry is low in the global payment industry. When relatively fewer firms are competing for the same customers in the industry, this scenario can have a significant positive impact on the Visa as this favourable market condition can benefit the organisation to cut down its operating costs. In addition, it is to be noted that the large size of the global payment industry adds significantly to the market competitiveness of the Visa. Since it operates in a huge-sized industry, the organisation can enhance its business expansion without snatching the market share of others. There is a strong government intervention in the payment industry to limit the level of competition and therefore Visa is not exposed to intense competition pressures. In other words, government’s regulatory intervention in the payment industry adds indirectly to the competitive status of the organisation. In addition, Visa is ahead of its competitors when it comes to brand recognition and business popularity, and hence, the firm’s services are likely to be used by people in the global payment industry.
Threat of new entrants
Threat of new market entrants or competitors is very low in the global payment industry for several reasons. For a business debit and credit card services, a strong brand name and corporate reputation are important for influencing consumers. A new market entrant will not have a strong brand name, and therefore, people are less likely to risk their financial transactions by adopting the services of such new market players. It is clear that Visa has a strong brand power in the global payment industry, and this potential strength provides the organisation a notable advantage over its rival in the marketplace. In addition, huge entry costs would put a potential barrier to new market entrants. For instance, a strong distribution network is required to operate debit/credit cards business. Therefore, new entrants will be forced to invest heavily in distribution channels. It appears that new competitors cannot enjoy economies of scale, which is a key factor limiting cost of production in the global payments industry. Consequently, the entry of new competitors raises little threats to the long-term business sustainability of Visa.
Threat of substitutes
Similarly, threat of substitutes is low in the global payment industry. Although there are some substitute mechanisms such as internet banking and mobile banking to make online payments, nothing is as easy and convenient as debit/credit cards. In the absence of close substitutes, customers are not likely to switch to other alternative services. When there are only limited number of substitutes, customers cannot easily switch to similar quality services and still receive the same benefits. Furthermore, it is observed that customers in the global payment industry are less likely to seek substitute payment services once they are satisfied with or trust a particular service. Hence, it is needless to say that limited availability of substitute service in the global payment industry significantly adds to the operational feasibility of Visa. In addition, when a customer has a credit history with Visa, he/she would not think of other services before the credit is cleared. In short, one can undoubtedly say that substitute products/services do not pose any serious threat to the business of Visa.
Supplier power
Supplier power is considerably low in the global payment industry where the need of raw materials is very limited. Since the need of input materials is notably restricted in the financial services industry, Visa does not need to depend much on suppliers. However, it is important to note that the organisation requires highly qualified employees to operate the supply chain activities of the business efficiently and securely. Therefore, those qualified personnel enjoy a slight bargaining power over the company but it is manageable because Visa is a global business and it can rely extensively on outsourcing services. Although Visa has its own team of technology experts, the organisation needs to depend on third party technology providers to some extent in times of major shifts in the technological landscape. It may not be easy for the Visa to switch between third party technology providers because a new provider would take a fair amount of time gettable comfortable with the systems and procedures of the organisation. Hence, third party technology services may also enjoy some level of bargaining power over the Visa business.
Buyer power
As noted earlier, global payment industry is a huge industry having the strength of billions of customers. Therefore, it is not a difficult task for Visa to find potential customers. Since there is only a limited number of marketers operating debit/credit cards in the industry, the bargaining power of buyers is moderate in the global payments industry. At the same time, it is to be noted that the collective bargaining power of buyers can potentially impact the operational policies of Visa. For instance, previously banks had joined their forces to fight the high service fees of Visa and consequently the organisation was forced to lower its prices. The need for buyer customization is a factor limiting buyer power in the global payments industry because when customers require special customizations, they may not bargain over prices. In addition, it has been identified that customers have low level of sensitivity of credit card interest rates because they give first priority to security and convenience of transactions. In short, buyer power does not pose alarming threats to businesses operating in the global payments industry.
Brief summary
While analyzing the business of Visa, it seems that the company has a set of potential competitive advantages that helped the business to be successful throughout its corporate history. A strong brand name is the most crucial competitive advantage of Visa that benefits the company to attract potential buyers without investing heavily in promotion (Ehrlich & Fanelli, 2012, p.37). Regardless of the size and nature of business, a strong brand name is really beneficial for every company as this advantage alone brings a fair volume of sales. It is also identified that a strong brand name assists the organisation to get rid of competition pressures to a great extent and to concentrate more on business development. Since Visa has already a well-established brand identity, it can address threats from existing competitors and new market entrants successfully and cost-effectively. Another key competitive advantage of the Visa is that the firm enjoys global market leadership, which benefits the company to take advantages of economies of scale, risk diversification, and higher profitability. In addition, this competitive advantage improves the organisation’s access to potential resources such as finance and human capital. When Visa enjoys global business leadership, it is easy for the organisation to rely on credit financing to meet its fund needs in times of emergency. Undoubtedly, a strong financial status of Visa is also a significant competitive advantage of the organisation. On the strength of this competitive advantage, the organisation is able to invest significantly in R&D, which in turn can play a crucial role in determining the market competitiveness of the business. A strong global presence is another significant competitive advantage of Visa as this feature aids the organisation to raise a massive volume of revenues from its debit/credit cards business sector. To justify, the organisation operates over 8,500 branches and employs more than 7,000 workers globally. This strong global presence has helped the organisation hold largest share of the global debit/credit cards market. In addition, Visa has a very low debt level compared to cash balance, and this competitive advantage greatly adds to the financial potentiality of the business. It seems that the firm has a strong distribution network known as VisaNet that is capable of processing billions of transactions a year. As a result, the organisation does not need to depend much on external distribution networks to support its business operations, and this has been leading to significant cost savings.
While analysing the sources of these competitive advantages, it is identified that Visa’s unique business model assists the company to attain competitive advantages. It is interesting to see that the company does not like to earn revenues from discount fees paid by merchants, interest paid by Visa-branded cardholders, or interchange fees. When the fees paid by merchants for payments acceptance go to acquirers, the company allows issuers to earn the interest paid by Visa-branded cardholders. In addition, the organisation does not receive the interchange fees even though it manages the collection and remittance of interchange fees. This customer-friendly business model has assisted the Visa to gain customer trust and maintain better customer relationships in the long-term. It is clear that long-standing relationships with potential customers can benefit a business to make well use of mouth-to-mouth marketing and thereby fuel its business expansion. In addition, a huge group of satisfied customers is always a valuable asset of the organisation contributing notably to its enhanced market stature.
Brief summary
This section makes clear that the organisation enjoys a number of competitive advantages that assist it to be a leading player in the global payments industry. The major competitive advantage of Visa is that the firm has a well-reputed brand and a strong global market presence. These competitive strengths greatly help the organisation to make its brand globally recognisable and to take advantages of economies of scale and risk diversification. In addition, the firm enjoys global market leadership, which in turn provides the company a massive advantage over competitors in the marketplace. As the firm has a strong financial background, it does not feel any difficulty raising funds in times of emergency or financing new market ventures. A strong distribution network is another competitive advantage of Visa that benefits the management to cut down its operating costs and to efficiently deal with billions of transaction a year.
While analysing the competitive landscape of Visa, it seems that the organisation is going to face a number of future challenges with regard to its medium- and long-term growth and sustainability of its competitive advantages. In response to the severe repercussions of the recent global recession, nations worldwide are taking stringent measures to increase the security of financial transactions to enhance stability of their economy. As part of this initiative, national governments are restructuring their economic policies in such a way to impose more restrictions on institutions rendering financial services. Undoubtedly, such stringent policies worldwide would adversely affect the business operations of Visa that has a strong global presence. Since the Visa has operations globally, the firm may be required to strictly comply with different financial policies of different governments worldwide. It is really a challenging and complex task for the company to get informed of the changing financial policies of different nations so that it can make adequate policy changes to respond to them in an appropriate manner. In addition, the organisation may be forced to spend additionally on emerging requirements relating to those policy changes such as software upgrade, process shifts, and new reporting initiatives. In short, stringent economic policies worldwide can have potential negative impacts on Visa’s operating costs and business complexity.
Similarly, an array of emerging potential competitors in the global payments industry raises significant threats to Visa. It is alarming for the company that recently new market players such as Android Pay and Samsung Pay have joined Apple Pay and other major services to win in the race of becoming the most favourite payment processor. Although Visa has clear advantages over these tech-giants, the fast growth of these payment providers would pose great threat to Visa’s business in the near future. Apple is likely to raise strong competition threats to Visa in future even though currently Apple is nothing more than a middleman. Reports indicate that Apple Pay is taking quick and intense measures to provide comprehensive payment processing services to customers. For Visa, it is threatening to note that Apple Pay has already made alliance with all large financial institutions in the United States and will be accepted in over 1.5 million retail locations soon (Nichols, 2015). Furthermore, it is important to note that Apple manages 800 million iTunes accounts with financial information, and therefore, the company can receive strong support from retailers, financial institutions, and consumers (Ibid).
Finally, emerging mobile payment technologies threaten the long-term sustainability of Visa. Today, a growing number of mobile apps that support payments appear to be convenient for users in terms of processing and security features (Asian Development Bank, 2015). In addition, the increasing use of mobile phones, particularly smartphones, significantly adds to the scope of mobile payments because people can easily make their payments using their smartphones. Hence, the fast growth of mobile phone market together with ongoing developments in mobile payment technology poses great threats to the business model of Visa. When people use mobile apps to make their payments, they do not need to keep their debit/credit cards with them. Another advantage of mobile payment over credit card payment is that it benefits customers to save money on credit card fees. When customers receive same quality service at cheaper costs, they are likely to switch to such alternatives. When it comes to security, it appears that some recent mobile payment technologies can offer customers a greater level of security when compared to debit/credit card technology. Therefore, mobile payment apps are likely to replace debit/credit card technology in the near future, and such a situation would dreadfully affect the market position of Visa.
The above sessions reflect that Visa is going to face some potential future challenges that would pose great threats to the long-term sustainability of the organisation. The company may lose its market share to competitors unless it takes some immediate and sensible steps to address the challenges identified. First, it is recommendable for the company to maintain a panel of experienced legal experts to cope with the ongoing changes in legal policies with respect to online payments. This practice can really benefit the Visa management to ensure that its practices are in strict compliance with current laws and regulations and thereby avoid lawsuits and other legal proceedings to a great extent. Second, the organisation is suggested to closely monitor the business policies and market initiatives of emerging competitors like Apple Pay and Android Pay that are expected to impact the market in coming decades.
Although the emerging competitors like Samsung and Apple are not a threat to Visa’s business model currently, it would not be a good idea to simply ignore them because they have better access to potential resources and have immense corporate experience. Third, the organisation should be vigilant about the growth of mobile payments sector that offers a great level of convenience, security, and cost-affordability to consumers. It may be good for the company to think of developing its own mobile apps to facilitate online payments and to confront with the emerging market players effectively. Furthermore, the firm is specifically advised to give great emphasis on product/technology innovation that is growing to be a major determinant of future market success. Although this approach may cause the company to incur extra costs and to drop its profitability, a potential innovation would assist the organisation to outweigh this additional expenditure and to earn increased profits. Finally, it is advisable for the Visa management to conduct periodical market surveys to keep track of the recent trends in global payments industry and to respond to changes timely and effectively.
Brief summary
This part reflects that the Visa would face some potential challenges in future that are likely to threaten the industry position of the business. The ongoing development of stringent financial policies worldwide in response to the recent global recession appears to be a potential threat to the business sustainability of the organisation. This change may impose additional economic as well as operational regulations on the Visa’s business model. In addition, the emerging payment services like Apple Pay and Android Pay raise great challenges to the firm because those services are rendered by tech-giants like Apple and Google. Likewise, mobile payments technology can become a growth impediment to Visa in the coming years because it offers greater convenience and cost advantages to users. In this context, it is recommendable for the organisation to closely monitor market trends and invest notably in R&D so as to promote product/technological innovations.
Bibliography
Asian Development Bank. (2015) Asia Small and Medium-sized Enterprise (SME) Finance Monitor 2014. Asian Development Bank.
Ehrlich, E & Fanelli, D. (2012) The Financial Services Marketing Handbook: Tactics and Techniques That Produce Results. US: John Wiley & Sons.
Nichols, B. (Sep 17, 2015) MasterCard and Visa Face Major Risks From Apple and Google. Investor Place. [online] available at: http://investorplace.com/2015/09/mastercard-visa-stock-mobile/#.VxS-7EeSdOk [Accessed 18 April 2016].
