Visa Inc has announced that it will acquire Visa Europe, subject to regulatory approvals. The press release is here. The executive team also held an investor call yesterday – the recording and presentation are here.
The deal was widely expected, so shouldn’t be a surprise to anyone who follows payments. Still, it poses a number of questions, such as how effective the combined entity will be in dealing with the intricacies of the European market, and whether this would lead to the Europeans calling (again) for a new, separate, pan-European card scheme.
It’s true that the European payments market has unique dynamics in terms of regulation and competition, both in cards and in payments more broadly. PSD2 will have profound effects on the existing market players, including Visa. Depending on the final interpretations, some provisions such as scheme and processing separation requirement may introduce undesirable complexities to the integrated Visa. However, I’m sure none of this is news to Visa’s management, and they must have a plan for how to deal with regional challenges.
Visa has committed to maintaining a strong European presence, including an ’empowered European leadership team and in-country resources’, ‘local data center’, and ‘differentiated country and regional strategies’.
Furthermore, the potential synergies are real – a more consistent product set and fewer duplicated efforts should help Visa drive innovation and move to digital on a global basis. Visa also said it was planning to incur up to $500m of integration-related costs over the next 4-5 years, most of which would go towards integrating Visa Inc and Visa Europe systems.
In the past, I have seen on occasions Visa Europe appealing to European banks by playing up its ownership structure in Europe and contrasting it to the global approach of MasterCard. This argument is now gone – both networks will be global commercial entities. Would this reopen calls for a pan-European card scheme?
I had a look at this issue a few years ago in the Celent report, ‘In Search of a Third European Card Scheme‘, and concluded that it was ‘time to move on’. I still stand by that conclusion today. In my view, it has always been a politically motivated initiative, with no particularly clear business rationale. When ‘plastic’ was the main/only form of electronic payment, it at least made more sense to consider various options. Now, the world is changing rapidly, as digital payments and real-time networks between bank accounts emerge. Let’s hope that the European banks will find better use for their financial windfall from this transaction than trying to create a new pan-European card network.
Given the original ‘put’ option, it was always more a question of when rather than if. Congratulations to the Visa team for deciding to move forward with the deal.
– This article is reproduced with kind permission. Some minor changes have been made to reflect BankNXT style considerations. You can read the original article here.