“The raindrops of fintech had added up into a bit of a tsunami, and we had to reach a decision,” said Matthew Dill, Head of Innovation and Strategic Partnerships at Visa Inc. (Visa), as he prepared for a meeting with the board of directors. The agenda called for a discussion of Visa’s strategy in light of the growing influence of financial technology (fintech) companies in the payments space.

Visa’s history could be traced to 1958, when Bank of America launched its BankAmericard program in Fresno, California. Growing on the strength of its technological innovations over the years, Visa launched its electronic payment network in 1980 that enabled point of sale terminals to read the magnetic stripe on cards and electronically request authorisation. A slew of initiatives through the 1990s strengthened Visa’s position in the market. Having spearheaded the electronic payment industry’s transformation, Visa introduced new digital and advanced technologies that enabled payments not only physically across a checkout counter but also virtually from any part of the world. In 2018, Visa led the global payment industry as the largest payments technology network. At US$8.2 trillion, it handled more payment volume than its four closest competitors – MasterCard, American Express, JCB and Discover/Diners Club – combined.

From the late-nineties, digitisation and technical innovations in the payments industry had given way to a multitude of new entrants, business models and product permutations of lending and payment products. Collectively, this wave of financial technology became known as fintech. The range and capability of fintech companies extended beyond the marketspaces of traditional banking to include emerging payment platforms, such as mobile-based payments, crowdfunding platforms, cloud-based services, block-chain and cryptocurrency. On the one hand, these firms were a challenge to Visa. On the other hand, they presented significant opportunities for collaboration and partnerships in the P2P, B2B, B2C and government-to-consumer (G2C) payment segments.

“Investors believed in Visa’s ability to continue to grow. However, in the under-penetrated countries, while Visa grew as before at about 4% and occupied about 10% of the market, many of these fintech players were now growing at more than 100% and occupied 20-30% of the market. To investors, it was no longer enough that Visa’s growth curve was the same as earlier; what mattered was that the opportunities curve was much steeper,” commented Dill.

Clearly, the disruptive nature of the emerging fintechs represented both opportunities and challenges for Visa. How could the company continue to maintain its leadership in the payments industry? Should it preserve its legacy position by competing against the fintechs or should it seek to collaborate with them to avail of mutually beneficial market opportunities? Or should it take the lead as a facilitator, actively invest in the start-ups, partner with them, and drive innovation in the payments industry?

Set in 2018, this case is written by Kapil Tuli, Lee Kong Chian Professor of Marketing, and Director, Retail Centre of Excellence at Singapore Management University (SMU); Sheetal Mittal of the Centre for Management Practice (CMP) at SMU;and Christopher Boncimino of Visa Inc. The case analyses the unique multi-dimensional ecosystem of the payments industry, its ongoing transformation because of radical innovation, and the consequent challenges posed to legacy business models. The case also examines the interdependence of key stakeholders versus their ability to reinvent themselves as new competition, and how an unwillingness to cannibalise and resistance to open-market innovations may inhibit a firm in becoming future-ready.

To read the case in full, please visit the CMP website by clicking here.