Visa wants to help banks win the loyalty of Generation Z

There’s the payment and then there’s everything that happens around it. That’s why financial service providers – from insurers to FinTechs to major banks – offer additional services to protect, analyze and optimize every transaction. For example, Visa’s value-added services (VAS) contributed $2.1 billion last quarter, about a quarter of the company’s total revenue of $8.8 billion, an increase of 23 percent year-on-year.

Antony Cahill, executive vice president and global head of value added services at Visa, told PYMNTS’ Karen Webster that the growth was driven by issuers looking to redesign their transaction and account experiences as the payment economics and customer expectations changed around the world.

We help issuers and traders to break new ground

Explaining the business, Cahill noted that a third of the company’s VAS activity – across more than 250 products and services – is focused on helping client companies (including merchants) solve the “pain points” of payments. “And two-thirds,” he added, “comes back to helping our issuers move into great new areas of business – re-orienting their business and finding new revenue streams.”

And this goal is clearly aimed at increasing the number of their Generation Z members.

Although banks typically generate the majority of their revenue from older and more financially affluent consumers, re-orienting their product offerings to younger customer groups is a high priority, especially as they have more digital and digital-only payment and banking options to choose from.

“Generation Z is born digital natives,” Cahill told Webster. “They’ve never known life without their handheld mobile devices – and their lives revolve around those devices.”

Today, the definition of a customer experience revolves around this mobile form factor, and with it come different expectations of the banking experience. From Visa’s perspective, this includes a more streamlined and secure way to switch between different payment methods – debit, credit card, prepaid, installment – without having to switch between different systems.

This is how banking becomes digital

For digital banking to become more than just a topic of discussion, Cahill says banks need to design or retool their products with this approach in mind. For example, a mortgage application might be submitted online but ultimately signed in a branch. This is not a one-size-fits-all experience today and depends heavily on the use case, but it reflects well how consumers feel about the physical experience becoming just another touchpoint on their digital journey.

Easier said than done, says Cahill, especially given that most banks’ technology stacks are at least 40 years old.

“Banks are looking at their future technology needs and are looking for cloud-based infrastructure – and composable solutions,” he told Webster.

A cornerstone that will help banks implement this strategy is the strategic expansion of Visa’s debit processing capabilities worldwide, as Cahill puts it. This is also the thesis behind the acquisition of cloud banking platform Pismo a year ago. With the acquisition, Visa gains debit card issuing and processing capabilities on a global scale, and with it a set of capabilities that will enable issuers to bring new products to market faster.

Cahill points to the recent launch of the Flex Card – an all-in-one digital credential – as current evidence of how Visa DPS is helping banks do just that. Visa DPS is the largest issuer processor in North America, which Cahill says is likely a closely guarded Visa secret.

The long-term value of value-added services

Cahill was hired a year and a half ago to transition the portfolio of value-added services developed or acquired over the years into a standalone business unit. Before joining Visa, he was a VAS customer as a senior executive at two of Australia’s largest issuers.

“(Visa) has made structural changes to ensure that our capabilities are available in as many markets as possible and that we operate as globally as possible,” Cahill said.

The 250 VAS offerings range from Verifi, which helps merchants avoid and resolve disputes and chargebacks, to open banking through the acquisition of Tink. In addition, risk and authentication innovations help client businesses regardless of payment channels and payment types.

“A VAS score can be used not only to rate a Visa transaction, but also for transactions coming through another rail or system,” he said, including real-time payments that use the RTP rails operated by The Clearing House.

Cahill noted that issuers build their competitive advantages after developing and purchasing these technologies, which Visa in turn delivers to its customers. This reflects Visa’s attitude to the “buy, develop or partner” debate that has become so important as FinTechs seek to level up. According to Cahill, Visa carefully balances between developing solutions in-house, acquiring cutting-edge technologies and forming strategic partnerships. With this approach, Visa has made several key acquisitions over the years, including the purchase of Verifi, CyberSource and European open banking platform Tink, as well as Pismo in June 2022, expanding the company’s capabilities and rapidly expanding its market reach.

“We are very deliberate,” Cahill said. “Because of our robust technical resources, we often prefer to build capacity internally. However, acquiring external technologies or forming strategic partnerships is equally important when they provide us with a significant competitive advantage or faster time to market.”

Like most companies in the financial services industry, Visa operates in a complex ecosystem where collaboration and competition often overlap. As Cahill noted, Visa often works closely with partners in some areas while competing with them in others.

This “coopetition” dynamic is exemplified by Visa’s acquisition of Pismo, which offers issuer processing and core banking capabilities that could compete with some of its existing FinTech partners. But Cahill believes this approach benefits the broader payments ecosystem, emphasizing his belief that the industry is mature enough to understand these multi-faceted relationships. The company is positioning its enhanced capabilities, such as the Visa Acceptance Platform, as tools that even competitors can leverage.

Cross pollination, vitamins and personal trainers

The diverse needs of Visa’s customer base are met by the breadth and depth of the company’s offerings, Cahill said. Many issuers are also acquirers, he said, and so may choose to use aspects of Visa’s acceptance suite. And some companies – like open banking platform Tink – are bringing new capabilities to new markets, such as the U.S., as they help issuers create more efficient account-to-account inbound and outbound transactions.

Cahill says the 250 VAS features now part of Visa’s portfolio can be compared to a complete set of multivitamins. Or personal trainers. Tink and Pismo, he says, help Visa’s partners “maintain maximum fitness and improve their level of service and customer experience.”

The industry has “never developed faster,” he said. “Competition has never been so great and consumer expectations have never been higher.”