Ed Jensen's Balancing Act

By Kenneth Cline

As Visa's CEO, he manages the world's dominant credit card brand. But challenges of remote banking and nonbank competition could threaten his juggernaut

When asked to describe his role as chief executive of Visa International, a credit card association with 20,000 member institutions, Edmund P. Jensen reaches for an analogy in the world of international diplomacy. "To some extent, my job is like being secretary general at the United Nations," says Jensen, who took command of Visa in 1994. "It's a delicate balance between conflicting interests. That's why we need to be diplomats."

Jensen's diplomatic skills will be put to the test over the next few years.

On the surface, the world's dominant credit card brand goes from strength to strength. Visa continues to wrest market share from competitors and now controls 54% of card volume worldwide. Looking ahead, Jensen sees growth potential for credit and debit products in Asia, eastern Europe and Africa. In the more developed countries, he points to possibilities opened up by "smart cards," whose embedded computer chips can provide many different functions and applications. "As long as Visa performs its fundamental task of supporting members and providing an acceptance brand and payment system, its momentum will continue," Jensen says with fervor. "That success will continue--period!"

But to reach this promising future, Jensen must preserve the unity of Visa's 20,000 member financial institutions. And here he faces an escalating challenge. Visa's very success has bred discontent among some members, who fear Visa's dominant brand name overshadowing their own. And by establishing Visa's name globally, the association has contributed mightily to the success of nonbank "category killers," monoline issuers such as Advanta Corp., MBNA Corp. and First USA Inc., leaving traditional banks to ponder their somewhat diminished role in the powerful Visa machine.

A perhaps larger problem lies with remote (or online) banking, which banks increasingly view as vital to their future. Two and a half years ago, Visa formed a subsidiary, Visa Interactive, to develop standards and technology needed to keep members at the cutting edge of this fast-growing business. But just within the past year, two other organizations--Integrion Financial Network and Bank Information Technology Secretariat--have emerged to offer competing services. Both rivals include Visa members.

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Visa's Growing Market Share

If Jensen is to preserve Visa's clout over the long term, he needs to carry the organization's strengths into the new arena of remote banking. But there are no guarantees--and he won't have a open field. "Getting cut out of that loop would really auger to Visa's long-term detriment," warns Charles T. Russell, Jensen's predecessor, who ran the association from 1984 to 1994.

Jensen is careful to say that Visa is prepared to work with both Integrion and BITS--basically in whatever manner members want. Over the past three years, in fact, Visa abandoned its previous insistence that members accept all of its technological approaches. Instead, the association now speaks more in terms of alliances and partnerships. "Our job is to enable members, and we don't have to do it all ourselves," Jensen says.

To be sure, Jensen apparently has some breathing room to devise the strategies needed to guide Visa into an uncertain future. Visa's core strengths--its brand name and technological prowess--will likely maintain the association's momentum for a time. The issues surrounding remote banking are so complex, and the framework of debate shifts so rapidly, that nobody can say how it will all play out. But clearly, he must pay serious attention to both the technological and political challenges facing the association if Visa is to sustain its dominance into the next century.

A major political challenge facing the association is the seemingly endless battle over "exclusivity." Bylaws promulgated by both Visa and MasterCard allow their members in the U.S. to offer each other's products, but not those of competing nonbank payment systems such as American Express Co. and Dean Witter, Discover & Co. Dean Witter unsuccessfully challenged those restrictions all the way to the Supreme Court in 1995. Now American Express has joined the battle on a second front with a high-profile campaign to woo members away from the Visa fold.

In November, American Express announced a marketing alliance with Advanta, which belongs to both Visa and MasterCard, that allows Advanta's Visa and MasterCard holders to receive American Express-provided frequent flyer points if they also carry an Amex card. While the arrangement doesn't represent a violation of exclusivity per se--Advanta is not offering an American Express card--it prompted Visa's powerful U.S. subsidiary to file a trademark infringement suit against American Express in the last week of November, a move that then provoked suit/counter-suit actions between Visa and Advanta. "We cannot allow a single member like Advanta to take an association-owned asset--the brand--and rent it to American Express," says Michael Beindorff, an executive vice president of marketing at Visa U.S.A.

Legal skirmishes such as this are more the rule than the exception at Visa. The association also faces an antitrust investigation by the Justice Department over the exclusivity issue. And two major retailers, Wal-Mart Stores Inc. and The Limited Inc., have sued Visa on antitrust grounds. They argue that merchants should be assessed lower fees for accepting debit cards, as compared to credit cards, because debit transaction costs are lower. In large part, this action is a replay of one Nordstrom Inc. brought against Visa in the early 1980s but quietly dropped.

Jensen declines to discuss the specifics of any ongoing litigation, but says it's Visa's duty and responsibility to enforce the rules agreed upon by its members.

Displacing Cash and Checks

Whatever the internal stresses within the association, the 59 year-old Jensen says he's having fun in his Visa job. Indeed, the ex-banker appeared affable during a recent interview at Visa's headquarters in Foster City, Calif., where his 12th floor office overlooks San Francisco Bay. Relaxed in dark blue slacks and a light blue shirt, sans tie or jacket, Jensen described the contrast between running Visa and his two decade-long career at Portland, Oregon-based U.S. Bancorp, where he reached the level of vice chairman and chief operating officer.

"Visa is different because profit isn't the primary motive," he says. "Here, we're proud of being productive, serving our members well, and watching our brand become the most preferred brand in the world."

Visa, a nonprofit organization, does not disclose its operating results. When the association issues quarterly reports, it frames progress mainly in terms of volume benchmarks. Total worldwide card volume in September, for example, reached $927 billion, up 24% from the year-ago period. Volume in the U.S., the largest single market, increased by 22% to $429 billion. The number of cards issued worldwide reached 510 million, a 7% increase from 1995, while U.S. issuance grew by 16% to 271 million.

When framing his strategic goals, Jensen tends to talk in terms of usage: how many more customers Visa can get to use its cards, both credit and debit. Visa's overarching mission is to displace cash and checks in the worldwide payments system with its own card products.

Jensen sees a lot of opportunity for expanding revolving credit in Europe, where debit products have been more the norm, and in Japan, where customers primarily use cards for cash withdrawals at automated teller machines. Developing countries such as China and India offer vast potential growth in debit cards. Visa's current personal consumption expenditure penetration benchmark worldwide is 5%, which translates into close to a trillion dollars in sales volume; Jensen's target is to get that up to 8% by the turn of the century and to nearly 10% by the Year 2003. In the U.S., where Visa began in 1970, the association has already achieved 7.5% penetration.

On the technology front, Jensen is looking to the next century, when embedded chip cards will permit customers to access more than just monetary value--airline frequent flyer points and other merchant discounts, for example. Visa's planning for such a "single relationship" card builds on lessons learned during the Visa Cash stored value card experiment this past summer at the Atlanta Olympics.

Steady Hand

Nowhere in Jensen's description of his role is there any hint of a major shift in strategic direction at Visa. He continually stresses his desire to build on the foundation laid by his two predecessors: Russell and, before him, Dee W. Hock. Russell, who selected Jensen for the post, agrees that entrepreneurial ferment was not in the job description. "I was looking for a good steady hand, somebody who knew the banks well and was capable of getting along with them and continuing to promote the programs with them," Russell says.

During his 20 years at U.S. Bancorp, Jensen had developed a reputation as "an easy-going, approachable man who made friends, not waves," according to a Portland newspaper columnist. Jensen was already serving on the Visa International board at the time Russell began his search, and he was conversant with the major issues facing the association. Russell, who now tends to various business interests from his home in California, says he found Jensen to be a "quick study" on Visa-related matters and an easy candidate to win board approval.

True to expectations, Jensen has not markedly changed the well-oiled machine he inherited in 1994, although last year he did oversee a restructuring at Visa International that had the effect of focusing managers more on the association's core operations. But few prominent executives disappeared from the organizational charts and Visa retains its overall structure of six regional subsidiaries--U.S.A.; Europe; Canada; Asia-Pacific; Central Europe/Middle East/Africa; and Latin America/ Caribbean--each with their individual presidents and boards.

These multiple boards--a legacy of Hock's regime--circumscribe Jensen's power in a manner not seen at the typical for-profit corporation. The Visa U.S.A. subsidiary is particularly powerful, since the U.S. members founded Visa in 1970. Visa U.S.A., in fact, completely dominated the association until a 1987 reorganization gave more power to the other regions and provided a separate staff for Visa International. With all these regional boards manned by powerful, opinionated bankers, Jensen has much less freedom of action to craft and implement a technology strategy than, say, Bill Gates at Microsoft Corp. or Louis Gerstner at IBM.

Remote Banking Challenge

What Jensen does have at his command is a world class marketing and technology organization. Visa's marketing staff, led by John Bennett until his recent retirement and now run by Jan Soderstrom, has parlayed the Visa brand name and advertising slogan, "Visa--It's Everywhere You Want to Be," into one of the most recognized commodities on the globe. Visa's online merchant settlement and authorization system, known as VisaNet, is well regarded in the industry. Jensen describes his technology staff as "the best in the world in terms of payment systems."

But Jensen also recognizes that the world of online banking will require new skill sets to handle technologies such as encryption and client-server systems. For those talents, Visa anticipates seeking alliances with outside organizations. "I don't think any association or company can be staffed universally, across all lines, with the full spectrum of talent that's required," Jensen says.

Remote banking has become an urgent priority for both Visa and its member banks. Visa Interactive, which employs about 170 people in Herndon, Va., has the mission of establishing technological standards and developing applications for electronic bill payment and remittance. More than 90 member financial institutions have committed themselves to using one or more of Visa Interactive's applications for the personal computer and telephone. The association enjoys a natural strength in this area because it can capitalize on parts of its existing electronic network, VisaNet.

But rather than rallying behind Visa Interactive, many Visa members are striking off in other directions. Last August, 15 major banks announced the formation of a joint venture with IBM, called Integrion Financial Network, with the objective of building an electronic commerce infrastructure in North America. Two weeks later, the Bankers Roundtable, representing the top 125 U.S. banks, formed Bank Information Technology Secretariat to create standards for electronic commerce in cooperation with Integrion, Microsoft, Intuit Corp. and other players.

During the Integrion press conference, ironically, IBM's Gerstner held up Visa and MasterCard as models for the new joint venture. "The banks got together and created an infrastructure that allowed every bank, even the smallest to participate," said the IBM CEO. "That's exactly what's going to happen here. The large banks are providing leadership and a platform whereby every bank in North America will be able to compete against organizations outside the industry."

By "outside the industry," Gerstner was referring to the mighty software houses such as Microsoft and Intuit, whose development of financial management and bill-paying programs has intruded into what banks consider their own turf. But it didn't go unnoticed that Integrion's avowed mission--electronic banking and bill-paying--is identical to Visa Interactive's. In addition, Integrion includes Visa board members such as Barnett Banks Inc. and Banc One Corp.

William Fenimore, Integrion's Atlanta-based managing director, concedes that the two efforts will overlap. "There's going to be ways we work with (Visa) and ways we compete," Fenimore says. Visa Interactive president Christopher F. Shellhorn emphasizes cooperation, saying, "We'll look for ways to operate and work together with Integrion--or other third parties where we provide a piece of the solution--and members can choose."

Category Killers

Visa's challenge in remote banking is to stay focused in a very confusing market, where the outlook changes constantly. "We have to be careful not to chase too many rabbits," Jensen says.

Bill Burnham, an associate in the financial services group at Booz-Allen & Hamilton in New York, says uncertainty surrounding electronic banking issues has prompted players to get involved in multiple projects. "Everybody's hedging their bets," Burnham says. "They are hoping that when the dust settles, they will have bet on the network or payments facilitator that wins."

But William M. Randle, senior vice president at Huntington Banchares Inc.--a driving force in BITS, but not a member of Integrion--believes industry groupings such as Integrion and BITS reflect a deeper uneasiness with Visa. Randle, echoing the concerns of many bankers, says the Visa brand name has become dominant at the expense of the banks. This is particularly a problem now that Visa's membership includes a wide array of financial services institutions--monoline card issuers, thrifts and credit unions, as well as traditional banks. "The Visa brand is essentially empowering nonbanks to be huge global players, much bigger than all but the very largest banks," Randle says, noting that monoline issuers such as First USA, MBNA and Advanta dominate the credit card rankings. "It's hard to view the credit card companies as allies anymore."

The issue of nonbank card issuers surfaced during Russell's tenure. Companies such as MBNA and First USA were developed by banks in the early 1980s as "special purpose" banks, first to gather deposits outside their home territory and subsequently to issue credit cards. Visa couldn't really forbid the special purpose banks to enter its system because, legally, they did qualify as banks. But Russell recalls the controversy over their admittance as divisively "traumatic." Once issuers were able to attach the Visa or MasterCard logos to their products, they could compete with banks on an equal footing. Over time, the comparative advantages of the category killers--greater focus and marketing energy--allowed them to wrest market share from the banks. Jensen and other Visa officials respond that the benefits of Visa's name recognition, principally worldwide acceptance, accrue directly to all members.

Keeping Out Amex

To maintain the international acceptability of its brand, the association has to enforce its various rules and regulations, a policing action that inevitably sparks tension among members. One of the most visible conflicts has involved exclusivity.

Among the six regional subsidiaries, only Visa U.S.A. forbids its members from offering products of competing nonbank payment systems such as American Express and Dean Witter, Discover. But last June, the international board asked the association's other five regions to consider implementing similar exclusivity provisions. None has so far obliged. Visa Europe's board decided a change was unwarranted after American Express filed objections with the European Commission. The Latin America and Asia Pacific regional boards have also rejected the idea.

Jensen says Visa International is obligated to defend the exclusivity rule as long as Visa U.S.A. members want to keep American Express and Dean Witter out. "Visa does what those members want it to do," he says. But the battle is becoming increasingly contentious. Kenneth I. Chenault, vice chairman of American Express, seized the occasion of the American Bankers Association Bankcard conference last October to compare Visa's exclusivity policy to the Berlin Wall. "To resist choice is anti-customer and customers will eventually get even by exercising their choice and taking a hike," Chenault declared in his public remarks.

Jensen dismisses Chenault's comments as "good public relations soundbites without substance."

Rhetoric aside, the real question is whether American Express will have any success luring banks out of the Visa or MasterCard fold at a time when issuers are confronting rising delinquencies and declining profitability. Just a month after the ABA convention, American Express announced its marketing alliance with Advanta, a move seen as signaling some industry resentment against Visa's restrictions. "It's the bankers themselves asking, 'Who's in control here'? And some are asking, 'Why should Visa tell me what I should sell in my branch?'" says Fairfield, Conn.-based consultant James L. Accomando.

Banker resentment bubbled over a little more in December when Britain's National Westminster Bank PLC announced plans to offer an Amex-supported corporate card in the United States. As a British bank, NatWest is not bound by U.S. card association bylaws.

The controversy over membership in competing payment systems goes back to Visa's founding. For its first five years, Visa prohibited its members from participating in MasterCard. Then, in 1975, the restriction was withdrawn under intense pressure from some members and the Justice Department, which had antitrust concerns. Hock, Visa's first CEO, says he always considered the 1975 decision "a great mistake" on the grounds that banks belonging to both associations possess no incentive to invest in other payment systems more suitable for their individual needs.

Russell, who succeeded Hock in 1984, says the problem with dual Visa/MasterCard membership is that it dilutes member loyalty, to either association. "Visa and MasterCard should have been out and out competitors and in fact, we in management saw them as out and out competitors," Russell recalls. "But the board never quite made that hurdle because they're sitting there thinking, 'Well, 40% of my cards are in MasterCard and 60% in Visa and, yeah, I lean toward Visa. But what the hell. If Visa screws it all up, we still have MasterCard.'"

Same Issues, Higher Stakes

Jensen, Russell and Hock all note that the same issues keep recurring at Visa, albeit in different guises and under changed circumstances. American Express's campaign against exclusivity continues the battle waged earlier by Dean Witter, Discover, the nonbank card issuers, and MasterCard. The ongoing lawsuit by Wal-Mart and The Limited over debit card pricing repeats an earlier action by Nordstrom. The controversy over remote banking reflects an eternal tension between competing member banks. "Every once in awhile," says Russell, "we'd get a director who would go off the board after an acquisition and then wind up running another bank somewhere. He'd come back on the board and sit there and marvel, saying, 'You know, I feel as though I haven't missed one meeting--we're still talking about the same things.'"

That's not to say Jensen isn't facing tougher adversaries and challenges than his predecessors. But this sense of continuity does provide some comfort as he struggles to cope with the latest incarnation of these controversies. "From the beginning," Jensen says, "banks worried about creating an association that would, in effect, level the playing field between large and small institutions. While we've always had to balance competing interests, Visa has grown very well."

Mr. Cline is senior editor of Banking Strategies.

Copyright © 2003 by Banking Strategies, published by BAI.

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