Visa Inc. (Visa) is an American multinational company operating in the financial services sector. The case indicates that the company had become a global leader in digital payments processed through VisaNet, an advanced network that offered safe and secure payments. The corporation had invested in technologies to handle more than 65,000 transaction messages per second (Agnihotri and Bhattacharya, 2020). Fast Company listed Visa among the top ten most innovative finance organizations in 2017. The ranking considered firms operating across thirty-six sectors and geographies. Investing in innovation enabled Visa to advance trade in multiple areas, such as digital, authentication, cloud computing, and security. Novelty centers opened from 2013 to 2017 in London, San Francisco, Miami, Singapore, and Dubai created avenues to discuss potential developments with partners, such as Google, Facebook, and Apple. The company had employed more than 17,000 people by the end of 2018. Operating revenues and turnover increased significantly from 2014 and 2017.
The case indicates that Visa noted a problem in international money transfers across banks, commonly referred to as wire transfer, in 2016. The company developed a blockchain-based solution called B2B Connect (Agnihotri and Bhattacharya, 2020). The objective was to remove the cross-border money transfer challenges, such as long waiting periods, high transaction costs, and vulnerability to fraud. Unfortunately, Visa was not conversant with blockchain technology and its complexities. The corporation had to partner with various startups, such as Epiphyte, BTL Group, Chain Inc., and International Business Machine (IBM), to actualize the project. The collaborations provided unique opportunities and challenges that had to be addressed to realize the intended goals. This paper evaluates Visa Inc.’s case focusing on the environmental analysis, its innovation efforts, and the way forward concerning the engagement with cryptocurrencies.
PESTEL Analysis
Political
Political factors are crucial to Visa Inc.’s success because they determine operational stability and long-term profitability. The country faces significant political systems and environmental risks because it operates in various countries (MacKay et al., 2020, p. 168). Before entering a market, Visa evaluates its political stability and credit services’ importance to the economy. The company also considers the risk of military invasion, the legal framework for contract enforcement, international trade agreements and partners, tax policies, intellectual property protection, and anti-trust laws concerning credit services. The countries with Visa’s innovation centers, such as the United Arab Emirates (UAE), Singapore, and the United Kingdom, are politically stable (Agnihotri and Bhattacharya, 2020). The political systems and environmental risks the organization may face in the regions are manageable.
Economic
Various economic conditions are affecting Visa’s success in blockchain technology. Macroenvironmental factors, such as the GDP, inflation, exchange rates, interest rates, and business cycles, affect the aggregate demand and investment levels (MacKay et al., 2020, p. 168). On the other hand, microenvironmental factors, such as competition dynamics, affect a firm’s competitive advantage. Cryptocurrencies, such as Bitcoin, were the most common blockchain applications when Visa attempted to apply the technology in addressing international money transfer challenges in banks. Unfortunately, bitcoin’s performance was unreliable because of the rapid price fluctuations associated with the cryptocurrency. For example, there were approximately 15 million bitcoins valued at roughly $6 billion by the end of 2015 (Agnihotri and Bhattacharya, 2020). The case indicates that the bitcoins had increased to approximately 17.83 million in 2018, with 3.18 million more expected in the year. The number of daily bitcoin transactions grew by 150 percent in 2015. The cryptocurrency became volatile in 2018 when significant price fluctuations were recorded. The mining processes also became inefficient in terms of energy. The processing of bitcoin transactions also became a challenge. Visa was skeptical about blockchain because of the various economic challenges facing bitcoin. The company saw the technology’s inefficient to facilitate low-value, high-volume scale transactions, which was the core of its business.
Social
Visa’s corporate culture depends significantly on the cultures of the societies in which the company operates. The shared values, beliefs, and attitudes guide the company’s marketers in understanding the customers and their needs (MacKay et al., 2020, p. 170). Blockchain technology was mainly used for record-keeping during the inception years. Realizing the technology’s full benefits was challenging because the process requires multiple groups to join the system. Effective collaboration across businesses is a big hurdle requiring a balance of stakeholder interests. The association between various parties in the network depends on the extent to which each understands the benefits. Crucial players who expect minimal services fail to participate fully, creating a complex social environment for the technology. Generation Z consumers showed considerable interest in tech-oriented payment systems (Agnihotri and Bhattacharya, 2020, p. 4). The case reports that the individuals born between the mid-1990s and early 2010s reduced cash dependence by approximately 10 percent in 2018 compared to the previous year. The use of contactless cards had also surged globally by roughly 64 percent in 2018. An increase in fraudulent transactions through debit and credit cards motivated more consumers to shift to cryptocurrencies, considered more secure.
Technological
Technology continues to disrupt various industries worldwide by introducing new ways of doing things and rendering some traditional processes obsolete. Visa needs to understand competitors’ recent tech developments and how it affects product offering, cost, and value chain (MacKay et al., 2020, p. 170). Comprehending rivals’ innovations helps align internal technologies with emerging trends to gain a competitive advantage. Significant technological factors support Visa in the B2B Connect project and other technologies facilitating international money transfer. The network is a critical tech factor contributing to Visa’s success. The B2B Connect program is designed to allow individuals with unique digital identities registered on the web to reduce fraud risk (Agnihotri and Bhattacharya, 2020, p. 3). Open-source technologies enable tech companies to work closely with financial firms for mutual benefits.
Environmental
As a multinational corporation, Visa faces different environmental standards that can affect its profitability in various markets. The organization is mindful of climate change’s implications on the natural environment and acceptable corporate practices (MacKay et al., 2020, p. 170). The enormous energy use in bitcoin mining operations has substantial environmental implications when the world is focusing on energy conservation to minimize greenhouse gas emissions. The case indicates that bitcoin mining data centers in Iceland used more energy than all Icelandic households combined (Agnihotri and Bhattacharya, 2020, p. 4). The environmental implications of cryptocurrency mining may hinder the company’s efforts to realize blockchain’s full potential to solve current market problems and gain a more competitive advantage.
Legal
Visa operates in an industry highly regulated through intellectual property law. Filling for patents, trademarks, and other intellectual property can protect Visa’s innovations. Unfortunately, there are countries where the legal framework is not robust to protect the company’s intellectual property rights (MacKay et al., 2020, p. 170). The organization can also incur heavy losses if rivals sue it for infringing r intellectual property rights. The case indicates that Mastercard Inc. filed the most global blockchain patents with the World Intellectual Property Organization in 2017 (Agnihotri and Bhattacharya, 2020, p. 4). Mastercard is a U.S.-based tech company competing against Visa in the provision of global payment processing services. The rival firm had approximately 30 blockchain-related patents on verification payment, anonymous transactions, and cryptocurrency systems. The practice of filing patents created challenging innovation and operating environments for Visa.
SWOT Analysis
Strengths
Visa has numerous capabilities enabling it to utilize technology to solve challenges in the financial sector. A robust monetary base allows the company to establish innovation centers for research and development (RandD), creating new technologies and gaining a competitive edge in international money transfer (Agnihotri and Bhattacharya, 2020, p. 7). As a reputable brand, Visa influential players in the financial sector to form strategic partnerships and alliances. For example, the company has worked with Google, Facebook, and Apple to create technologies transforming money international money transfer. The organization has also worked with tech-startups to leverage blockchain technology to address wire transfer problems. Visa understands the demand for efficient remittance mechanisms and the leading issues that need urgent solutions, such as fraud. The firm attracts talent worldwide, developing a workforce that will continue its innovative approach to global payment systems.
Weaknesses
The B2B Connect solution relies heavily on blockchain technology, which is new to Visa. The company has to collaborate with various companies to actualize the project (Agnihotri and Bhattacharya, 2020, p. 2). Although partnerships provide an opportunity to share ideas, they pose significant challenges. For instance, they deny each of the parties’ autonomy over the project. For example, Visa does not control the various blockchain startups it is working with to implement the project. Differences in the modes of operations in multiple companies make it challenging to coordinate activities and programs effectively. The organization faces competition from firms established in blockchain technology, such as R3 and Ripple Labs Inc.
Opportunities
Although Visa has already benefited significantly from innovations in money transfer, there are enormous opportunities for growth. For instance, blockchain technology, which the company intends to use to solve wire transfer problems, is relatively new because it has mainly applied to cryptocurrencies. Organizations in the tech and financial sectors will potentially benefit from collaborations for enhancing efficiency in international money transfer. The locations for the innovation centers the company has established indicate an understanding of the available opportunities in both developed and emerging markets. For example, the London and Singapore branches serve European and Asia Pacific clients, respectively (Agnihotri and Bhattacharya, 2020, p. 2). The Dubai division caters to the company’s interests in the Middle East and African markets.
Threats
Visa faces various threats in the B2B Connect project, which appear to interfere with the implementation process. For instance, the company experiments with multiple tech-startups to evaluate how bitcoin and blockchain technologies make international remittances easier and more efficient. The corporation had tested the B2B Connect in 30 financial institutions in 10 countries while working with Chain Inc. but had to stop after Lightyear Corp., a U.S.-based blockchain company, acquired the partner (Agnihotri and Bhattacharya, 2020, p. 3). Therefore, the tech startups the firm is collaborating with are not stable enough to warrant long-term relationships. A change in ownership or other challenges facing small and medium enterprises (SMEs) can interfere with operations. Visa had to extend a forty-year partnership with IBM to continue with the blockchain-based money transfer solution.
Porter’s Five Forces
The Threat of New Entrants
There is a high threat of new entrants in credit services, introducing new technologies, and pressuring Visa to provide unique value propositions, cut costs, and reduce prices. The company must respond to the challenges and design barriers to safeguard its competitive advantage (Tomar, 2020, p. 47). Developing new products and leveraging on economies of scale can be an adequate response.
Bargaining Power of Buyers
The buyers have strong bargaining power because they are demanding quality services, and multiple firms are striving to innovate ways of meeting the demands. Visa must develop new incentives to expand the customer base and remain competitive (Tomar, 2020, p. 47). Examples include discounted prices and additional services.
Bargaining Power of Supplier
There are several suppliers in the payment industry, such as merchants or financial entities providing services. An example is a processor supplying SDK (software development kit) to authenticate a chip based on a merchant’s contactless card to get business (Tomar, 2020, p. 47). The supplier power is moderate because the business model controls the prices.
The Threat of Substitutes
The threat of substitute products is high because firms in the payment sector feel the pressure to innovate. However, bringing a new product to the market and aligning it to customer needs is always challenging (Tomar, 2020, p. 47). The case indicates that competing firms are striving to come up with new products. For example, R3 and Ripple Labs Inc. are blockchain software and distributors of open-source payment protocol, respectively, leveraging blockchain technology to provide multiple banking-related solutions (Agnihotri and Bhattacharya, 2020, p. 3). Several banks, such as UBS, UniCredit, and Santander, have used Ripple to process international payments. Big financial institutions, such as J.P. Morgan, Goldman Sachs, Citi, and Bank of America, have partnered with R3 for global transfer processing. In 2017, Ethereum blockchain’s founder said that it was capable of rivaling financial organizations like Visa.
Competition
Upcoming fintech (financial technology), blockchain, and value chain payments have caused competition in the sector. The threat is moderate because of the complexities involved in payment processing (Tomar, 2020, p. 47). Offering new products and services in security, fraud detection, security, and real-time money transfer capabilities can address the issue.
Visa’s Innovation Efforts
The case indicates that innovation has contributed significantly to Visa’s success, making it one of the leading financial services providers globally. Investing in innovation enables firms to gain a competitive edge in the markets (Zouaghi, et al., 2018, p. 92) by creating unique products or enhancing production efficiency (Ravichandran, 2018, p. 22). VisaNet contributed to the company making it to the top ten list of most innovative firms. Real-time payments for banks, mobile applications, and mobile payments indicate a commitment to innovation as a competitive advantage and growth driver. The organization has transformed trade through innovations in cloud computing, authentication, and security (Agnihotri and Bhattacharya, 2020, p. 2). Collaborations will leading companies in the tech industry has enabled the organization to identify blockchain’s potential in transforming wire transfers across banks.
In 2014, Visa worked with Samsung and Accenture to develop the Visa Token Service, facilitating secure mobile and digital payments through the internet. The ‘Everywhere Initiative adopted in 2015 allowed startups to solve payment challenges, add value to their products, and offer sustainable solutions to Visa and its partners (Agnihotri and Bhattacharya, 2020, p. 2). The initiative was problem-based to challenge startups to develop solutions to pressing problems. Examples include creating awareness for Visa products, mine financial information from clients, enable cardholders to maximize benefits. The company adopted the ‘Visa Ready Program’ in 2016, a platform on which tech organizations would integrate with the B2B payment services. Collaboration with manufacturers, such as Fitbit Inc., facilitated payment solutions through wearable devices.
Way Forward
Visa’s current efforts in cryptocurrencies and blockchain technology are promising. They are intended to address a pressing problem in the international money transfer, characterized by intermediary complications, delays in payment processing, and vulnerability to fraud (Agnihotri and Bhattacharya, 2020, p. 2). Although the company has attempted to collaborate with conglomerates and startups with a sound understanding of the technology, there is an opportunity to explore more sustainable solutions.
The firm expected to launch B2B Connect’s final version in the first quarter of 2019 to counter the anticipated disruption of payment giants by cryptocurrencies. However, the organization did not realize the technology’s value to a credit card company (Agnihotri and Bhattacharya, 2020, p. 3). The company developed an internal cryptocurrency team to hire a blockchain product manager. The strategy enhances Visa’s preparedness to deal with the disruption that the technology might bring to the industry. Although some key players in the sector indicated that Bitcoin was not a threat to the traditional financial services companies, they viewed the technology as an opportunity for creating new revenue streams. The corporation should continue to invest in cryptocurrencies to leverage any benefits and be adequately prepared to respond if the technology causes massive disruption of the traditional financial services sector.
References List
Agnihotri, A. and Bhattacharya, S. (2020) Visa Inc: threat from cryptocurrency case study. London, UK: Ivey Publishing.
MacKay, B., Arevuo, M., Meadows, M. and Mackay, D. (2020) Strategy: theory, practice, implementation. Oxford, UK: Oxford University Press.
Ravichandran, T. (2018) ‘Exploring the relationships between IT competence, innovation capacity and organizational agility’, The Journal of Strategic Information Systems, 27(1), pp. 22-42.
Tomar, D. (2020) ‘Porter’s competitive forces model and swot analysis to payments’, International Journal of Information Science, 10(2), pp. 45-49.
Zouaghi, F., Sánchez, M. and Martínez, M. G. (2018) ‘Did the global financial crisis impact firms’ innovation performance? The role of internal and external knowledge capabilities in high and low tech industries’, Technological Forecasting and Social Change, 132(1), pp. 92-104.