
A History of Visa - joosters
http://minesafetydisclosures.com/blog/2019/5/29/part-l-a-history-of-visa
======
ian0
Cant mention the history of Visa without mentioning Dee Hock [0], who analysed
the ecosystem and deliberately structured it in a way where it could thrive
despite the mixed incentives of all the parties that contribute to it [1].

This quote on why he resigned as CEO just as it was proven to be so
successful:

>> "It’s the organizational concepts and ideas that were essential. I merely
came to symbolize them. Such organizations should be management-proof.”

If you have dealt with large, completely incompetent organisations and
wondered how the hell they actually keep going - theres your answer. If built
correctly it's genuinely difficult to mess things up.

[0]
[https://en.wikipedia.org/wiki/Dee_Hock](https://en.wikipedia.org/wiki/Dee_Hock)

[1] [https://www.fastcompany.com/27333/trillion-dollar-vision-
dee...](https://www.fastcompany.com/27333/trillion-dollar-vision-dee-hock)

~~~
MSD1976
I wanted to keep it very high-level so that a 10 year old could understand so
unfortunately some things had to get left out; like Dee. I did link to his
book as part of the further reading/resources at the bottom of the writeup
though.

~~~
boldslogan
Thanks for the write-up. Liked the costco one too. Can I ask what the goal is
for your page? There is no about page.

~~~
MSD1976
Glad you like it. No goal really, just a hobby to keep me busy.

~~~
santix
That's cool. Apart from the article being good, the design of your page is
very nice.

~~~
MSD1976
Thanks, I appreciate it

------
jakub_g
While Visa and MasterCard are household names in the western world, there's a
similar oligopoly (and similar history) in airline bookings system, which is
largely unknown to people outside the domain.

Majority of worldwide airline bookings go through Amadeus/Sabre/Travelport,
who similarly get a cut on each transaction. (The GDS industry has long been
thought to decline _just in a few years_ but for now it still stays rather
strong - although big airlines are actively trying to get more independent).
The net incomes are about order of magnitude lower than credit card industry,
but that's still hundreds of millions per year.

~~~
massysett
I think airline bookings go through a GDS even if you buy direct from the
airline, but why? Airline doesn’t want to build its own computer?

~~~
karthikb
Tech debt accumulation from the 1950's onwards to now basically. The GDS are
integrated with everything from check-in, rebooking, ops center, etc. Lots of
companies looking to change this, and some airlines have been able to
modernize. But it's a fraught process that can lead to mass cancellations
during the upgrade period as stuff breaks.

~~~
velosol
To whit - Southwest has moved (is moving still?) to Amadeus and there has been
a fair amount of reporting on the issues as they happen.

[https://www.dallasnews.com/business/southwest-
airlines/2018/...](https://www.dallasnews.com/business/southwest-
airlines/2018/01/24/southwest-airlines-wants-bugs-fixed-new-500-million-
reservation-system)

------
activatedgeek
Wow! This is really cool.

Quite naturally, I started looking at how other major providers - Mastercard,
Amex and Discover caught up to this interbank transaction labyrinth. Here's
what I think after a quick look.

\- Mastercard seems to have been a direct response to the growing popularity
and profits of BankAmericard. [1] It started about the same time (mid 1960-s)
which probably explains its growth and ability to bring enough banks in its
fold.

\- American Express was founded back in 1850 [2]. If I go by the original
article, it appears Amex was not on the credit scene (certainly not the
pioneer?) during the Americard boom. Do we know how it compensated and
captured almost a quarter of the market in the US [2]? Second-mover advantage?

\- Discover is the "third largest credit card brand in the United States, when
measured by cards in force, with nearly 50 million cardholders" [3]. Two key
acquisitions may be explain this - Pulse (an interbank electronic funds
transfer network) and Diners Club (the original daddy from the article). There
is no citation the Pulse acquisition but I'd assume it is an old network. The
Diners Club network probably was a healthy addition to their customer base
outside the US.

[1]
[https://en.wikipedia.org/wiki/Mastercard](https://en.wikipedia.org/wiki/Mastercard)
[2]
[https://en.wikipedia.org/wiki/American_Express](https://en.wikipedia.org/wiki/American_Express)
[3]
[https://en.wikipedia.org/wiki/Discover_Financial](https://en.wikipedia.org/wiki/Discover_Financial)

~~~
MSD1976
Yes Mastercard was in response to the success of the BankAmericard. Banks were
much more regional in the 1950s-1960s because of a federal law that prevented
them from operating outside of their home state.

Bank of America was the largest bank in the largest state (California), and
had the most successful credit card program (the BankAmericard). When they
began franchising the program to other banks, it made sense to concentrate
their efforts in states near California.

Mastercard (at the time known as Mastercharge) was formed in response by a
bunch of East Coast banks.

Re: Amex... they were big in the traveler's cheques business around the time
that Diner's Club launched. Diner's Club proved the model, and Amex leveraged
their extensive traveler's cheque network and wealthy user base to enter the
market.

~~~
simonebrunozzi
Fun fact related to BofA: It was founded by an Italian immigrant in 1904 in
San Francisco, and it was called "Bank of Italy". [0]

[0]:
[https://en.wikipedia.org/wiki/Bank_of_America#Bank_of_Italy](https://en.wikipedia.org/wiki/Bank_of_America#Bank_of_Italy)

------
wffurr
From the conclusion:

>> These are the hallmarks of one of the best businesses on the planet.

The "best business on the planet" is effectively a tax on economy growth? They
don't even reinvest their profits - they return them to shareholders. So the
value of the "best business on the planet" is that it takes a percentage of
every transaction and funnels it into the personal wealth of Visa
shareholders?

That kind of platform business should really be run as a non-profit, and
instead of paying dividends, should reduce processing fees to where it just
covers operating costs and capex.

Instead it sounds like it's just a driver of inequality simply because they
have a captive market and no real competition. I suppose that's the "best
business" under a very specific definition of best.

But in terms of making the world a better place, I don't think so.

~~~
john_brown_body
Instead of a non-profit, it should simply be nationalized and run as a
utility. This not only eliminates the "tax on transactions", it would also
transfer Visa's enormous power to structure markets (by cutting entities out
of the payment processing system) from a private corporation to a body with at
least some democratic accountability.

~~~
MSD1976
Why should Visa be treated as a utility but not a company like google for
example?

~~~
wffurr
That is an excellent question. Why isn't internet search also treated like a
public utility?

~~~
MSD1976
Don’t know. Where and how do you draw the line?

~~~
wffurr
I would certainly draw it much closer to the public interest that it is now by
most countries.

In particular, "platform" businesses like Visa, Google, Amazon, etc. should at
a bare minimum restricted from competing with the users of their platform.
Ideally, the social value of the platform would be made public by a government
buyout (aka nationalization) instead of flowing to the hands of the few select
shareholders of the platform or subject to the whims of the platform company's
executives.

------
amaccuish
I think this is the second part:
[http://minesafetydisclosures.com/blog/2019/7/23/part-ll-
an-o...](http://minesafetydisclosures.com/blog/2019/7/23/part-ll-an-overview-
of-visa)

~~~
ian0
Everything about how they make money and the value of the business model is
correct, but i'm not sure its the time to be bullish on schemes:

\- National switches are surely eroding domestic transaction volume in the
markets where they are deployed

\- Im not aware of a schemes playing a central part in any of the big wallet
based payment systems taking over POS

\- Non-bank / non-scheme pay later systems are growing extremely fast amongst
younger demographics at least here in SEA

\- (Im guessing) that with increased financial literacy the profitability and
popularity of credit cards is decreasing

There have been some really interesting developments (Eg MC assisting
international cash out for large marketplaces), but the core business isn't
looking anywhere near as stable as it was 10 years ago.

~~~
9nGQluzmnq3M
China is also an interesting example of a large, increasingly developed
country where credit cards are barely used: they went straight to electronic
payments with Alipay/WeChat Pay. There are a number of companies in SE Asia
and India trying to replicate the model, and many are starting to get
traction: PayTM, GrabPay, Gojek, etc.

~~~
MSD1976
As far as I know, most of these payment networks don't extend credit to
customers in the same way that Visa's network enables. Consumer credit is a
very powerful force that is often under-appreciated, and that benefits all
parties involved in a transaction (e.g., consumers, merchants, and banks).

~~~
riffraff
I feel credit-cards-as-credit is mostly an American thing, basically everyone
I know in Europe treats their card effectively as a debit one, the only
difference being you could not rent a car with a debit one.

Some people don't even know the difference and get surprised when their card
cannot be used for some credit usages.

(That is just my anecdotal evidence, of course)

~~~
MSD1976
You're definitely right. Different countries have varying degrees of credit vs
debit penetration. US skews more credit.

------
ggm
I was told the decision to use a one-time seeded cryptographic key to sign
over the original card partners (when they adopted PKI) and then destroy the
private key caused some ructions when the tech execs wanted to keep shards of
the destroyed hardware in lucite: sombody was concerned key recovery would be
possible.

------
punnerud
In Norway all the banks come together and created BankAccept as an addition to
VISA, where they put some extra information on the card and bypass all the
VISA fees for usage in Norway. The other Scandinavian countries have done the
same.

Only if you pay online (with the credit card number) will the fee apply.

~~~
williamDafoe
That's excellent. We have too many blood sucking financial people and they are
draining the life out of the USA, producing nothing of lasting value!

Credit cards are solved problem for the last 30 years. The fact that they take
3% to 4% of every transaction and then extract a usurious 20% annual interest
rate at a time when loan rates are 4% should be criminally prosecuted.

A 1% cut and 3% over prime rate interest rate (currently 5.5%) should be
mandated by legislation!

~~~
opportune
Credit card loans aren't collateralized and can be spent on almost anything so
the risk of default (without collecting the principal) is higher, at least in
theory. Usually most consumer loans, like car or houses, are easily
collateralized. Can't do that with a vacation to the bahamas

------
raylangivens
Interesting stuff. I always knew of the different parties involved in a CC
transaction, but this explained in a super simple way. Kudos. Weird that there
is no about section and wth is the author ?

------
williamDafoe
(Error) Bank Americard actually changed their name because they wanted to
expand internationally and having America in the name was not good in every
country. That's precisely why they chose the name VISA.

MasterCharge got started just a few years after Bank Americard. I feel like
they probably changed their name to MasterCard just to respond to their
competitor's name change....

~~~
MSD1976
Sorry what's the error?

Started by BankAmericard by Bank of America in CA only. They then franchised
it to other banks in neighboring states, and eventually international banks (I
believe under the BankAmericard brand, or under the other bank's brand). And
then in the mid 1970s all the participating banks decided to rebrand under
"VISA".

~~~
option_greek
Did Bank of America retain its original 0.5% agreement with the other banks
when they spun off visa ? It seems odd that they would just give up an asset
like that for other banks to own it.

------
wodenokoto
Part 2: [http://minesafetydisclosures.com/blog/2019/7/23/part-ll-
an-o...](http://minesafetydisclosures.com/blog/2019/7/23/part-ll-an-overview-
of-visa)

------
kccqzy
And funnily enough, recently even Bank of America started issuing MasterCard
credit cards. The pioneering BankAmericard that started it all is now a
MasterCard.

------
russfink
Why is this posted on a site about mine safety disclosures?

~~~
MSD1976
The site isn't about mine safety disclosures—it's just a name.

A quirky requirement that came out of Dodd-Frank is that ALL publicly traded
companies are required to make a disclosure about mine safety, regardless of
whether or not they even have mines. So if you look at Visa's 10-K, or
Google's, or Chipotle's, they all have a line item for mine safety
disclosures.

~~~
fabioborellini
Are the mines excavations or explosive devices?

~~~
MSD1976
The former

------
tyingq
Interesting site, cited by lots of sources as a good reference, especially the
Costco post. But appears to be anonymous.

~~~
MSD1976
Thanks, but I prefer to stay anonymous for now

~~~
vogtb
It's interesting (and great!) to see this level of research and attention to
detail in a blog. Do you mind if I ask why? Are you gathering potential users
for a product, service, or startup in this space?

~~~
MSD1976
Just a hobby so not really.

I have some half-related product/service ideas but nothing concrete at the
moment.

------
dredmorbius
The Diner's Club origin story is a myth. Unsecured credit lending actually
originated with retail department stores.

Louis Hyman covers this story in _Debtor Nation: The History of America in Red
Ink_ (Princeton UP, 2011).

[https://www.worldcat.org/title/debtor-nation-the-history-
of-...](https://www.worldcat.org/title/debtor-nation-the-history-of-america-
in-red-ink/oclc/903322856)

New Books in Economics podcast interview (Duration: 50:26):

Published: Fri, 04 Mar 2011 22:58:43 -0000 Media:
[https://traffic.megaphone.fm/LIT7526154990.mp3](https://traffic.megaphone.fm/LIT7526154990.mp3)

Podcast:
[https://www.podcastrepublic.net/podcast/425187524](https://www.podcastrepublic.net/podcast/425187524)

~~~
MSD1976
No myth. It was the first CARD and line of credit that could be used at
multiple merchants. Prior to that, you had a line of credit with each
individual merchant.

------
forgotmysn
for anyone who finds this interesting, I highly highly recommend the book One
From Many by Dee Hock. It's the history of Visa, as told by its founder.

~~~
MSD1976
Oddly I didn't like the book very much. Personally thought there were better
books out there to understand the history.

------
careykong
Is it possible for any decentralized currency to effectively remove the middle
man and the fee associated with it or would it be more like the current credit
system start using more efficient technologies that make transaction fees
cheaper and we keep them around.

------
akrauss
The article shows that Visa is one of the first examples of a digital platform
business:

\- Technology as an enabler

\- Creates value by standardized digital processes

\- Strong positive network effect

\- Stable revenue through transaction fees

