A string of leading Australian financial services businesses are mulling the potentially disruptive implications of Visa’s planned acquisition of a small but influential global technology services company.
A filing to US Securities and Exchange Commission on Wednesday morning (Australian time) revealed that Visa will pay $US75 million to secure full control of a UK holding company called Smart Card Software Limited from the Nasdaq-listed payments IT specialist, Rambus.
Smart Card Software manages a portfolio of four technology services companies, the most notable being Amsterdam-based Bell Identification BV(Bell ID), which is active in the local market as a strategic partner on ecommerce projects at Amex Australia, Coles and Eftpos.
Bell ID is helping these companies to roll out online systems that generate tokenised payments aimed at improving the security of card-not-present transactions through their respective internet and mobile platforms.
Bell ID’s partnerships with Eftpos and Amex Australia are especially significant because both companies have integrated their processes for tokenizing payments with the service provider’s own systems.
In other words, Bell ID has contracts to facilitate the entry of Eftpos and Amex into ecommerce payments and to deepen their respective global capabilities to compete against the likes of Visa and Mastercard.
The buyout target has a unique view into the ecommerce operations of Eftpos and Amex that could potentially give Visa insights into the rival businesses and some measure of strategic leverage.
The planned buyout is almost certain to attract diligent scrutiny from the ACCC and competition regulators in other markets such as Canada, Sweden, the Netherlands and Kuwait where Bell ID is a critical service provider to a number of Visa’s competitors.
Visa yesterday talked up the prospect of Bell ID continuing to act as a strategic partner to its payments rivals despite the apparent conflicts of interest the acquisition would create.
“Visa will expand enhanced security benefits of tokenization beyond Visa cards to any type of transaction, including domestic card networks, account-based and real-time payments systems,” the card scheme said in a media release.
“As the way people and businesses pay and get paid continues to evolve, the addition of Rambus’ technology will allow us to deliver greater security beyond the card to support more transactions, payments systems and participants.
“Going forward, we will apply these expanded capabilities, expertise and scale to help further all forms of global commerce.”
While such statements might indicate noble intent, Visa’s big challenge is to stoke confidence among its most fierce rivals that Bell ID can still deliver contracted services in a reliable, timely and effective manner.
That might not be an easy task in an industry where global and domestic card schemes are scrambling to establish footholds in the burgeoning field of tokenised payments.
Moreover, Visa’s deal might not suit large retailers such as Coles that have entered contracts with Rambus’ Bell ID arm to shield their expense lines from the pricing influence and strategic agendas of entrenched payments providers.
It is debatable whether the global card scheme can persuade Coles that Bell ID would continue to operate at arm’s length from its new owner.
A Coles spokesperson yesterday told Banking Day “it was too early for the company to comment.”
Leading payments industry experts said Visa’s rivals could move to unwind their deals with Bell ID if competition regulators in Australia and overseas decide not to scupper the buyout.
However, some might elect to terminate service contracts more swiftly to avoid the strategic uncertainty likely to be caused by a drawn out regulatory process.
So, whether the deal proceeds or not, it seems likely that Visa’s announcement will have disruptive effects on the technology rollouts of competitors.
One industry consultant said Visa’s motive for acquiring Bell ID was to fill strategic holes in its proprietary tokenisation platform.
“The acquisition makes sense from Visa’s perspective - the technology is better than anything they have in house,” the consultant said.
“However, they have a poor record of managing their internal conflicts of interest.
“Michelle Bullock’s recent warning that the card schemes should avoid using tokenisation to lock out competitors now looks most timely.”
RBA Assistant Governor Michelle Bullock last month warned card schemes and banks that the regulator was monitoring the debit market for evidence of anti-competitive practices.
“The Bank will be looking closely at developments in the debit card market to ensure that, as far as possible, there is a level playing field for the alternative debit schemes,” she told an ASIC conference.
“We will also work with the ACCC as necessary to identify and address any anti-competitive behaviour.”