The View from Visa's New Boss


When former Visa USA CEO Carl Pascarella announced plans to retire last year, he left some big shoes to fill -- and some thorny legal problems to solve. In 2002, Visa and MasterCard paid $2 billion to settle a lawsuit filed by Wal-Mart (WMT) and other merchants over debit-card fees. Last month, another group of merchants sued the card companies over credit-card fees.

But rather than hire a lawyer as its next CEO, Visa took the peacemaker approach and named a former merchant. On July 11, the card association announced that its new CEO is John Coghlan, who, prior to spending 17 years as an executive at Charles Schwab (SCH), ran a small business called San Francisco Grocery Express Ltd. The 54-year-old San Francisco native vows to pay special attention to merchants' needs during his tenure.

With no prior experience in the payments industry, he acknowledges that he has much to learn. To find out what the new CEO sees ahead of him, BusinessWeek Silicon Valley correspondent Justin Hibbard spoke with Coghlan on the day his appointment was made public. Following are edited excerpts of their conversation:

Q: Since its inception, Visa has operated as a privately held joint venture owned by its member banks. Is that structure still appropriate?

A: Visa's remarkable growth rate is a testimony to the structure's ability to balance the interests of the various stakeholders, all the way from the cardholder through the merchant through the financial institution. There was no single bank that had the scale and capability to put all this together, and certainly if that bank was trying to serve other banks as well, you have the issue of different strategies and competition.

Although Visa will continue to look at its governance structure to decide what's the best way for it to succeed, I've developed a tremendous respect for the structure they've developed.

Q: But reexamining the structure is an option?

A: It always has been. The issue is one of how to balance the differing interests of different stakeholders. In part because of my own merchant background, I'm especially interested in making sure I'm educated about the particular needs of merchants and ways they can grow their businesses and how Visa can help them. There's no hot breaking news about some change in Visa's structure.

With me taking the helm, it's an opportunity to continue to challenge assumptions and ask questions and become educated myself and perhaps pose alternatives.

Q: Several merchants recently sued Visa over interchange fees, which are set by Visa and its member banks and which merchants pay to the member banks for every payment-card transaction. Under your leadership, what will Visa's position on interchange be?

A: It's my first day on the job, so it would be way too early for me to have an informed perspective on that. We know that interchange is a pillar of the entire structure on which Visa is based. What it attempts to do is to balance value provided across the entire continuum, balance the needs of various stakeholders. So it's something that gets reviewed all the time by the board of directors who make decisions on interchange. I'll be a member of the board, and as a result I'll very much be involved in those discussions.

That said, I do intend to reach out in a special way to merchants to make sure that I understand the issues that are before them. My first outbound call today was to Mallory Duncan of the National Retail Federation, to introduce myself and let him know that I want to come to Washington and better understand the needs and interests of merchants.

Q: Visa commands the largest share of the U.S. credit- and debit-card markets. How much more can it really grow?

A: When the Visa opportunity came up, I tried to think about how I felt about this organization. I thought, with a company with such remarkable market share and transactions, I wonder if they're really tapped out. As I dug deeper, I saw that for personal-consumption expenditures, you still have 60% of transactions being checks and cash, which, as I know from my own experience of being a merchant, are unbelievably expensive to handle. I just thought there's remarkable opportunity for Visa to grow and thrive.

Q: For example?

A: Debit is now 60% of the transactions we see. It's a rapidly growing category and will continue to be. In small business, in the last six months or so, Visa surpassed American Express (AXP). There's tremendous further opportunity there. There's great opportunity in micropayments if you think about quick-service restaurants and things like that where there's very low penetration by electronic forms of payments.

In addition, government benefits and payroll are examples, if you think about the number of checks going out now and the high cost to maintain those. Automatic bill payment is another example where checks are the dominant mode right now -- a huge growth area for us.


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