Visa, MasterCard and Amex: Payments dinosaurs face off Bitcoin technology threat

Whereas the dinosaurs didn't know what hit them, huge payments companies can see the threat from distributed ledger technology hurtling their way and still have time to try and avoid extinction.

IBTimes UK spoke with executives from the big three processors – Visa, MasterCard and American Express – at the MoneyConf in Belfast earlier in June, and asked them in turn about their blockchain strategies, innovations and how efficiently their existing systems work.

Fielding a question about whether Visa has a Bitcoin-related technology strategy, Jonathan Vaux, executive director of innovation partnerships, Visa Europe, said: "There are two elements here: the blockchain technology itself, which is very interesting for transactions, then there is bitcoin the currency.

Blockchain gang

"We are certainly looking at applications involving blockchain. What can you do with this? We know there's a peer-to-peer transaction network happening but we don't see it scaling unless there is trust in the system.

"Certainly we are looking at it in a lab environment and as quick way of routing it's exciting. We have a team in London looking at specific use cases," he said.

Regards advancements in distributed ledger solutions swallowing up enormous swathes of payment processors' functionality, Vaux said "platforms are always upgrading, this has always been happening".

Meanwhile, MasterCard said it was watchful. Andrew Buckley, head of products for Europe, said: "We are not currently working actively on any bitcoin-based solutions, but we watch the cryptocurrency market closely.

"We find them interesting from a technology perspective, but currently don't see them as a viable solution for mainstream commerce."

Buckley also talked about the scale of his company's facilities, mentioning its priorities in bringing more people into the digital fold.

He said: "We are a scale business. Our focus is on these hundreds of millions of people with a bit of plastic in their wallets. How do we get them into this new digital world? Once we have sorted that out, and the two billion people that haven't got a card, then we may start worrying about other things."

Buyer protection

We also asked Neal Sample, president of Enterprise Growth at American Express about the blockchain's disruptive potential.

He said: "The distributed ledger is really useful for peer-to-peer transfers.

"So the work that Amex does, while it could be supported by distributed ledger, goes far beyond peer-to-peer. It involves creating a set of guarantees and a set of services for both consumers and merchants that they wouldn't get if they were just trying to transact with one another.

"Think about buyer protection. If you go in and pay for something with your Amex card and it is promised that it will be shipped to you, but they never ship it to you, Amex will stand in for the customer and negotiate on their behalf.

"On the other hand, if you transfer somebody some bitcoins on a ledger – gone, end of story. These are not reversible transactions. So you have to have a very high level of trust that merchant will fulfil on their promise.

"And so that's the kind of thing the Amex does, as an intermediary that a peer transmission network doesn't get you.

"You definitely don't have to worry about trust in payments, the payments transaction happens, right, but there's a commerce cycle that's much, much bigger than payments. It introduces a new series of problems if you can't revoke the payment. Payment is not the end of the cycle – it's not even the beginning of the cycle – it's just one stage in the middle."

The big payments processors must be tired of getting flak about their sprawling legacy systems. In a recent interview, IBTimes UK heard the V.me and MasterPass wallets described as a "nightmare" to integrate by merchants, who have no choice but to spend time and resources on this because these companies are too big to be ignored. We asked what they thought of this assessment of their wallet technologies.

Nightmarish technology

Buckley of MasterCard said: "The evidence doesn't really suggest that. If you look at the announcement we made yesterday with JC Penney in the US about digitising their store cards, what we are doing is we are playing role of linking these retailers with hundreds of millions of people who have a card.

"We are the middle man between the banking systems and the retailers and we've got 250,000 merchants worldwide on MasterPass, so the scale we operate at is significant."

Buckley said the tokenisation of digital transaction using MasterCard (Visa also offers a token system) should make things easier in terms of storage and security.

He said: "To store credit card details is a pain, because you've got to put them on a special server and if it gets stolen, you know, retailers have very famously been hacked. And so where the advantage of these digital tokens is, the risk you face is much reduced. I think it will be seen as a real turning point in payments."

On the subject of ugly inside-out technology that gums up the works of merchants' payment systems, Visa's Vaux said: "You need to separate in-store, online and in-app.

"Online the merchants have quite long-standing technology that is quite complex and therefore particularly in markets where you are trying to solve liability issues, that can be complex. We are trying but it is complex.

"The big piece of work we have done is tokenisation which is building effectively the ability to neutralise the data out there so that it's much, much safer.

"Visa is facilitating Apple Pay with tokenisation, but the card holders won't know about – I mean it makes them safer but they won't know about that and as far as they are concerned it will operate like a contactless transaction."

Amex does not operate a wrapper style of wallet of the kind Visa and MasterCard use, as Neal Sample explained: "We provide a consumer wallet with consumer capabilities.

"We took a fairly standard approach treating our wallet just like it was a credit card was or a debit card. We didn't have the difficulty of integrating. Nobody had to integrate to us directly. Now they could, optionally, but on the other hand you didn't have to add another button to your website to take a Serve card.

Sample explained that wallets such as the V.me and MasterPass offerings are called "pass-through wallets"; by clicking on a button the user enables some other instruments behind it.

He said: "So you are going to enable a Visa card, or it used to be – I dunno if it's still the case – you could put an Amex card in your V.me, so really what it's going to do is it's going to pass a transaction through.

"Serve is actually a stored value account, so it's more like a prepaid card or a debit account or a bank account, in that there are funds available there."

"Their wallet is really a thin wrapper, it doesn't have stored value in it at all. V.me doesn't have the notion of funds in, or funds out – you can't go to an ATM and use your V.me wallet right, cause really at the ATM, it's gonna try to use something behind it – so it's a different concept.

"Theirs is really a wallet in the thinnest sense, ours is really an alternative to banking."