Today, Visa is a company with a market cap of over $162 billion, but when Visa was founded in 1958 no one even knew if the concept would make it off the ground…
By the late 1950’s there had already been at least a dozen attempts to create a universal credit card (versus a store card) but all had failed miserably.
Then came Joseph P. Williams, who was the V.P. for a division at Bank of America known as the Customer Services Research Group.
He pitched the idea to the bank’s senior management team. The major selling point was that it could save the bank a tremendous amount of money. How? Because processing small checks for customers was very labor intensive and therefore inefficient and expensive in terms of salary and benefits.
Instead, if customers could use a credit card to pay these small bills, it may very well save money.
So this credit card concept, originally known as BankAmericard, was green-lighted.
The pilot consisted of 60,000 cards being mailed out to their banking customers – unsolicited – in Fresno, CA. These weren’t applications, but rather live, ready-to-use cards! Try not to think of the security and fraud implication of doing something like that in today’s world, but things were a bit different back in the idyllic 1950’s.
By 1959, the program had been rolled out statewide. There were over 2 million cards in circulation and over 20,000 merchants were accepting them for payment, which is all the more impressive when you stop to think that all purchases and back end settlements were done using those carbon copy payment slips.
The growing pains
Despite the widespread use in the Golden State, the BankAmericard system could hardly be deemed a success at the time:
- 22% of accounts were delinquent, versus the expected 4%
- This new product did eventually give birth to a new phenomenon… credit card fraud.
This almost led to the BankAmericard going to the chopping block. But as fate would have it, Bank of America decided to keep the program and spent the early sixties reworking the system.
California and beyond
The BankAmericard system was originally intended to be used only in California. But in 1965, Bank of America decided to license the system to financial institutions elsewhere.
Licensing was the only option because back then, multi-state banking was illegal. So of course, that meant BofA could only issue cards in California.
To grow the user base, these other banks used the same trick of sending out cards unsolicited to customers. It worked so well that by 1970, over 100 million were in circulation across the country.
But the United States wasn’t the only country participating. During the late 60’s, Bank of America had also licensed the system to a foreign banks in Canada, United Kingdom, and France.
As you can probably guess, the BankAmericard name wouldn’t work in a foreign country, so those banks issued the cards under their own brand names.
BankAmericard becomes Visa
Bank of America turned over control of the program in 1970 to the various financial institutions that were using it – creating an economic joint venture that would collectively own and operate it.
The domestic operations were governed by a branch known as the National BankAmericard, or NBI. A separate branch was eventually established to handle the international licensing called IBANCO.
This international arm, IBANCO, concluded in 1976 that it would be more beneficial to operate the entire BankAmericard network under a single name.
The new name was especially important because many foreign countries were hesitant to use a card associated with Bank of America, even though their part in the operation by now was quite minimal.
So In 1977 BankAmericard, Barclaycard (UK issuer), Carte Bleue (French issuer), Chargex (Canadian issuer) and the others chose “Visa” as the new universal name for the credit card.
The company’s founder, Dee Hock, came up with the name. He stated it was a term that was understood in many languages and countries, and also stood for universal acceptance.
For consistency, the blue, white, and gold flag was retained for the Visa logo. Prior to that, each country used a different emblem.
Visa as we know it today
As we all know, credit cards continued to flourish during the 80’s and 90’s. Ironically, Visa’s history may have been different if it weren’t for some healthy competition from Discover.
That’s because Discover pioneered the no annual fee concept when it launched in 1986. At the time, the concept of not charging an annual fee seemed preposterous and consumers had come to accept such fees as the cost of having a credit card. Furthermore, Discover was the first to offer cash back on purchases, which turned out to be quite a game-changer.
To remain competitive, banks that issued Visa cards had to begrudgingly begin offering the same type of incentives or risk losing their market share. If the status quo of annual fees and no rewards had remained, would Visa’s historical growth continued unabated? It’s unlikely.
By 2006, over 21,000 financial institutions participated in the Visa program. In October of that year it announced that most of the operations would be combined and turned into a publicly traded company.
Although this new entity didn’t include all the foreign components, it had a very successful IPO nonetheless. In 2008, it kicked off with the market valuing the company at over $50 billion. Visa is traded under the symbol “V” on the New York Stock Exchange (NYSE). As of January 2015, its market cap (company valuation) is in excess of $160 billion – that’s a massive gain in value since its IPO.
What Visa does and doesn’t do
Visa is branded today on both credit cards and debit cards.
However, it’s important to realize that Visa issues none of the cards, nor do they extend any credit.
Rather, it’s the affiliated financial institutions which are responsible for both. Visa generates its revenue from the (a) transaction fees on purchases, and (b) the licensing fees which financial institutions must pay to be part of the network.
The re-birth of the BankAmericard name
As an ode to history, Bank of America announced in 2007 that it would bring back the BankAmericard name.
Today, there are several cards issued by BofA brandishing the BankAmericard name with its retro tri-color design. Perhaps Joseph Williams, who passed in 2003, is looking down with a smile on his face.
Which Visa cards are most popular?
Currently, the following three are arguably the most popular on CreditCardForum: