The Industrialist’s Dilemma: Charlie Scharf, CEO of Visa


[MUSIC] Pleasure, thank you very much for
coming out.>>Absolutely.
>>To, The Industrialist’s Dilemma. So, what we’d love to kick of with,
we do this in the beginning of each chat, is if you want to kind of give a 30 to
90 second, sometimes it goes on for about eight minutes, but,
if you can try and keep it to that.>>[LAUGH]
>>Level set of, of the state of financial services, and payments in general,
and then bring Visa into the picture of what you guys are doing
right now around all of that?>>Sure, so the state of
financial services, first of all, I’m probably the wrong person to ask. And it’s actually, it’s just one of these
big issues and big misunderstandings, in fact, when I first got to Visa, there was this big question inside
the company when I got there. People wanted to know in every town hall,
are we a financial services company? Are we a technology company? And the answer is, we’re definitely
not a financial services company. We absolutely have to act like
a technology company, but we’re a payments business and they’re
fundamentally very, very different. We don’t do what financial
services companies do, financial services companies
are our direct clients. Most all issuers or financial services
companies, and most acquirers, in one way shape or form,
are financial services companies. The payments industry, as you all know,
has gone from this extremely boring, back office function, that no one
ever wanted to talk about, right. I mean if you think back to, well if you
can remember back ten or fifteen years, when you’re out buying something, I mean
payments wasn’t something that was sexy. You didn’t have startups
focusing on payments. It was just something that gone done, and transactions happened electronically
if you weren’t using cash. And today, we live in a world
where it’s fundamentally changing, driven by commerce,
moving to digital platforms. And driven by digital platforms,
allowing other people to create either full networks, or parts,
that value chain that we talked about. And so anyone who’s involved in payments,
who’s not thinking that the world is fundamentally different,
is going to be dead, buried, and gone.>>And so assuming,
Visa’s not in that category?>>No, we’re not.
>>What are you guys doing, and where do you sort of see yourselves
fitting in the value proposition of digital payments then?>>Yeah, so
you all were talking about whether we needed to be focused
on the digital world. And, the way I think about it is,
we partake in commerce, that’s what we do. I mean I could go through all of our
sales pitches about we facilitated, we helped commerce grow faster
than it would without us, but the reality is,
commerce is moving to digital platforms. If we don’t go with it or even lead it,
then we will be left far behind. And so the business that we have today,
it’ll take a long time, but It’ll be a slow withering away of our business at
some point with some kind of acceleration. So if we want to be at all as
successful as we’ve been in the past, we need to do it. And so for us, it’s a fundamental
change to our network architecture, to who we deal with, which I can get into
more detail on what that actually means. And we’ve gotta be willing to do things,
quite frankly, that we would have never
thought about doing before. And we’ve gotten so fundamentally,
go from this very, very closed, you talk about a network, within Visa,
we were a very closed operating infrastructure, and that doesn’t work
in the world that we’re in today.>>So, we had some diagrams
of the transaction process of how payment actually works. And maybe a 30 second kind of level,
can you explain the industrial sort of world version of that when things
were pre-Internet, how that worked. And do you think we’re in a position
where that should be rebuilt and redone for a digital world, where
there aren’t as many steps in between? And in that future world, where do you
think Visa’s value proposition should lie?>>Yeah, listen, I’m going to guess I
think, well let me just give you a little intro so you understand
the position that we’re in and the frame of mind to answer the question. So, and someone said this before
in your discussion, which is, we rely on our relationships with
the issuers and the acquirers, okay? And in a lot of ways,
the issuers over a shorter period of time can have an extraordinarily
meaningful impact on our business, right? It’s real simple, right? If you have a Bank of America card or
a Wells Fargo card, if they choose not to issue a Visa card
anymore, they’re going to send you a letter that says throw out your
Visa card, they’re going to send you someone else’s card, and 90 something
percent of you will use that card. So we have to be extremely, extremely careful about the role
that we play, who’s feet we step on. To the extent that we do something like,
Visa Checkout, which is something which appears to be direct to consumer,
there has to be a good reason for it.>>Or, we have to be willing
to take on our clients. And remember we have 2.4 billion
cards outstanding in the world, and we have 12,000 people. We have 50 million merchants that accept
our products, and we have 12,000 people. And so we’re not tooled,
as a company on ourselves, but by ourselves to deal
with this infrastructure. We are a network, but we rely on
networks to help deliver our products. And so, we have to be really thoughtful
about what it means to go beyond that. And so when we think about what happens
today, I know, I mean it sounds very, very complicated when you draw, I mean
most businesses are much more complicated when you actually show
every step of what happens, otherwise you wouldn’t be doing what
you do as successfully as you did. [CROSSTALK]
>>Well that’s the case too.>>Yeah.
>>So ultimately when you look at it, there’s a consumer and there’s a merchant and
they want to conduct commerce together. And the merchant has to have
a financial relationship, and the consumer has to have a financial
relationship, and we connect them. That’s what happens. And so fundamentally, should that change, I personally think the basic
structure of that, is something that will be hard to
change at the scale that we do it. They’re absolutely people that can
win the Longtel transactions and do things that are very
different than that. But the way in which we go about
connecting, and who we connect with and how we integrate the stripes of
the world into what we all do. We’ll fundamentally change who
partakes in that value chain.>>When you look at
the changing payment landscape, what do you think’s the biggest change
over the next five to 10 years, and what’s Visa specifically doing about it,
both internally and externally?>>Yeah, so we live in three worlds. And I guess you all stressed this question
a little bit about priorities and whatnot. And they’re three very distinct worlds,
and we’re not picking and choosing between the three,
we’re dealing with all three. Number one is,
we do have a traditional business, most of which is physical cards where
we deal with issuers and acquirers. And we compete every single
day with MasterCard, and it’s going to be UnionPay in China,
and it’s local networks, and it’s America Express on co-brands,
and they’re all tough competition. And if you ask me how I spend my time, there’s more significant portion
of my time than you would expect, dealing with these big relationships,
because that is our life blood today. Second piece of it,
is the developing world, right? And so,
there is a lot of dark space out there, which is huge opportunity for
us and it’s not just Africa. It’s parts of the United States. In the United States, half the
transactions still aren’t electronic here. And yes, so the growth rates in the US
are half of what they are in the rest of the world, but it’s a lot of dollars for
us to go after. So the idea of continuing to penetrate
electronic payments of which there’s. When we went public in 2008, there was
something like, my numbers will be a little bit wrong, 6 or 7 trillion
dollars of cash in the world in commerce. Today that number’s 11 or 12, so there’s
more cash today than there was when we went public, and
we have more to this than ever. And so the third bucket is digital. And it’s what I said before which is,
we have to deliver our products and our infrastructure, and the way we do
business has to fundamentally change, so that we can integrate with people who are
driving commerce experiences in one way, shape, or form. And we have to be there where digital
transactions are taking place. And that’s very different from
what we’ve done in the past.>>So not everybody can win though, as we move from an industrial
world to the digital one. And so in this new sort of restructuring, who do you think is under pressure in that
value chain that we’ve talked about or in the ecosystem broadly,
or under the most pressure?>>Listen I think. All these people in the value change
are clients of one shape or form so we, so we’re going to be careful here. And honestly, I think everyone who is in the flow of that transaction
should be scared to death. And you can look at whether it’s the bank,
whether it is the network, whether it’s the acquirer or the equivalents in the e-commerce
world that all should sit back and say, can I be replaced, because
the answer is theoretically they can. So what are they doing about it? I personally look at
the role that we play. And I think in a lot of ways again,
in term of scale, because remember, we are you always hate to talk about size,
because the big, dumb, and stupid,
you should kind of go together in phrase. But the fact is, things that scare us are things that can actually scale across
the world in one way, shape, or form. And when you talk about that,
you talk a much more limited sphere.>>Right, like cryptocurrency or
digital payments.>>Cryptocurrency is a complicated one,
too.>>Sure.
>>It’s block chain more than cryptocurrencies.>>Right.
>>Mm-hm.>>The currencies themselves, I find them relatively uninteresting. They will win small tell
transactions on the margin. Very, very hard to believe that it will
scale in a meaningful way across the globe with governments. But block chain and especially
federated block chains do have to. Anyone who has any kind of a network,
doesnt matter if it’s a payments network, a network where you trade securities,
real estate titles, all these things. You really do need to be thinking about,
not just the cost, but the permanent record that
gets created with these. That’s again, I don’t put that in the
category of something that we worry about in the next four or five years,
but absolutely beyond that.>>So if your customer and your kind of
key partner in this effort is the bank, but the consumer is the end user and you sort of are relying on them as
a channel, how do you deal with the fact that you’re sort of one step in between
the ultimate consumer of your capability, and either the services that
you need to offer and go into? You said stepping on people’s toes. How do you deal with
that whole complexity?>>Yeah, delicately. I guess, first and foremost, the resources-
>>And, most importantly,
>>Deal with in such a way where somebody disrupting you doesn’t just go
around that entire process and not have to deal with the same kind
of relationships that you deal with.>>Right. Talk about people going around us,
just think about how hard it is for someone to do everything that you can
to connect two and half billion people with 50 million merchants in 200-some
odd locations around the world. And people, and so there are domestic
networks across the world. So you go to Canada, there is a domestic
debit network called Interac. You go to Australia,
there’s a domestic network called EFTPOS. There are domestic networks,
but number one is, they’re not inter-operable across
the world, so anyone that has one of those cards that travels across the border
needs another branded card. And their capabilities aren’t anything
close to what a real network would have. And so there are severe limitations to what these individual
networks can provide for. And so, again, so we have this,
amongst you all, I hate to say, we have this incumbent advantage that
we really have to use to our advantage. And if all we do is ride the incumbent
advantage, it will be be a disaster. But having that gives us
a fair amount of lead time to pivot in different directions.>>So, specifically with
that incumbent advantage, what’s Visa doing differently now
than say when you joined three and half years ago or
even versus five years ago? Sure what’s your team doing differently?>>So take, historically we would only
talk to an issuer or an acquirer. When i mean like we wouldn’t talk to
anyone, literally if we would get a call from Apple that would say listen
we’ve got this great idea, we want to work on Apple pay. We would say that’s great. Why don’t you go talk to you know
the 15,000 banks that we deal with and go talk to all the acquirers we deal with,
and when you have contracts and when you’ve set up standards with all
of them, come back and talk to us. That’s literally what we
would have done historically. And so, what we’ve done is, number one is, we have started to treat
a much broader set of people. Again, people who can insert themselves
into commerce or into the payment streams, as people that we should
have relationships with and to figure out how we can bring people
into the payment stream in a way which I would describe as friendly to us and
our clients. We also have the benefit of there are a
lot of people that are not far from this campus that have tried to step into
the role of a network and of a bank. Hasn’t worked out and now they’re doing things which are much
more friendly to the ecosystem because they don’t necessarily want to make money-
>>That’s a lesson.>>Just from payments. They want to do what they do.>>Yes.
>>Right? They want to sell devices. They want to bring people
into their ecosystem. And payments is a way to solidify that. And the question is do they want to deal
with the regulation that the banks have. Absolutely not. And so in a funny way, regulation while
I can talk about what we like and don’t like about it. It does provide a barrier
entry to some people who just know better than to go there.>>So Apple calls you and they say, hey,
we’re going this Apple Pay thing, and you have an ecosystem-centric approach,
so you take the call and you don’t sort of pass
along the 15,000 things. Are you generating new value because
of that kind of partnership? Do you live in a stack in a different
place because of Apple Pay or Google Android Pay? What has changed about your
business model because of that?>>So the most significant thing that
we’ve did with them is we created tokenization, which is just a fancy way
for randomizing your account number, so that it can sit on a mobile device in
a way that we’re all comfortable with. So if that device is compromised,
your account isn’t compromised. But beyond that, what we do,
and this is what networks do. And we, by the way,
we work with MasterCard, American Express and
even Discover on things like this. Which is we want to create open standards,
so that we can define how accounts
are provisioned onto devices, how the transaction flow then works, because
a tokenized transaction flow is very different than when you’ve got the account
number flying across the payment system. And, we want to make it easy for
everyone to participate in that. Think about it as,
we’ve got the platform, but we create the standards by which
all these transactions can flow. So that we do that with Apple. We MasterCard, the rest agree on what
those standard are and then very, very easy for any bank in the world or any merchant in the world can
be part of the ecosystem. Without us doing that again,
it would have to be one on one conversations, and
someone would have to try and set this standard, and
we have the ability to do that.>>In the longer term five, ten years out, how worried are you about things
that could disintermediate, a bunch of those that in between and
sort of transactionary. And so if Google entered and directly connected small
businesses with the consumer. And sort of the entire payment stack
was just the old form of payments in the industrial world where we had to have
the network just goes away because you can actually connect the buyer and
seller together. Is that a real threat and do you have to do anything today
to sort of worry about that?>>Yeah,
we as a company worry every single day. So when I say things I’m worried
about things, not worried about. Even the things we’re not worried about we
spend a tremendous amount of time, more so than any other place I’ve
worked at any other job. The things we think we’re not worried
about we still spend a tremendous amount of time on saying do we have
it right, do we have it wrong? What’s different today than yesterday,
because the world is changing so dramatically. And I think we’re in
a good position today. And again, part of what we want to do is,
if there are people out there that theoretically can make these connections
then what you want to do is, it’s in our interest to work with them, to have them believe there’s a better way
for them to go about doing their business. because I really believe it is better for them to partner with us than
to do what we do on their own.>>Right.>>And then they’ll see it themselves.>>So if the three of us were sitting
here five years from now, and it all went horribly wrong,
some big disruption. What would be your best guess as to what
went wrong that would have hurt Visa?>>Biggest disruption. Well we haven’t talked about security. Security is paramount to who we are. When we think about who we are and
why people trust the Visa brand, it’s because they actually
trust the transaction. They trust that you can use the card, that it’s going to work, it’s going to
work quickly, and it’s safe and secure. And if something goes wrong, it will be fixed because of the rules
that we have in our ecosystem. So as we open up access
to our capabilities, which you asked the question,
I didn’t really talk about in the past, which is things that were changing are. In addition to working with
people like Apple’s in the world, is we’re opening up our
capabilities through APIs. Which we never allowed anyone
other than an issuer or an acquirer to get access to to
integrate our capabilities into their ultimately commerce experiences,
whatever those are. And that changes the whole security game,
because when you have a very closed network which we’ve had,
which is exactly what it was. As you all know much easier to
control than when you start opening up your universe to the world.>>Were the people inside of Visa who
didn’t want you to open your APIs?>>Absolutely.>>How did you handle that?>>They’re no longer here.>>[LAUGH]
>>No, no listen, in all seriousness and I say that I think we’re blessed to
have great people at the company. And just to give you an idea of the growth
when we went public we had 3,500 people in 2008, and we have 12,500 today. So in addition to turnover, we just
brought a lot of people from the outside, some through acquisitions,
small number 1,500. The rest through the growth
that we’ve had and so we’ve been able to bring in the types
of people that either have the skills and think about the world the way
we’re thinking about the world. And the fact is most of the people come
in to Visa they want to do a great job, they know something, and
they’re very open minded. And there’s some people and generally is
isn’t where people, it’s the people in the senior levels because they know
one thing to do things one way. And the world has to change and
when you look at our management team, it’s about a third people who’ve
been at Visa for a long time. It’s a third people that got there when
the company went public, and it’s about a third people that I brought in not
by design, that’s the way it turns out. And I think actually it’s great mix.>>How much of your time has to be
spent on then the new initiatives? You obviously have this complex
job because you’ve got regulators, you’ve got partners, you have traditional
competitors you have new markets and then you have the whole digital strategy. How do you sort of spend your time to
make sure that your putting the right allocation in the area that you think
are going to be most important?>>Yeah, so let me say it this way, I have to fight to spend
time on issues like this, because like any other job you
can see they sit there and they’re always issues,
they’re always problems, generally in our partnerships with banks
we’re probably the largest partner. Because of what they pay us and
we control inter chains, so when it comes with dealing with the bank,
the banks want to deal with the CEO. They don’t want to deal with someone else. And so you can get sucked into
spending all your time doing that, but I need to force myself to make
sure I’m putting the time in. I’m sure every CEO has this, I travel
65% of the time, 60% to 70% of the time. And where ever I go,
I spend a third of the time with clients. A third of the time with government
because it’s so important. And a third of time on
internal activities, probably split 25% between just like
a normal business review of results, what’s going on, and then try and do 75%
of what’s really going on in the market. Because we’re talking about
payments like it’s one business. It’s extraordinarily
different across the world. Somebody talked about Africa. The way digital payments are conducted and
what the opportunities and the solutions that will work in Africa
are very different than in Indonesia, that are very different in Vietnam,
very different in Brazil. The developed world,
the United States, Canada, Australia, much more similar, but the opportunity for
us is much broader than the real world.>>As it relates to your time in
the organizational structure and having to make sure that people are then spending
their time on the most important and potentially the most instructive things. Have you had to create any either
organizational units that are separate from the core business that are either
doing disruptive things or doing things that have a different margin structure or
different technical set of capabilities? Like how is that played out,
how’s that work?>>So early on yes, so when we first
got to Visa absolutely there was, I call like a ring fenced group, that did all of these things that were
out of the ordinary course for Visa. Because he fact is
the organization would kill it. They’ll try every little thing because
we can’t do this, because of technology, we can’t do this in pricing, because of
what it’s going to do to everything else. The way organizations kill things
is by not getting things done, and so absolutely. Controlled resources, clear mandate and I don’t mean it this way,
because we are a management team. But other people weren’t going to stand in
the way, and that was very, very clear. I think now, it’s four years later. What I feel great about is.>>What part of the business
did that have to happen in? Well what was ring fenced?>>Well anything having to
do with things that involved us in digital or
where we were dealing with new, what we would call clients other
than issuers and acquirers.>>Like developers? Anything, whether it’s salespeople or
relationship people that are talking to the Amazons in the world,
the Googles, the Facebooks. Whether it’s people that are building
out the APIs for the ISV community. I mean anything which was different,
just ring fenced into a group. It’s very different today, by the way.>>How did you manage the cultural
implication of here’s the future and the exciting stuff, and
you’re working on the old stuff, and just we’re going to cash cow you and
invest it in the future?>>Yeah, hugely important. I’ll tell you what I did, because there’s
no doubt that that is the huge risk in it. Everywhere I go, every town hall, every conversation, always talk about
the importance of the existing business. So I just did a town hall last
week across the whole company. The first thing I talked about,
with all the stuff going on in payments, the first thing I talked about is the
holiday season, the boring holiday season, where we had 100% availability. We increased our ability
to process transactions up to 56,000 transactions a seconds,
and it’s flawless. Because we’ve got huge swaths
of people inside the company that work their butts off to do that. And so appreciation, respect, and transfer
that to because we’ve been so successful at doing these things, that gives us the
license to go do all these other things. And over a period of time, constantly
explain why those things are important. And we’ve even had people
come in from the outside. We had a brand new client come in and
talk about why they chose us over someone else and how they think about us versus
just other generic options out there. And they talk about, they don’t
don’t talk about the processing, they don’t talk about the fact
that like we can clear and settle their transactions, they talk about
all the other value added things that we’re doing to help them
navigate the world of payments.>>Mm. So, you’re the sort of trusted partner
across all these different dimensions for those players?>>Yeah.
>>What, when you, [COUGH].>>Could I say one thing?>>Please.
>>Just one thing I will say though, is one thing I fee great about
inside the organization, is it’s not ring fenced anymore. It’s not [CROSSTALK],
it’s fully integrated, because that’s the way we think, that’s
the way we think and so you know we’ve got the people developing what we call the
Visa Developer Center which are API stack. The people who are working on these
outside, everything is integrated in the company and
it’s just part of the conversation now. Because people understand that’s
what we need to be successful.>>Right, you guys have now
famously invested in a handful of fairly disruptive startups
in the payments base. And then Square was just announced. And certainly Stripe is
an investment you guys have done. How do you A strategically,
why you’re doing that? And how do you see partnering
with these digital companies and then investing or eventually even M&A? How do you sort of prioritize all of that?>>They’re all a little bit different. I think so I, I mean,
we should talk about Square. We invested in Square, we invested, we actually invested in
Square a long time ago.>>Mm-hm.>>We invested in it because we
believed that they could do something which would help grow electronic payments. And the fact is we sit here today,
you know, just a couple of years later, Square,
I don’t even know the current number now. But something like seven or
eight million people accept our products that never were
able to accept them before. And everyone was talking about a Square,
do we like them or not we love Square. Square also, absolutely, Square does a great job in providing
value back to the merchant. So we did that because we wanted to
give the endorsement to something which we thought could be really helpful
to help them grow the market. And yes, obviously, we’d like to
make a little money alongside. Stripe is something very different. I think Stripe is a, and Stripe inside
the company was a little controversial, not because they compete with
our core business, they don’t. But we bought a company
called Cyber Source that owned a company called Authorize.net
that theoretically does what Stripe does. Meaning they enable merchants
to accept payments and to manage the payments in E-Comm and
mobile. It’s a great company,
great people, great acquisition. We’ve done really, really well. The reality is Stripe’s better,
they’re faster. They are very tightly focused on the app
space in way that we’ve been slow to. And so that one, we step back and look at
it and yeah, we want to make some money. Number two, we absolutely want to have
a commercial relationship with them, because they do just
a piece of what we do. And we’re not going to be able to have
100% of that part of the business, so it’s fine that we compete with them. But we want to be their preferred partner,
because we have belief in them. You saw Patrick, they’re just smart,
quality people that just get things to market that work better
than other things in the marketplace. And probably the most important, which
I talk about open inside the company, is we can learn a lot from them.>>There’s a great video online of us
talking where if you want to learn more things from Patrick.>>[LAUGH]
>>But not a problem. One of the new ecosystems that you sort
of touched on is the developer ecosystem. It feels like that would have been
brand new for Visa in the past five or ten years. Do you see that as A, I guess how
do you think about that vector? Is that a growth vector for you guys? Can you monetize that differently? What is VISA as a platform company
versus a network for payments?>>Yeah.
So it’s a, so you say, new for us five or ten years ago. The fact is, we literally, the week before the Superbowl we announced
the opening of our development center.>>Right and [CROSSTALK], so we are,
like we are as late as late can be to this party, but having said that, well,
it’s true, let’s be honest about it. But having said that, we’re late to the
party but the fact that we’re doing it, we’ve got lots of opportunity and
we’ll do just fine.>>What is it? What is Visa as a platform?>>We are, so yes we do all
the things that a network does. We’ve got, you know we connect buyers and
sellers and what not. But the fact is we don’t get
paid what we get paid, and we’re not going to be able to survive
unless we can convince an individual, a bank, and ultimately the merchant,
that it’s better for you to run your transaction over
our network than anything else. It doesn’t matter whether it’s MasterCard,
American Express, something that’s ACH related, batching,
anything you want to imagine. And so for
that we need to provide value in that. And that can take any one of a number
of ways and we’ve done that for a long period of done, but we’ve done
it in terms of things that we’ve built ourselves or the banks it acquires. So, we’ve always done
a great job on fraud. Right?
So, when that card is swiped or dipped or tapped across the world, we know obviously, who you are,
we know where you are. We know if you’ve been there before, we
know generally what type of store it is. We know where you were if you used
your card in a reasonable period. We know all those things and we help
people determine whether there’s fraud, that’s why fraud is so low. Even with all the conversations it still
we certainly try to drive it to zero. We’ve always done a great job and most
of the other paying systems out there, especially focused on ACH don’t do that. And so it might sound like
it’s a very boring thing, but it’s a tremendous amount of money and
the risks are getting bigger and bigger. And then you add to that things
like receiving capabilities. I mean, we see the transactions. Right now you wait until the end of
the month to get your statement, or if you have Apple you
can get something there. There are really neat things
that people would do with that. You’ve got to think about people who’s
ecosystems that you’re on all the time and would you like to have your
information in one place. How would you like it to look? How’d you like that receipt to be
integrated with something else you might want to do or
something you’ve already done. So, and the point of view for us is,
listen, that’s not what we do for a living, we’ve done some of
those things in the past. But because we’re this platform,
because we have these capabilities, we want to open up the development, the ability to develop off these
capabilities just a whole host of people. We still control how they
actually get brought to market. But we don’t want to monetize it. That doesn’t mean that
we’ll never monetize it. But the fact is, and
I say this very publicly, right? Which is we make plenty of money
on processing transactions, as you pointed out. What we need to do is come in every single
day and continue to convince people, re-convince them that that value is there. And you do that by continuing to build
experiences and add value whether its on risks, whether its on marketing,
whether its on customer experience.>>All right.>>Awesome. Charlie Sharp thank you very much.>>Absolutely. [APPLAUSE] [MUSIC]

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