Visa is one of the most well-known brands in the UK; it sponsors significant sporting events, it regularly runs big advertising campaigns, and many (if not most) people will have used a card featuring its logo. But although Visa is one of the giants of the payment industry, few people know how or why it was established.
History of Visa
For its first 18 years, Visa was not 'Visa'. The brand that went on to be called Visa started life in 1958 as 'BankAmericard'.
BankAmericard was established by the product development team of (California-based) Bank of America. Borrowing elements from Charge and Store cards, BankAmericard was designed to make payment processing more efficient. It did this by reducing the number of labour intensive cheques that needed processing, and replacing the multiple revolving credit accounts that many Americans maintained with individual merchants with a single payment card (and single monthly bill).
However, although BankAmericard was the forerunner of modern credit cards, the original business could not have been more different to the sophisticated lenders we know today. Initially, activated BankAmericards were mailed to people directly, ready for use. The widespread adoption this fuelled created demand from merchants wanting to accept BankAmericard, but it also meant the bank suffered around 25% losses on its credit card lending (around $160,000,000 by modern standards).
Despite the initial teething problems, Bank of America salvaged BankAmericard with some much-needed changes to its credit policy. However, despite being viable and popular, US banking restrictions meant that Bank of America could not take the product beyond California state lines. These restrictions, however, did not prevent Bank of America from licencing BankAmericard for use further afield. So starting in 1966, localised clones of BankAmericard began appearing across the US and in the UK (with Barclaycard). International licencing continued into Canada, France, and Japan (albeit seven years after JCB's first Japanese credit card).
To help fuel its continued expansion, and because the rival 'Master Charge' platform operated as a consortium, Bank of America relinquished US control of BankAmericard in 1970. It retained control of BankAmericard internationally but, in 1976, following the launch of electronic authorisation (which enabled international payments) it decided that the different international BankAmericard versions would be better served under a single uniform brand. Bank of America might have been the obvious choice, but in the depths of the cold war, such strong ties to America might have been counterproductive. Also, American Express had already established an international pedigree over decades through traveller's cheques, and the brand might easily have been confused by non-English speakers. Bank of America therefore choose the internationally recognisable word "Visa", and a now world famous brand was born.
How does Visa make money?
Visa is primarily a payment intermediary, facilitating transactions between merchants and cardholder banks.
Unlike some of its competitors (e.g. American Express), Visa never lends money. When a card holder uses a Visa card to make a payment, Visa's technical infrastructure connects the merchant to the card issuing bank, processes authorisation of the payment, and arranges the clearing and settlement of the payment. For undertaking these tasks, Visa receives a share of the interchange (the money merchants pay per transaction to accept Visa).
Visa also makes some additional money from processing international transactions, which typically incur higher fees and charges than domestic payments.
Where can I use a Visa credit card?
In theory, Visa credit cards can be used to pay with over 25 million merchants worldwide, a number that continues to grow daily as more online retailers start trading. However, in practice, it is no longer quite as straightforward as it once was.
In June 2016 merchants accepting Visa in the EU were permitted to break the “Honor all cards rule” rule, which forced them to accept both credit and debit card payments, even though they were charged different interchange fees for the different card types (credit cards transactions costing them more).
In practice now in the EU, it is at the merchant's discretion to decide whether they will accept debit, credit, or both payment types.
Characteristics of Visa cards
Although the design of credit cards varies significantly from bank to bank; all Visa cards share some common characteristics.
The Visa logo, which has changed very little since it was first created, features on all Visa cards.
All Visa card numbers (including co-branded cards) start with the number 4, as specified by the American Bankers Association (which manages the ISO database of Issuer Identification numbers).
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