300 group

Group Assignment 1: Group 8

External Analysis

● Identify the macro-environmental external forces affecting the firm using the PESTEL model. Comment mostly on the forces that would represent a threat or opportunity for the firm.

There are many different macro-environmental forces that have an impact on

Visa. The PESTEL model is a framework that helps us evaluate these forces and how

they work. Visa is the world’s largest technological payment network that links

cardholders, merchants, and financial institutions through financial transactions. This

means that their business is prone to be associated with many different forces that

represent threats and opportunities to them.

Opportunities are the favorable external factors that can provide advantages for

an organization. One opportunity for Visa’s economic growth could be increasing the

demand for digital payment. The world has recently begun to shift from cash to digital

transactions, and this has provided more opportunities for their company. This shift has

given them a favorable advantage and potentially more business. Another advantage

they are given is the fact that “connected devices are gaining popularity by the day”

(Swotandpestle). People are now able to connect their devices to their Visa accounts,

which is a huge opportunity for them to keep bringing in business.

On the other hand, most large companies endure many threats from outsiders.

Threats are the factors that carry the potential to harm a business. One example of a

threat that Visa may endure is high regulation from the government. If governments

ever decide to make it mandatory that domestic payments processing is to be used

solely in their own country, then Visa’s business could be massively damaged in those

countries. Visa also experiences many “fraudulent activities performed during card

usage” (Swotandpestle). These activities can be seen as a huge threat to their company

because they are illegal and may cause harm. Some more threats that they may

experience are “security breaches and cyber-attacks” (Swotandpestle). These are

violations that can possibly lead to damaging their system or causing them to lose data.

This is one of the worst threats they experience because their data system is what

keeps their company up and running. These are only a few examples of the

macro-environmental factors that may have an affect on Visa, but there are many more.

● Conduct an industry analysis using the Porter’s 5 Forces model and state the degree of threat each force represents to the firm (low, moderate, high). Comment on the overall attractiveness of this industry and its profit potential.

Industry Rivalry

In the case of Visa, there is really only one significant industry rival, that being

Mastercard. One may think that other credit card processors such as Discover and

American express are noteworthy competitors, though they are actually very different

from Visa and Mastercard. Visa and Mastercard are only the middle man between

merchant and issuing bank, whereas Discover and AMEX are both credit card networks

and credit card issuers. The benefit in Visas and Mastercards cases is that they don’t

deal with the risk of running debt from bad accounts, that responsibility falls on the

bank. Visa and Mastercard don't actually issue cards directly to the consumer, whereas

AMEX and Discover do.

Visa and Mastercard are very similar in the way their business structures are modeled,

and “have nearly identical global merchant acceptance footprints” (Investopedia). The

main difference between them is their unique way of structuring and characterizing fees.

Given how closely tied Visa and Mastercard are in this industry, I would rank the threat

of this force as Moderate. The only reason I am not ranking it as high is because Visa is

“​larger in terms of transactions, purchase volume and cards in circulation”

(Investopedia).

The Threat of New Entrants

Given how monopolized Visa and Mastercard are, being the only two firms of their type

that are so widespread, I do not see a very high threat level for new entrants. Visa is a

trusted company and is used to handle transactions all across the world. The barriers to

entry for this market are quite significant in the brand loyalty subcategory, as well as

industry growth.

I would rank the degree of threat for this force at low to very low.

The Threat of Substitutes

It is hard to classify a substitute for a credit card network company such as Visa. One

may say that Discover and AMEX could be considered substitutes, as they operate very

differently compared to Visa.

Discover is accepted at 10.4 merchants within the US, and Visa edging them out at

around 10.7 merchants within the US. This metric may seem very close, but the winner

is clear with Visa at 344.7 million cards in circulation in the US, while Discover is at a

mere 51.4 million in comparison. (WalletHub)

In terms of foreign acceptance, Visa is accepted by over 200+ countries and territories,

while Discover lands at 185 countries and territories. On the other hand, Discover has

the benefit of no foreign transaction fees, while Visa can have fees up to 3%.

(WalletHub)

Based on my research, I would rank the degree of threat from this force at slightly

above moderate.

Supplier Power

Visa is technically the supplier in this case, so this threat does not apply to Visa’s

industry. Degree of threat from this force is N/A.

Buyer Power

The buyer in this case is both the individual consumer and the credit card issuer. The

switching cost for the issuer is quite significant. If a bank wanted to change, for

example, from Visa to Mastercard, they would need to take a plethora of actions that

may be detrimental to the firm. It would require the company to recall all current cards

within circulation and send brand new cards to all current customers. The degree of

threat of a Bank switching credit card networks is very low.

On the other hand, it would be quite easy for an individual consumer to switch credit

card networks, and they usually have a decent incentive to do so. In today's modern

age, signing up for a new credit card can be done within a matter of minutes. Most of

the time, credit card issuers offer a great incentive for signing up.

A personal example of my own relates to this topic quite significantly. My first credit card

was a Visa card from Wells Fargo. The benefits were nothing special, and my cashback

was very minor. On top of the lack of benefits, the card also charged a 2% foreign

transaction fee. About a year ago, I found out about the Discover Student Card. They

offer amazing cash back benefits, and match your cash back at the end of the first year.

This, along with many other benefits, is what swayed me to change to Discover. I

haven’t regretted it since, and I noticed no switching costs aside from making my wallet

a bit bigger.

I would rank the degree of threat from this force as High.

Overall, I would say Visa is a very attractive company with great possibility for profit,

given their low costs and globally spread brand awareness.

● From the identification and analysis in A and B, identify the 3 biggest threats and 3 opportunities for the firm.

3 Biggest Threats:

1. Ecommerce Malware.

One of the biggest threats Visa is facing has to be regarding its cyber security. With all

the advancement in the field of information technology, the company’s data could be at

risk of cyber attackers and most commonly ​Ecommerce malware ​(Cleveland).

Ecommerce malware is when attackers target ecommerce transactions. This could

include online shoplifting, magecart and online skimming. ​Online shoplifting ​is when a

consumer buys an item online and if there is any kind of problem- including buyer’s

remorse- they simply log onto their bank accounts and file a dispute (Detweiler).

Magecart is when an attacker targets an ecommerce website, specifically their

checkout page and steals customer payment details (Storm). Likewise, ​online skimming

is when hackers inject malicious JavaScript code onto a website allowing them to

harvest customer data (Ensighten). Cyber security threats like this one can surely prove

to be very dangerous when it comes to a company like Visa that has a huge

online-base.

2. Client Turnover

The increase in client turnover may not seem that big of a threat. As there is a lack of

competition and substitutes in the market at the moment. However, it is a threat

nonetheless. Especially, with the speed of how new businesses are increasing in the

market along with faster and better technology. With the increase of these new

businesses, clients are more likely to do their research before committing to a service.

And they are more likely to pick an option that provides them better offers for a lower

cost. As mentioned before, we are living in an era where it only takes a few clicks to

make the switch to make the change.

3. Strict political / legal regulations

One of the biggest uncertainties that Visa faces has to be regarding the legal aspect of

the environment. The rules and regulations forwarded by the government have the

power to make or break any institution. Therefore, government issued laws can be a

double-edged sword. One threat that the government may impose would be if they ever

decide to make it mandatory that domestic payments processing is to be used solely in

their own country. For a corporation that relies heavily on its global market, this would

surely cause a different set of problems for the corporation’s pre-existing merchants and

clients.

3 Opportunities:

1. Growth in popularity for digital payments all around the world​.

We have reached the point where almost 92% of the world currency is digital (Times).

And with everything turning online it is safe to say that firms are likely to reduce their

engagement with physical form of monetary transactions even more. This is exactly

when consumers start to turn towards companies like Visa that have an unparalleled

network. This gives a consumer the freedom to expand their reach to different parts of

the world instead of limiting them to the confines of a certain country/region.

2. Expanding Global market

As businesses grow and expand they are constantly looking for ways to make it easier

to attract and interact with customers from different regions. Merchants are looking for

easier and smoother ways of transaction between clients of different countries. And not

just merchants, as immigration rates increase even regular consumers are looking for

an easier way to transfer money. Along with students who decide to pursue their

careers abroad. And as Visa already had established itself globally it is likely to be the

very first option. This way, Visa will also get to diversify into new revenue streams, also

attracting more investors along the way.

3. Technological Progress

As technology strives, it is constantly stirring up the entire market. However, Visa has

proven time and again that it is very inviting to change and evolving with time. In one

way or the other, this technology can be used to make the market better. It can help run

different processes more efficiently. Therefore, all the new technology that is being

introduced will surely help the company grow even more. This improvement also allows

the devices that are already connected to the corporation to gain more popularity and

trust from the consumers.

Internal Analysis

● Identify the organization’s mission, vision, values, and goals.

Visa's mission statement is "we are a global payments Technology Company

working to enable consumers, businesses, banks, and governments to use digital

currency". This statement essentially describes who they are and what their purpose is.

Being one of the largest companies in the credit card industry their mission statement

accurately describes the company as a whole. Which is exactly what a mission

statement should do.

Visa’s vision statement is "to be the best way to pay and be paid, for everyone,

everywhere guides our purpose". This statement is essentially saying what they're

striving to be, which is the best way for all around payments. This vision statement

shows willingness for growth and adaptability, which are very key for long-term success.

Visa's values are as followed; integrity, people, innovation, clients, collaboration,

and excellence. These values represent what visa cares about as a company and it's

clear that they care a lot about the customer, growth, and perfection. Which are very

important things to strive for, when wanting a very successful company.

Visa's goals are to "connect the world through the most innovative, reliable and

secure payment network". As well as, continuing to be profitable through these ethical

methods. Visa nose having a good connection with the customer is a very key

component for long-term success, so they built their company model around making

sure the customer is the main priority and by doing so, their success has builded over

the years as well as their customer fan base.

● Using the VRIO Model conduct an internal analysis of the firm, identifying its significant resources, capabilities and resulting core competencies.

Visa, having the largest market share in the world, has an abundance of

resources at their disposal. Being one of the main global payment companies in the

world, Visa (in 2016) has 16,600 financial institutions and 44 million merchant locations

that Visa can complete electric monetary transactions. Visa also provided the very first

ATM in 1983 with the slogan providing cash “anytime, anywhere” and as of 2016 they

currently have 2.6 million ATMs. Visa is also capable of dealing with over 160

currencies and is accepted in over 200 countries and territories. Back when electronic

currency was first being invented, Visa’s resources were very rare and their competitors

could not copy them as easily which gave them a sustained comparative advantage but

nowadays, this is not the case. Visa’s resources are not rare and can be imitated very

easily which gives them a competitive parity with their competitors. Fortunately for Visa,

since they were setting new precedents when electronic currency was just starting out

they have gathered more resources than any closed or open loop payment network

companies.

Visa is more than capable to handle the 141 billion transactions that were in

2016. This is all done through VisaNet. VisaNet is Visa’s network that facilitates the

transfer of value and information among customers, businesses, banks and

governments and is one of the world’s most advanced processing platforms. VisaNet

can also process 56,000 transaction messages a second. With the network like this we

can see how capable Visa is to hold a volume of $8.9 trillion from the usage of the 3.1

billion visa cards.

Seeing how capable Visa is, we can now look at their results with all of their

resources. 36% of their revenue came from service, which is earned from services

provided in support of client usage of Visa products, 34% from data processing, which

are services that facilitate transaction and information processing, 24% from

international transactions and 6& in other revenues. These percentages correlate to

Visa’s gross total of $18.5 billion in the year 2016. Compared to their competitors, Visa

has the highest market cap at $256 billion, the highest return on assets (5 year average)

at 12% and the highest operating margin (5 year average) at 62.08% (all from the year

2016). In the financial report of 2017 we can see that Visa is still growing positively and

can assume a steady incline in net revenues.

Internally Visa is one of the powerhouses in global payments, their resources are

abundantly present which creates overwhelming results.

● Summarize the firm’s sources of competitive advantage using a Value Chain analysis.

A Value Chain analysis allows businesses to review their previous activities and

search for competitive opportunities. Visa is unique because it does not have a

precisely laid-out value chain. “Digitization is increasingly altering the nature, direction

and opportunity of traditional value chains” (Usa.visa). This means that their company

can no longer view them in a linear fashion where products move in individual steps in

order for them to be sold. They have stated that this linear value chain has been

transforming into a more intricate and connected ​value ecosystem.

As new startups emerge, firms are offering broader ranges of services and

products that are beginning to blur the traditional lines for a value chain. As the Internet

of Things continues to rise, the traditional purchase and payments system will be further

altered. “For most financial institutions, responding to this new, broader concept of value

generation will require changes to or expansion of their overall strategies” (Usa.visa).

That being said, Visa’s competitive advantage can now be analyzed through their ​value

ecosystem.

Visa has the advantage over the evolving needs of customers due to their

innovations across product platforms. They facilitate greater innovation and cardholder

value as they continue to add payment capabilities to more of their digital products.

They provide infrastructure and proficiency for all of their payment ecosystem services.

Visa’s performances can also be improved with an analysis of their primary value chain

activities. It is important for them to analyze their inbound and outbound logistics to

avoid any challenges with the product development phases. When raw materials arrive,

and Visa is ready to launch their end product into the market, it is also important for

them to analyze their operational activities.

In order to stand out from competition, Visa potentially develops brand equity by

using effective marketing strategies. They must avoid making false commitments

revolving product features that the production department is unable to fill. Doing so will

indicate the need to confirm coordination between different activities in the value chain.

● Based on the above internal and external analysis develop a SWOT analysis for the company. This will be a work in progress document as you develop more understanding of the firm so hold onto it!

Strengths ● Wide Global Outreach ● Customer loyalty ● Unmatched ability to find new payment avenues

(Analysis) ● Leading operator for digital payments

● Largest market share in the United States ● Engages in strategic partnerships ● Strong stream of cash flow ● Low credit risk from open loop network ● Has large dependency on contractual relationships

with biggest clients ● Surging operating expenditure ● Merchants keep pushing lower acceptance costs

and challenging industry practices

Weakness ● Has large dependency on contractual relationships with biggest clients

● Surging operating expenditure ● Merchants keep pushing lower acceptance costs

and challenging industry practices

Opportunities ● Expanding Global Market ● Growth in popularity for digital mode of transactions

vs cash ● Connected devices receiving more popularity each

day

Threats ● Ecommerce Malware ● Client Turnover ● Government enforcing strict rules and regulations ● Cyber-attacks and security breaches ● Fraudulent activities

Works Cited

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