With Coghlan Out, Will Merchant Focus Survive at Visa?

Now that the two top executives have been appointed to run Visa Inc., the massive entity that will emerge from a sweeping restructuring of the worldwide Visa organization, payments observers see more capability in place to deal with issues to come. But the departure of Visa USA head John Philip Coghlan raises questions for some concerning whether Visa's recent emphasis on improving relations with merchants will survive. Visa International Inc. announced this week it has hired Hans Morris, a 27-year Citigroup Inc. veteran, to be president of Visa Inc. Morris will join the company in September. The appointment follows by six weeks the association's appointment of Washington Mutual Inc. executive Joseph W. Saunders as Visa Inc. chairman and chief executive. Visa Inc. will result from the merger of Visa USA, Visa Canada, and Visa International and a conversion from membership association to public ownership, a process expected to wrap up next year (Digital Transactions News, Oct. 11, 2006). Visa Europe will remain a bank-owned organization but will be a licensee of Visa Inc. At the same time, Coghlan, who took over as president and chief executive of Visa USA nearly two years ago, quit. John Partridge, president of Inovant LLC, Visa's technology arm, is serving as interim president of Visa USA. Among Coghlan's top priorities during his short tenure was to shore up Visa's relationship with retailers, a relationship frayed by years of increases in interchange, a large part of the fees merchants pay to accept bank card transactions. Observers say the team of Morris and Saunders will be tested by events in the months to come as the fledgling company executes a complex merger of global reach as well as initial public offering of stock. But a key question will be whether, in the midst of the restructuring efforts, Coghlan's olive branch to merchants will fall by the wayside, leading to even more bruising times ahead with a critical link in the card-processing chain. “[Coghlan's] focus on merchants was something that was an important change [for Visa] and hopefully that won't be lost,” says Norman G. Litell, a payments consultant and former Visa USA executive. Litell says the conversion to public ownership may force Visa to cater to merchants, which can become owners of the company. “Wal-Mart could buy stock,” he adds. “That might change the balance a little bit.” The IPO, he argues, “will make [Visa] look more broadly at how to balance the interests of all stakeholders.” Indeed, by ditching its membership-association structure, Litell says, Visa for the first time will be able to deal directly with merchants, whereas up to now it has had to work through acquiring banks. Others are less sure. “There's nothing in Morris's background to suggest he brings anything to improving things with merchants as a class,” notes Eric Grover, another former Visa official and now principal of Intrepid Ventures Inc., a Menlo Park, Calif.-based payments-advisory firm. “It's just a guess, but there can only be less focus in that area.” He points out that, even under Coghlan, Visa raised interchange rates while it tried to reach out to merchants. “Coghlan was a very affable guy, very non-confrontational,” Grover says. “His was the Rodney King, why-can't-we-all-get-along approach.” Still, the 48-year-old Morris brings experience to Visa it may sorely need in the coming months as it restructures and moves toward public ownership. A former investment banker, he is currently chief financial officer for Citi Markets & Banking, which embraces global capital markets and mergers-and-acquisition services, among other areas. “If you're thinking about restructuring and acquisitions, [the Morris appointment] makes sense, especially if the [Visa] board thinks it needs to beef up its capacity to deal with different structures and regions,” says Grover. Indeed, Litell says a post-IPO Visa may concentrate on the acquiring business, ultimately making a play for the merchant-processing business with large merchants now handled by third-party processors. “It could compete more with First Data, TSYS, or Metavante,” he says. If so, Morris's skills could play a key role.