Published by EH.Net (February 2012)
David L. Stearns, Electronic Value Exchange: Origins of the VISA Electronic Payment System. London: Springer-Verlag, 2011. xxvii + 240 pp. $99 (hardcover), ISBN: 978-1-84996-138-7.
Reviewed for EH.Net by David L. Mason, Department of History, Georgia Gwinnett College.
For a growing number of people, the use of credit and debit cards has replaced cash as the primary way of purchasing goods, and swiping a card with the Visa logo is something that happens nearly two thousand times a second.? What makes this all possible, however, is an efficient and reliable electronic payments system, the creation of which David Stearns tells in Electronic Value Exchange.? In this well-written, concise volume Stearns, an instructor at Seattle Pacific University, details both the technological and organizational challenges that Visa had to overcome in order to link merchants and financial institutions into a seamless worldwide electronic network.? In doing so, he has made a valuable contribution to not only the history of technology, but the broader fields of financial, consumer, and business history
Chapter one gives a brief history of merchant and bank charge cards as a way to understand context for Visa?s formation in 1970.? From the appearance of the first credit card in 1914 to the mid-1950s, it was common for cards only to be issued to the best customers and their use restricted in terms of location and dollar amount.? In 1958, Bank of America issued the BankAmericard, the first credit card developed for middle-class consumers that could be used at a variety of merchants.? Its success led Bank of America to license the card to other financial institutions, and by the mid-1960s BankAmericards could be used across the country and internationally.? While improvements in technology were central to this growth, Stearns contends that the use of a common design and marks were also important in generating early acceptance by consumer and merchant for the cards.?
Chapters two and three outline why Visa was created and the work of Visa?s first CEO Dee Hock in shaping the organization until he left in 1984.? Visa (originally called National BankAmericard Inc.) began as a cooperative of BankAmericard issuers whose mission was to make processing credit card transactions faster and more accurate.? Stearns identifies Hock as critical to the early success of Visa by helping determine the social dynamics of the new organization.? This included the creation of operating regulations regarding card design, interbank fees and dispute resolution procedures that all card issuers would follow.? These rules allowed competing bank members to ?trust? each other enough to coordinate their activities, which in turn enabled Visa to process information between banks in the system more effectively.
Chapters four and five focus on the two main technical challenges to building this electronic payment system.? The first involved reducing the time it took to authorize individual transactions, a process that was labor intensive, time consuming, and prone to error. Visa?s solution was a program called BASE I which automated the authorization process by linking the cardholder databases of the member banks into one network and applying computerized logic to approve transactions. The second challenge focused on improving how banks cleared and settled card transactions, another labor-intensive process that required the physical movement of paper receipts and took days to complete.? Visa developed an automated clearinghouse called BASE II that used optical scanners at point-of-sale terminals to gather card transaction data electronically.? This information was then batched and transmitted overnight to the issuing bank for posting.? Not all innovations, however, succeeded as Stearns shows in the failed attempt, called BASE III, to centralize how member banks ran their own processing centers.?
The first part of chapter six returns to the organizational evolution of Visa.? In 1974, IBANCO was formed, which organized the international licensees along the lines of domestic licensees, and two years later the name Visa replaced BankAmericard on all credit card products and services.? Here again, Hock played a central role using his force of personality to unify the member banks.? Also examined are the effects of an antitrust suit brought against Visa that resulted in banks gaining the ability to issue both Visa and MasterCard products.? Stearns shows that rather that harming Visa, the introduction of ?duality? allowed Visa to expand markets and ultimately overtake MasterCard in terms of market share.
The balance of chapter six and all of chapter seven examine initiatives designed to make the electronic completion of all financial transactions possible.? These include expanding the BASE program to run in real time, efforts to encourage the widespread adoption of fully-automated point-of-sale terminals, and Visa?s role in the development of magnetic stripe technology.? Chapter eight focuses on the Visa debit card, and the opposition from member banks that saw the card as competing with their own electronic funds transfer plans. Chapter nine ends the narrative by chronicling the creation of a Visa-branded travelers? cheque, and the direct signing of JC Penney by Visa USA that resulted in Hock being forced out of the organization.
The concluding chapter connects the Visa story to several grand themes hinted at in the preface.? Here Stearns examines the symbiotic relationship between social dynamics and technological change, and the role of marks in determining value exchange.? While the analysis is extremely interesting, it would have been more useful to introduce these themes earlier in the book.?
Among the many strengths of this book is its crystal clear writing style.? Stearns is able to explain complex financial topics without the use of jargon. This is especially true in the discussions of the various BASE programs which are masterful in their clarity and grasp of detail.? Another key strength is how Stearns uses material from his many interviews of key Visa figures to flesh out how technological change occurred and to give valuable insights into the culture of the organization.? Weaknesses are present, but they are minor.? It would have been useful to include more on the evolution of federal regulations as they related to electronic bank transactions, especially in the late 1970s when industry deregulation began.? Likewise, while Stearns cautions the reader not to expect information of MasterCard or electronic payment systems in Europe, including some context would have provided useful contrasts to the success of Visa.? Overall, Electronic Value Exchange will be of interest to a wide variety of scholars.?
David L Mason is Associate Professor of History at Georgia Gwinnett College.? His most recent article ?The Rise and Fall of the Cooperative Spirit: The Evolution of Organizational Structures in American Thrifts, 1831-1939,? appears in the February 2012 issue of Business History.
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