Major Credit Card Networks Are Hastening Adoption of Frictionless Transactions

The three largest Western credit card networks, Visa, Mastercard, and American Express,  made moves recently to increase their focus on improving user experience. Visa bid to acquire Pismo to implement a minimum friction payment interface in Latin America, Mastercard partnered with Subaio, a Danish fintech company, to give customers more control over managing their subscriptions. Meanwhile, American Express was rumored to be in talks with Goldman Sachs to take over the investment banking giant’s consumer banking operations in relation to Apple’s credit and buy now pay later (BNPL) offerings. These strategic initiatives are all attempts by credit card giants to address dynamic market needs, including the desire for frictionless transactions.

Visa has been closely following the market trends related to the adoption of mobile technology, frictionless banking, and digital wallets. It is attempting to further widen its already strong presence in Europe, Latin America, and the Asia Pacific. With respect to improving in that direction, the payments giant held talks to acquire Pismo – a comprehensive banking and payments processing platform. Visa’s initial bid amounted to $1 billion in cash, which the company later increased to $1.4 billion before signing a definitive agreement to seal the deal.

Pismo brands itself as a minimum friction interface – it helps clients adopt and launch digital wallets, and ensure frictionless banking and seamless usage of mobile devices during banking transactions.With phone-based payments and digital wallets becoming popular across the world, Visa will gain complete access to a single interface that enables frictionless banking and payments processing. This acquisition should help Visa gain a competitive edge over other payments companies, in addition to helping it expand its existing footprint globally. According to Visa, the acquisition will help the company to provide connectivity and support to Pix in particular, as well as other payment rails. Pix is a payment rail that is phenomenally popular in Brazil and is managed by Brazil’s central bank.

Mastercard’s recent most recent high-profile effort is aimed at increasing transparency in subscription payments. In June 2023, Mastercard announced the release, in partnership with Danish fintech Subaio, of a  solution that enables cardholders to identify and unsubscribe from recurring payments without moving from one app to another. This means that Mastercard customers can now use their unified online banking app to unsubscribe directly from various recurring payment subscriptions from different merchants. This may substantially reduce chargebacks on the Mastercard network, as according to a Mastercard survey, recurring payments were responsible for 60 percent of chargeback claims made on the network. The single API-enabled tool should not only help consumers cancel subscriptions they no longer need but also allow them to verify merchant information and digital receipts. In turn, this will be helping them gain clarity regarding charges made to their cards and enhance transparency. All steps that should lead to a reduction in consumer chargebacks for subscriptions. The need for such a tool is becoming apparent in the current market. According to our 2023 consumer survey, 18 percent of consumers in the US filed a chargeback to cancel a recurring payment.  Meanwhile, 36 percent of U.S. consumers filed or threatened to file a chargeback claim because they saw a charge for a subscription they no longer wanted. With these figures in mind, it is clear that consumers are wary about being charged regularly despite the growing acceptance of the subscription business model. They need transparency and freedom to cancel when they want to and without friction. This move from the credit card giant comes as a follow up to the changes it announced back in August 2022, relating to subscription rules to reduce chargeback claims. Some of these changes included merchants having to disclose the terms of their trial offers clearly on the screen at the point of payment without having to click on a URL or scroll down. We had written extensively about these changes in a previous blog post.

In line with Visa’s acquisition of Pismo and Mastercard’s alliance with Subaio, American Express is being regarded as a potential partner by Goldman Sachs to pass on its financial responsibilities towards Apple. The investment banking behemoth is evaluating prospects of transferring its consumer credit banking services for  Apple’s  Apple Card credit card to American Express. Motivations for this stem from the enormous losses this operation has booked, which already exceeded  $1 billion as of last year. Unsurprisingly, Goldman Sachs found it challenging to handle these losses, which may be related in part to the high rates of friendly fraud on the iTunes Store and App Store. Despite these problems, Goldman Sachs and Apple agreed in 2022 to extend the partnership till 2029. In fact, the two companies had planned to add new services, such as a high-yield savings account branded as Apple Card Savings. However, the losses seem to be prompting Goldman Sachs to coax American Express to shoulder its responsibilities. For more details on the Goldman Sachs relationship behind Apple Card and Apple Pay Later, check out our earlier blog post.

As a specialized credit card issuer as well as a credit card network, American Express is more experienced in handling consumer risk, customer service, and chargebacks than Goldman Sachs, whose specialty is the non-consumer-focused area of investment banking. It’s safe to expect that with a solid experience in consumer banking, American Express may be better positioned to resolve chargeback claims that arise on Apple Card and other similar services.

When we look at these developments at a macro level, it is clear that rapid technological changes and gaining a competitive advantage are driving major credit card networks to forge new partnerships and make new acquisitions. With 77% of American merchants selling merchandise online, a recent Forbes article pointed out that fraudsters may use this opportunity to move in on card-not-present (CNP) transactions, also known as card absent fraud.  Therefore, it is crucial for merchants to safeguard themselves against  card-not-present credit card fraud more than ever, given major payments companies’ move toward frictionless CNP transactions. To stay abreast and learn more about the latest developments in the world of payments, follow our blog.