Gaurav Ahuja, Imprint co-founder and Thrive General Partner, discusses the dynamics of interchange fees, the role of payment networks, the success of small businesses in the rewards ecosystem, Airbnb's strategy for payment processing fees, Visa's strategic approach and technological advancements, the potential for new companies to compete with Visa, and Thrive's investment philosophy and approach.
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Quick takeaways
Co-branded credit cards offer merchants a way to boost sales and customer loyalty through personalized rewards and targeted promotional campaigns.
The rewards ecosystem in the credit card industry has expanded, creating opportunities for innovation and customization.
Visa is actively defending its interchange revenue and adapting to changes in the credit card industry by working with startups, leveraging technology, and finding innovative approaches.
Startups focusing on vertical-specific payment networks have the potential to disrupt the dominance of Visa and MasterCard by providing tailored payment solutions for industries with specific payment needs.
Deep dives
Imprint powers co-branded credit cards for large merchants
Imprint is a company that partners with large merchants to power their co-branded credit cards. They work with major retailers such as HEB, helping them create and manage their own credit card programs. By offering co-branded credit cards, merchants can tap into a new value pool, boosting sales and customer loyalty. Imprint focuses on democratizing access to co-branded cards, providing solutions for mid-sized regional merchants who may not have had the opportunity before. They enable merchants to have more control and insight into their customer spending habits, allowing for personalized rewards and targeted promotional campaigns. Visa has shown support for startups like Imprint, recognizing their value in the market and providing direct access to VisaNet through platforms like Cloud Connect.
Rewards ecosystem in the credit card industry
The credit card industry has seen a shift in the rewards ecosystem, with merchants offering their own rewards programs through co-branded credit cards. This move allows merchants to participate in the 3% interchange revenue and strategically boost customer loyalty. By partnering with banks like Synchrony, merchants can customize their own credit card programs and provide additional rewards to their frequent shoppers. This approach benefits both the merchant, who can drive sales and retain customers, and the bank, who gains access to a new customer base. The rewards ecosystem adds a new variable to the credit card industry, expanding the value pool and creating opportunities for innovation.
Impact of interchange and MDR on Visa
Interchange, the fees paid by merchants for credit card transactions, has been a topic of discussion in the credit card industry. While some speculate that interchange rates will decline and impact Visa's revenue, others argue that interchange is often misunderstood. Merchant discount rates (MDR) may experience caps, but the split of fees between the bank, processor, and Visa is negotiable. Visa has been proactive in defending its interchange revenue and actively participating in the co-branded credit card market. They have shown flexibility in working with startups like Imprint, leveraging technology to build alliances and offer improved solutions. The complex nature of the credit card industry requires Visa to continually adapt and find innovative approaches to remain competitive.
Future opportunities and growth in the credit card industry
As the credit card industry evolves, there are opportunities for growth beyond traditional consumer-to-business payments. Visa and Mastercard are exploring new markets, such as underpenetrated consumer categories and B2B payments. The rise of consumer spends on low-margin marketplaces presents challenges and opportunities. While processing fees can be high, technology innovations like ACH payments and platforms like StripeLink offer possibilities to reduce costs and improve user experiences. Visa is also focused on capturing the corporate credit card market and supporting the growing trend of businesses accepting credit card payments. By adapting to changing market dynamics and expanding their services, Visa aims to remain at the forefront of the digital payment revolution.
The Power of Vertical-Specific Payment Networks
The podcast episode discusses the potential for vertical-specific payment networks to disrupt the dominance of Visa and MasterCard. It highlights examples of industries with power users, such as healthcare and gaming, which have specific payment needs that can be better addressed by specialized networks. By focusing on these niche use cases and providing tailored payment solutions, startups can potentially capture market share from traditional payment networks. The podcast also mentions the Credit Card Competition Act, which proposes the inclusion of at least one alternative network on every bank-issued card. This act aims to introduce competition and reduce fees. Additionally, the episode explores the potential for real-time payment networks like PIX and UPI in India and Brazil to challenge Visa's dominance. However, it acknowledges that the US market, where Visa is already entrenched and has broad acceptance, may pose challenges for alternative networks like FedNow. Overall, the podcast emphasizes the importance of understanding the complexity of the payment industry and the opportunities that exist for startups to innovate in specific verticals.
Thrive's Approach to Early-Stage Investing
The episode also delves into Thrive Capital's approach to early-stage investing. Thrive seeks to partner with founders at the seed stage and even earlier, helping them refine their ideas and develop a deep understanding of the market. The firm's small and tightly knit team enables a shared consciousness and a collaborative investment process. Thrive not only provides capital but also offers a wide range of resources and expertise across various functions, including communications, data science, and talent. The firm's goal is to build long-lasting partnerships with category-creating companies and provide ongoing support throughout their growth journey. The episode highlights Nova, a portfolio company incubated at Thrive, as an example of the firm's commitment to early-stage investments and long-term collaboration.
The Value of Acquired's Study of Iconic Companies
The podcast episode expresses gratitude for Acquired's work in studying and educating listeners about iconic companies. It draws parallels to an American business history class, emphasizing the value of understanding the stories behind enduring companies that have stood the test of time. By exploring the successes and challenges faced by these companies, Acquired provides insights that can inform decision-making in the startup and venture capital ecosystem. The episode acknowledges Acquired's focus on both new and old companies, highlighting the importance of learning from the experiences of established companies that have thrived for decades. The conversation concludes with thanks and appreciation for Acquired's contribution to the field and the friendship developed between the podcast hosts and the interviewee.
We’re joined by Imprint cofounder and Thrive General Partner Gaurav Ahuja to dive deeper into the modern payments ecosystem and Visa’s current place within it. Gaurav was one of our research sources for the Visa episode, and we wanted to bring his insights to you all too. We discuss whether Visa really should be worried about eroding interchange fees, the impact of realtime payments systems, opportunities for startups and whether the Visa / Mastercard duopoly could really be overthrown. Tune in and enjoy!
