Electronic Value Exchange: Origins of the VISA Electronic Payment System

by David L. Stearns

Electronic Value Exchange examines in detail the transformation of the VISA electronic payment system from a collection of non-integrated, localized, paper-based bank credit card programs into the cooperative, global, electronic value exchange network it is today.  Topics and provides a history of the VISA system from the mid-1960s to the early 1980s; presents a historical narrative based on research gathered from personal documents and interviews with key actors; investigates, for the first time, both the technological and social infrastructures necessary for the VISA system to operate; supplies a detailed case study, highlighting the mutual shaping of technology and social relations, and the influence that earlier information processing practices have on the way firms adopt computers and telecommunications; examines how “gateways” in transactional networks can reinforce or undermine established social boundaries, and reviews the establishment of trust in new payment devices.

Genres: Business, Finance, Economics, Technology, History

268 pages, Kindle Edition

First published January 1, 2011

Reviews

[K1c · Rating 4 out of 5]

Robust and underrated (?) contribution to STS/philosophy of science. Lucid explanation of how a cautious interplay of power, materials, and contingencies created the unlikely configuration of FS we have today.

[Prasanna · Rating 5 out of 5]

This book chronicles the various aspects of how Visa came together -- from the beginning of what started out as BankAmericard from Bank of America in San Francisco to Visa launching its own debit card after many decades of trying to do so. It does a really good job of painting a good picture of the technical challenges that Visa faced and solved, including the scaling challenges. The book paints an interesting picture of the founder of Visa -- Dee Hock too. His pursuit of Electrinic Value Exchange is what made a lot of the future of VISA possible. In many ways, Visa is an interesting challenge. How do you make a bunch of competing banks cooperate with each other? This is eventually enshrined in the Visa motto - _Studium Ad Prosperandum_, or the Will to Succeed, and _Voluntas in Conveniendum_, or the Grace to Compromise. These come together at a dramatic meeting between Hock and the the leads of the member banks at a dinner where he gifts them cuff-links with those words written, leading to a consensus to compromise.
There's a meta layer that the author talks about Dee Hock's autobiography that I found really interesting, in that how he wanted history to remember him and what motivated him. The self-organizing "Chaordic organization" system that Dee Hock built Visa upon is very interesting too. I think this started falling apart because the Banks started seeing Visa as a threat to themselves, when Hock went around them to make a deal with JC Penney and also started offering debit cards. The final nail in the coffin seemed to be the office he created that showcased Visa as a powerhouse multi national corporation. At the time Visa wasn't a publicly traded corporation and the banks perceived Visa as their employees and saw Hock overreaching. Eventually the magic faded, but the legacy still lives on.
Fundamentally what made Visa a great story is that they built a trust on their technical solutions in the form of BASE I and BASE II systems. These systems allowed the banks to handle frauds faster and built a scalable system around it that could go international just as easily. They provided services on top of what the banks offered to handle settling transactions initially too. They used the transaction fees as a way to manage incentives in the system, increase adoption which was quite interesting.
I found it really interesting that they decided to use the telephone lines to help increase adoption by merchants since they were already using phone lines to confirm transactions that was over the floor limit.
Overall, this is a very thoroughly researched book, that is also very well written and entertaining to read.

[Jung · Rating 5 out of 5]

"Electronic Value Exchange: Origins of the VISA Electronic Payment System" by David L. Stearns tells the fascinating story of how BankAmericard evolved into Visa, one of the most prominent electronic payment systems in the world. The book delves into the history of credit cards, the challenges faced by early payment systems, and the innovative solutions that transformed BankAmericard into Visa.

The narrative begins by exploring the origins of credit cards and early payment systems, highlighting the emergence of BankAmericard in Fresno, California, in 1958. Despite initial success, BankAmericard encountered significant problems, including fraud and inefficiencies in transaction processing. Enter Dee Ward Hock, a visionary leader with unconventional ideas about organization and management.

Hock's leadership and strategic vision were instrumental in reimagining BankAmericard and laying the groundwork for Visa. He fostered collaboration among competing banks, created a cooperative framework for payment processing, and introduced innovative technologies like the BankAmericard Authorization System Experimental (BASE) to streamline transaction processing.

The book details Hock's journey from a humble upbringing in rural Utah to becoming the driving force behind Visa's transformation into a global payment system. It explores his unique approach to organizational design, which emphasized self-organization and decentralized decision-making.

Despite Hock's pivotal role in Visa's success, the book also examines the challenges he faced, including conflicts with member banks and internal power struggles. Ultimately, Hock was forced out of Visa in 1984, but his legacy as a visionary leader and innovator continues to shape the electronic payment industry to this day.

"Electronic Value Exchange" provides a comprehensive account of the origins and evolution of Visa, offering valuable insights into the complexities of building a global payment network. It sheds light on the individuals, technologies, and organizational structures that contributed to Visa's rise as a powerhouse in the financial services industry.

[Anjar Priandoyo · Rating 4 out of 5]

I read this book as a reminder to anyone that would like to challenge VISA. VISA is very fundamentally strong business.

1. It has a very good business model, 1960-70 (four party instead Diners, Amex third party)
2. It battle proven against similar concept, 1980-1990 (ATM, EFT)
3. VISA and Mastercard, basically a duopoly, a self regulated industry.

So I can say it will defeated the electronic money and digital wallet business in 2000-2020. Visa already win several battles:

1. online EFT, 2000 (paypal)
2. digital wallet, 2010 (apple pay, google wallet)

I get the notion that many fanboy here would proudly saying that "insert a name here" will replace VISA/Mastercard domination. It is like saying Google will replace Wikipedia. VISA will not be replaceable, even if Apple mandatory use of Apple Pay in its paystore.

[Christian Rapp · Rating 4 out of 5]

Visa’s story is incredible and it’s hard to overstate how little I appreciated and understood the complex payments systems that I use to pay for my coffee across the world with my credit card. The network really is the perfect example of a coordination problem and it’s interesting to imagine a world without Dee hock. I think some of fintech is finally realizing promise of electronic value exchange. Also really interesting how he catapulted himself into a position of power.

Story is 5 stars, but I felt like the writer introduced quite a few concepts that were never fully realized which was a little disappointing. I’d love for some in depth analysis of some of the technical work, but I strongly doubt that will ever be available. Writing 3 stars.

[Ian Tallett · Rating 4 out of 5]

This is the foundational work on payment systems - the historical vantage allows the reader to get past boring payments jargon and into a more “first principles” understanding of how card network payment systems came to be and why certain design and fee structure choices came to be.

[Adwaitvedant Mathkar · Rating 4 out of 5]

A very detailed history of payments, with a focus on VISA. The book starts with the early T&E cards and finishes with the global dominance of VISA. It covers various components of the VISA system (authorisations, clearing etc) from a technical infrastructure as well as socio economic perspective.

[Jeremiah · Rating 5 out of 5]

This is potentially a very boring topic to most people, but Stearns did a great job at telling the story in a balanced and engaging way, touching on the broader implications at play and drawing lessons for future technological change.

[Charles Dalton · Rating 5 out of 5]

One of the most comprehensive and readable materials on payment systems that I've ever read.