Visa Pays $2 Billion For CyberSource And One Mobile Life Preserver

When Visa announced on Wednesday (April 21) that it was spending $2 billion for CyberSource, it was buying more than a security company. It was even buying more than additional online access to a lengthy list of retail chains, including Home Depot, Overstock, Burlington Coat Factory and Finish Line.

Visa already has lots of access to lower cost security options, and the world's largest payment card brand has even better access to huge retailers. We didn't say affectionate access, but it is access nonetheless. No, this deal is partially about E-Commerce and mostly about Mobile Commerce, with perhaps a few million dollars worth of PayPal paranoia thrown in.

CyberSource boasts of 295,000 merchant customers, "including half the companies comprising the Dow Jones Industrial Average," and Reuters estimates that it "helps process about 25 percent of all online commerce transactions in the United States." And it's gotten creative with some of its retail payment programs.

CyberSource is profitable—and it's projecting to stay that way this year. But with $265 million in annual revenue for the year ending December 31, generating barely $11 million in net income (on a GAAP basis), its income statement is not what attracted Visa's $2 billion investment. Although the work CyberSource has done in M-Commerce is a big part of the attraction, the fact that CyberSource is, well, not Visa holds even more appeal.

Visa executives understand all too well that E-Commerce is huge but that M-Commerce has the potential to rewrite the rules. In fact, mobile transactions will very likely shake up the payment space radically enough to knock out the top players in such a way not seen since E-Commerce started to take a serious hold in the late 1990s.

This commotion comes on top of a lot of retail resentment surrounding interchange fees. If retailers are looking for an excuse to minimize their dealings with Visa and start building long-term relationships with others, there's no better opportunity than Mobile—and that's what has Visa frightened.

Remember Microsoft circa 1995? When the Web gave people an opportunity to walk away from the not overly nice negotiators in Redmond, their leaders suddenly decided to take the Web very seriously, something they had not done before. Microsoft from 1995, meet Visa in 2010.

This acquisition will allow Visa to present a friendlier face to retailers, namely that of CyberSource. Unlike other Visa moves, in this case we will see Visa go out of its way to let CyberSource retain its branding and its own identity. Indeed, a huge amount of CyberSource's value is that it's not Visa—or at least it will be seen that way.

Setting aside perception, this move gives Visa execs a reason to let CyberSource take the lead in an extremely strategic area. "As E-Commerce increasingly migrates to mobile devices, we believe the combination of Visa and CyberSource technology and services will position Visa to lead in mobile E-Commerce," said Joseph W. Saunders, chairman and CEO of Visa. "With CyberSource, we are adding a new suite of leading E-Commerce capabilities and experience in addressing E-Commerce merchant needs."

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