The Visa Story
(©Chaordic Commons, 2002; Dee Hock, 1993)

A Troubled Industry

In 1958, Bank of America issued sixty thousand credit cards to the residents of Fresno, California. After years of losses, the program became profitable and the bank blanketed the state with cards. In 1966, several California banks countered by launching Mastercharge. In turn, Bank of America began franchising BankAmericard.

Other large banks launched proprietary cards and offered franchises. Action and reaction exploded. Banks dropped tens of millions of unsolicited cards on an unsuspecting public with little regard for qualifications. Within two years, the infant industry was in chaos. Issuing banks were thought to be losing hundreds of millions of dollars, politicians were alarmed, the public was exasperated and the media was criticizing everyone involved.

An Intractable Problem - And Incredible Opportunity

In 1968, as a vice president of a small bank in Seattle franchised to offer BankAmericard, Dee Hock became involved in the formation of a complex of licensee committees to look into the situation. The problems were far worse than imagined - far beyond any possibility of correction by the existing system.

It was necessary to reconceive, in the most fundamental sense, the concepts of bank, money and credit card, and to understand how those elements might evolve in a micro-electronic environment.

Three bank managers joined Hock to begin the process of re-conceptualization. There followed days and nights of intense discussion. They could agree on nothing and were most conflicted by two questions: What is it that we want to accomplish? How will we organize it? Their deliberations led nowhere. The group was ready to throw in the towel when one of them said, "I'm beginning to think I don't know what an organization is." Blank looks all around. They then began to explore what they considered to be the nature of organization. As the discussions continued, several conclusions emerged.

Money had become nothing but alphanumeric data recorded on valueless paper and metal. It would become data in the form of arranged electrons and photons that would move around the world at the speed of light, at minuscule cost, by infinitely diverse paths, throughout the entire electromagnetic spectrum. The concept of "credit card" was inadequate. Credit cards had to be reconceived as a device for the exchange of monetary value in the form of arranged electronic particles. Demand for that exchange would be lifelong and global, twenty-four hours a day, seven days a week, wherever the customer happened to be. Perceptions swiftly changed.

Embedded in what had seemed a hopeless problem was an incredible opportunity. Any organization that could globally guarantee and clear monetary information in the form of arranged electronic particles in every monetary value in the world would have the market -- every exchange of monetary value in the world -- that staggered the imagination. But a major problem remained.

No bank could do it. No stock corporation could do it. No nation-state could do it. In fact, no existing form of organization could do it. It would require a transcendental organization linking together in wholly new ways an unimaginable complex of diverse financial institutions, individual customers, merchants, communication companies, suppliers and government entities. It was beyond the power of reason or the reach of the imagination to design such an organization or to anticipate the problems and opportunities it would face.

Yet, Hock refused to give up. He noted that evolution routinely created much more complex organizational patterns - rain forests, marine systems, body, brain, immune system - with seeming ease. The group simply hadn't "peeled back the onion" far enough.

A Powerful Purpose and Set of Principles

With that perspective in mind, they decided to reverse the normal process of immediately asking what the practices of the organization would be. Instead, they began to ask themselves what would be the purpose and principles - its institutional genetic code - which would allow a new kind of institution to emerge and, in effect, to create and develop itself.

They focused on a single question:

If anything imaginable were possible, if there were no constraints whatever, what would be the nature of an ideal organization based on biological organizing principles to create the world's premier system for the exchange of monetary value?

Slowly, a dozen or so principles emerged. For example:

Power and function must be distributive to the maximum degree. No function should be performed by any part of the whole that could reasonably be done by any more peripheral part, and no power vested in any part that might reasonably be exercised by any lesser part.

It must be self-organizing. All participants must have the right to organize for self-governance at any time, for any reason, at any scale, with irrevocable rights of participation in governance at any greater scale.

Governance must be distributive. No individual, institution, or combination of either or both, particularly management, should be able to dominate deliberations or control decisions at any scale.

It must seamlessly blend both cooperation and competition. All parts must be free to compete in unique, independent ways, yet be linked so as to sense the demands of other parts, yield self-interest and cooperate when necessary to the inseparable good of the whole.

It must be infinitely malleable, yet extremely durable. It should be capable of constant, self-generated, modification of form or function, without sacrificing its essential purpose, nature or embodied principle, thus releasing human ingenuity and spirit.

It must be cooperatively and equitably owned. All relevant and affected parties must be eligible to participate in functions, governance and ownership.

After drafting the principles, none of the four believed such an organization could possibly be brought into being. A concentrated, two-year effort involving people throughout the industry and at all levels within individual banks proved them wrong. In June 1970, the organization that would come to be known as VISA came into being.

A Remarkable Organizational Concept

In the legal sense, Visa is a non-stock, for-profit, membership corporation. In another sense, it is an inside-out holding company in that it does not hold but is held by its functioning parts. The institutions that create its products are, at one and the same time, its owners, its members, its customers, its subjects and its superiors. It exists as an integral part of the most highly regulated of industries, yet is not subject to any regulatory authority in the world.

If converted to a stock company, Visa would have an astronomical market value, excluding its thousands of affiliated entities. But it cannot be bought, raided, traded or sold, since ownership is in the form of non-transferable rights of participation. However, that portion of the business created by each member is owned solely by them, is reflected in their stock prices and can be sold to any other member or entity eligible for membership.

It espouses no political, economic, social or legal theory, thus transcending language, custom, politics and culture to successfully connect a bewildering variety of more than 21,000 financial institutions, 16 million merchants and 800 million people in 300 countries and territories. Annual volume of $1.4 trillion continues to grow in excess of twenty-percent compounded annually. A staff of about three thousand scattered in twenty-one offices in thirteen countries on four continents provides product and systems development, global advertising, and around-the-clock operation of two global electronic communication systems with thousands of data centers communicating through nine million miles of fiber-optic cable. Its electronic systems clear more transactions in one week than the Federal Reserve system does in a year.

It has gone through a number of wars and revolutions, the belligerents continuing to share common ownership and never ceasing reciprocal acceptance of cards.

It has multiple boards of directors within a single legal entity, none of which are inferior or superior, as each has jurisdiction over certain areas or activities. No part knows the whole, the whole doesn't know all the parts and none had any need to. The entirety is largely self-regulating.

In less than five years, Visa transformed a troubled product with a minority market share into a dominant market share and the single most profitable consumer service in the financial services industry. Visa returns as much as 100% on its member's invested capital, while at the same time reducing by more than 50% the cost of unsecured credit to individuals and merchant cost of handling payment instruments.

Its products are the most universally used and recognized in the world, yet the organization is so transparent its ultimate customers, most if its affiliates and some of its members do not know how it functions or how it is structured.