Walmart, MasterCard, and Visa Ramp Up e-Commerce

Stephen DeAngelis

April 27, 2010

Electronic commerce using the internet is certainly not new; but it is growing. Walmart just announced that it is beefing up its global e-commerce efforts [“Wal-Mart Ramps Up Online Efforts Globally,” by Karen Talley, Wall Street Journal, 7 April 2010] and MasterCard announced that it is opening up an online mall [“MasterCard Set to Open an Online Shopping Mall,” by Andrew Martin, New York Times, 8 April 2010]. Not to be outdone by its rival, Visa has also announced that it is going to beef up its online presence by acquiring Cybersource, an electronic payments company [“Cybersource deal accelerates Visa’s e-commerce push,” by Helen Thomas, Financial Times, 22 April 2010] Let’s begin with the Walmart story. Talley reports:

“Wal-Mart Stores Inc. is stepping up its international e-commerce expansion, looking for staff, talking to vendors and mapping its approach to what could become one of the world’s biggest Internet initiatives. Wal-Mart wants to mix the best of what is already offered with new elements that could allow the company to sell from the U.S. into overseas markets and use its presence in other countries as a springboard for online sales, said Steve Nave, general manager of Walmart.com. ‘You’ll see a hybrid’ of what has existed for Wal-Mart and in general, Mr. Nave said. The initiative will employ the reach and resources of the world’s biggest retailer to see if it can capture a greater share of the billions of dollars that are being spent online annually, an amount that has been growing.”

According to Talley, when it comes to internet sales, Walmart “has a lot of growing room.” She explains:

“Trade publication Internet Retailer estimated that Wal-Mart’s e-commerce sales in 2008, the latest projection available, were $1.74 billion. That compared with No. 1 ranked Amazon.com Inc. at $19.2 billion and No. 2 Staples Inc., at $7.7 billion. Other brick-and-mortar retailers like Office Depot Inc., OfficeMax Inc., Sears Holding Corp. and Best Buy Co. outranked Wal-Mart in Web sales, with Wal-Mart entering the list at No. 13. This was before Wal-Mart said it was making a great push to improve online sales.”

Walmart’s “reach and resources,” of course, include its renowned supply chain. Walmart may, among other things, try to tap into the potential market created by millions of expatriates who might like a taste of home despite being thousands of miles away. The company’s biggest targets, however, are overseas buyers who want to buy products available in the United States. Talley continues:

“A bigger international foray into the Internet ‘would increase global revenue by exposing Wal-Mart to a new buyer base that has financial capabilities and is interested in buying from the U.S.,’ said Bobby Frank, chief executive of BorderJump LLC, a provider of global e-commerce services. ‘These consumers want better prices, selection and brand names they cannot find locally.'”

You don’t need a crystal ball to understand where Walmart hopes to increase sales. They are advertising for people who can speak “Mandarin, Cantonese, Japanese, Portuguese, Spanish, Hindi and French.” Talley reports that Walmart’s international e-commerce group calls itself “global.com.” She continues:

“The mission of Wal-Mart’s global.com initiative is to allow customers to ‘be able to experience the brand wherever and whenever they want,’ Vice Chairman Eduardo Castro-Wright said in February. Mr. Castro-Wright said Wal-Mart would pursue e-commerce opportunities around the world, whether it be in developed markets where the retailer already has stores or online in markets where it doesn’t. Wal-Mart has established online operations in the U.S., the U.K., through its Asda chain and Brazil. Areas of opportunity include India, where Wal-Mart is building a presence through stores that are part of a joint venture. Wal-Mart also operates in China, through a joint venture and controlled subsidiaries. In Japan, Wal-Mart operates Seiyu stores.”

MasterCard, of course, doesn’t possess any of the retailer attributes enjoyed by Walmart. Its online presence, therefore, is going to look much different than Walmart’s. MasterCard is going into the “predictive online marketing business.” Martin explains:

“Through a new partnership with an Internet company that specializes in personalized shopping, MasterCard is set to introduce a Web shopping mall … that it says can pinpoint with considerable accuracy what its cardholders are likely to purchase. The site, called MasterCard Marketplace, relies on technology developed by Next Jump, a New York company that monitors customer behavior from thousands of retailers and uses the data it gathers to help merchants tailor their product offerings. While MasterCard describes its approach as a potential game changer, luring consumers to a shopping site run by a payment network rather than a retailer is an uncertain proposition.”

Anytime one hears that purchasing or web surfing histories are going to be used to predict behavior, all sorts of privacy alarms start to ring. MasterCard’s venture is no different.

“Some privacy advocates, meanwhile, say the technology makes them uncomfortable. Anita L. Allen, a law professor who studies privacy issues at the University of Pennsylvania, said that as consumers give up more private information for short-term gains, ‘In the end, we turn into citizens who live in a world where we have no control over our own data.'”

Martin explains that MasterCard is not the first company to use software in this way.

“Companies of all kinds try to anticipate what consumers will buy and tailor their marketing programs accordingly, including MasterCard’s rivals, Visa and American Express. But the success of personalized online shopping has been mixed. MasterCard’s competitors are also trying to expand their presence in online commerce. For instance, American Express has a site called ‘Daily Wish’ that offers discounts, and Visa is in the process of introducing RightCliq, intended to help consumers comparison-shop online. Next Jump’s selling point is that it draws on buying patterns across thousands of retailers, giving it a huge sample size of consumers to analyze. … On the new MasterCard site, shoppers will be asked to select a handful of merchants they favor. From there, Next Jump will monitor how they use the site and adjust offers accordingly, said Joshua Peirez, MasterCard’s head of innovation platforms.”

Although “MasterCard said it was working to assure customers’ privacy,” I’m sure that concerns will continue to be raised. The site will only monitor customers who enroll on the site. “But,” Martin writes, “some privacy experts question the growing use of customer data on sites like MasterCard Marketplace, even if people divulge it willingly.” Martin indicates that another big concern is fairness. It may turn out, for example that not everyone who enrolls on the site will get access to the same deals. Martin explains:

“Joseph Turow, a communications professor at the University of Pennsylvania, said that hiding the identity of customers from merchants was not enough. The type of profiling done by sites like MasterCard Marketplace, he said, often leads to ‘social discrimination,’ in which people are lumped into categories they may find objectionable. He said companies rarely explained to people how they were categorized. ‘People might be happy with a Dell 30 percent off, but why did my neighbor get one deal and me another?’ he said. ‘We are accepting this notion that companies have a right to do this.'”

Technology always runs ahead of the rules that regulate it. Eventually, guidelines will be established for sites like Mastercard’s. Visa’s efforts to increase its online revenue involves electronic payments rather than the marketing of products. Helen Thomas explains:

“Visa … accelerated its push into online payments and e-commerce, agreeing to buy Cybersource, an electronic payments company, for about $2bn in cash. The deal, which values Cybersource at about $26 a share, comes just a week after rival MasterCard launched a new division dedicated to bringing to market faster different forms of payment. The traditional payment processors are manoeuvring to ensure their position is not eclipsed by emerging technology and online rivals such as PayPal. American Express last year announced it was buying Revolution Money, an online processor, for $300m. Cybersource, which helps retailers protect themselves against fraudulent online payments using its software, processes about a quarter of all US ecommerce transactions, by dollar value. … The deal with Visa should help to spur the company’s international growth, with Asia and Latin America expected to be early priorities.”

Activities on the e-commerce front are telling. First, they are a pretty good sign that the global economy is starting to recover. Second, it’s clear that much of the online activity is aimed at emerging markets. Finally, it underscores the fact that globalization is not dead. As the global middle class continues to expand, e-commerce is one way for merchants to reach that global consumer base. There should be little doubt remaining about how important a growing global middle class is going to be in order to sustain the world’s economy.