Practical Ecommerce

Visa to Acquire CyberSource, Authorize.Net

The proposed acquisition by Visa of Authorize.Net’s parent company is the latest evolution for the storied payment gateway. Visa announced on April 21 its agreement to purchase CyberSource, Authorize.Net’s parent, for $26 per common share, or roughly $2 billion in cash. The deal is expected to close later this year.

Screen shot of Authorize.Net's home page.

Screen shot of Authorize.Net’s home page.

Authorize.Net’s History

Authorize.Net was founded in 1996, in Utah, by Jeff Knowles, a credit card salesman to brick-and-mortar merchants. Knowles recognized the need to connect websites to credit card processors, to facilitate the acceptance of credit card payments on the Internet. That connection is now known as a payment gateway, and Authorize.Net has grown to represent over 225,000 online merchants.

Authorize.Net’s launch proceeded Google’s by three years. Jeff Bezos launched Amazon.com in 1995, and Jerry Yang co-launched Yahoo! in 1994. Authorize.Net, in short, is a pioneer in the ecommerce industry.

Visa’s acquisition of CyberSource, Authorize.Net’s parent, marks the sixth owner for Authorize.Net. After Knowles founded the company in 1996, he sold it to Go2net in 1999. Go2net was then acquired by InfoSpace in October 2000, who then sold Authorize.Net to Lightbridge, in April 2004. Lightbridge owned Authorize.Net until Nov. 2007, when it sold the company to CyberSource, who has now agreed to sell itself and its Authorize.Net division to Visa, the dominant credit card issuer in the world.

Authorize.Net, Ownership Timeline

  • 1996 – Founded by Jeff Knowles, a credit card-terminal salesman, in Utah
  • 1999 – Acquired by Go2net, for $90 million
  • 2000 – Acquired by InfoSpace, upon that company’s purchase of Go2Net
  • 2004 – Acquired by Lightbridge, for $82 million
  • 2007 – Acquired by CyberSource, for $660 million
  • 2010 – Proposed acquisition by Visa of CyberSource and Authorize.Net, for $2 billion

Motivations for Visa

Visa is a much bigger company than CyberSource. Its 2009 revenues were roughly $7.3 billion, compared to $265 million for CyberSource, which includes Authorize.Net. But the deal marks Visa’s entry into the gateway business, and, perhaps, recognizes the growing role that ecommerce transactions play in the global economy. To date, Visa’s revenue primarily comes from “interchange” fees, which all merchant account providers pay. With the acquisition of CyberSource, Visa will now collect payment gateway and other ancillary fees, as well. Visa’s financial strength will presumably allow it to invest in infrastructure and marketing activities of Authorize.Net and CyberSource, accelerating the growth of those companies.

John Waldron is CEO of Merchant Focus, a merchant account provider, and he’s a longtime observer and expert of the credit-card business. His company is a reseller of Authorize.Net’s services.

“For resellers like us,” says Waldron, “I think the acquisition by Visa is a good thing. Visa has shown no desire to enter our merchant account business, so I feel they are a good neutral party. And we already have a working relationship with Visa, via the interchange fees that we pay to them and general processing compliance, as well as PCI compliance matters.

“This is a great opportunity for Visa. It enables Visa to collect more fees from online transactions, and gets them closer to managing risk involved with transaction data going over the Internet. I would expect that MasterCard will follow suit with a similar acquisition at some point.”

“But I’m not sure how I would feel if I were another competing gateway,” says Waldron. “All gateways have to work with Visa at some point, and Visa will now compete against them in the payment gateway business. Also, those competing gateways will be relying on Visa, in part, for PCI and general compliance approval. So, we’ll see how all of it plays out.”

Letter from CyberSource’s President

In announcing the acquisition by Visa, CyberSource’s president and CEO, Mike Walsh, posted a letter at Authorize.Net for its customers. That letter reads, in part:

“In the near-term nothing will change. The way you work with our company and partners will remain the same, as will our commitment to deliver the highest quality service and support. Looking ahead, we anticipate being able to provide you even more innovation and greater global reach. As examples of this:

  • Visa’s resources provide a means to accelerate development and deliver more new, innovative solutions
  • Visa’s global presence offers the opportunity to make international markets more accessible
  • The combination of our two companies creates new opportunities for collaboration between Visa, merchants and allied partner communities.”

Previous Authorize.Net, CyberSource Articles on Practical eCommerce

Kerry Murdock

Kerry Murdock

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  1. Bryan Johnson April 23, 2010 Reply

    With Visa’s intention to get into the gateway and acquiring business, there really was no other choice other than CyberSource. No other provider has the merchant base that would have met Visa’s needs. And with the stickiness of gateways, they had to acquire. That begs the question, what is MasterCard going to do now?

    I think the same evolution that has occurred in the wireless business during the past 15 years is well on it’s way in the payments industry. Carriers use to acquire and maintain business based upon minute plans, calling plans, geography (regional or national) and other small value adds such as night and weekend minutes or text messaging. That value differentiator is no longer there, it’s now the phone and the applications on the device. I personally would never have considered using AT&T if it were not for the iphone.

    Gateways are the equivalent of the smart phone in the payments industry. Innovations will be built within, on top and around them. The ability for acquirers and ISO’s to capture and retain business will depend on their ability to build and or package these value added applications, which will be challenging if they don’t have a dynamic gateway.

    Visa and the card brands and acquirers will need to do something else to get into the developer space and combat Paypal X. Apps have greatly amplified the value of the iPhone and that of course is the hope of Paypal.

    MasterCard recently launched Labs, and AMEX spent 300 million on Revolution Money, which I still don’t understand how that made sense. So it appears that the message is out, the question is whether they can make something work.

  2. PhilipCohen April 25, 2010 Reply

    eBay First Quarter 2010: Well, no matter how “Dr Death” Donahoe spins it, relative to all other ecommerce, the eBay Marketplaces are still going backwards.

    eBay Second Quarter 2010: eBay presently appears to have the death rattles; the rusting hulk has been effectively dead in the water now for some number of weeks: sellers are squealing like stuck pigs that they are effectively paying increased listing fees but getting, not simply less but, practically no exposure, and therefore very few sales. eBay is effectively defrauding them: taking their money but not giving them the service they contracted to give (so, what’s new?). But, don’t believe me, take a look at eBay’s own sellers’ forum thread at
    http://forums.ebay.com/db2/topic/Seller-Central/5-Days-Straight/520194234&start=50

    PayPal: When “all the banks” do eventually get off their butts and complement their card system with a card/terminal-less system for online transactions, they will do it properly, and undoubtedly the dysfunctional PayPal will then sink like a stone—except possibly on what is by then left of the Donahoe-shrunken eBay marketplace. So, PayPal’s future therefore appears problematic, and “Peter Principle” personified is delusional if he thinks he will be able to keep relying on PayPal to keep the old eBay tub afloat. (PS: Oops, Visa has just bought CyberSource the online payments facilitator—bye, bye, PayPal.)

    And for anyone interested generally in the matter of the rampant shill bidding fraud by unscrupulous professional sellers on buyers, fraud that I believe I can demonstrate is being knowingly encouraged and facilitated by eBay, and the damage that that can do to consumer confidence in the eBay platform, do see my introduction thereto at
    http://www.auctionbytes.com/forum/phpBB/viewtopic.php?p=6502877

    Is it any wonder the eBay marketplace is struggling when compared to the others in this area?

    Donahoe/eBay/PayPal: Dead Men Walking

  3. Louis Camassa April 25, 2010 Reply

    It will be interesting to see if Visa leverages its acquisition of Cybersource/Authorize.net to develop its RighCliq service.

    “Users will be able to initiate purchases from Rightcliq or launch Rightcliq as they are browsing any merchant website when they’re ready to buy. Rightcliq will automatically fill in purchase details including a shipping address and payment account number. Its account management function will let consumers safely store multiple payment accounts and easily select the payment account they prefer.”

    Will Visa continue to develop RightCliq into a PayPal/Google Checkout type service? With the reach they now have with Cybersource (one of the top 3 largest payment processors), it seems like a no brainer!