Visa to Buy Fraud-Prevention Firm BioCatch for $2.4 Billion

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1:39Scarlet Fu:We talked about how it's M &A Monday. There is some deal-making in FinTech. Sure, why not? Visa making a purchase buying BioCatch for$2.4 billion in cash. This is a fraud prevention firm. Let's bring in Diksha Guerra. She is our global fintech and payments analyst joining us from San Francisco. So is this a part of the business that Visa really needed to bolster that it didn't have already? BioCatch, using artificial intelligence to detect fraud? Yes. Hi, Scarlett. Always a pleasure to be here. So that's a good question, right? Visa actually did a Cybersource acquisition in the past. so it's important to understand why are they dropping this kind of money for biocatch but what biocatch actually does it is it evaluates user risk before the payment actually happens it's during the account registration during the login during the profile updates and navigation that's what is new so the business itself is not new visa has a risk in a security solutions business, which actually generates a$2 billion revenue.

2:47That's what our estimate is already. And this basically adds to it. Dikshia, talk to us about AI in the fintechs and payment space as it relates to fraud. I mean, you know, that's always one of the big risks in, you know, the payment space here. I would think AI would be, would enhance, if I'm a criminal, would really enhance my ability for fraud. How do the companies think about that? That's very true, Paul. And if you notice and if you read the tea leaves, these card networks are obviously quite ahead of the curve in terms of identifying that issue. Right. So you're right. AI has actually accentuated fraud.

3:26It's a topic that is in every bank boardroom. If you think about what happened with Mythos, the anthropic model, it exposed a lot of vulnerabilities. So financial fraud overall is growing. And within payments, what was happening is the traditional gateway tools that authorize, like they struggle with the APP scams, which is basically when a legitimate user is tricked by a scammer into approving a transaction themselves. So they make the credentials, device and OTP look valid. What companies like these, like BioCatch do, is that they detect cognitive behavior and indicators of coercion. Basically, if you're taking a long pause, if there's unusual navigation behavior or the phone call patterns during the session, and that helps them to prevent.

4:13So this is preventative threat intelligence as opposed to when you are acting or in the moment of the payment. So Visa and MasterCard are both strengthening their aperture to basically address these issues and also help their clients with it.

4:29Scarlet Fu:So they're trying to come up with solutions. As a consumer, how would I experience the use of biocatch in preventing fraud? Would I not be able to make a purchase or am I going to get an alert? How would it affect me? Yeah, Scarlett, I'm yet to take a look at what exactly is the modality of it. But if you were to take a cue from what Visa did with Cybersource, a lot of this happens in the back end. the holy grail is actually walking a very tight rope wherein you approve most or all of the good transactions and you block as many of the bad transactions without actually blocking the good transactions.

5:10So that's what all these companies are trying to approve and authorization rates are one metric with which all of the payment companies actually sell their services. So they go and boast about their perfect authorization rates and minimal fraud rates. That's the metric that they're judged on by the merchants. I've got at least one Visa card in my pocket, so I applaud this deal. Anything that can help cybersecurity. So Dixon, real quick, just for Visa, just for example, over the last, I don't know, 10 years, how is their fraud rate, whatever you look at, has it gotten better or worse? What's going on out there in the marketplace?

5:45So actually the metric I would watch for this, Paul, is how are they doing on the revenue side? Because like I mentioned, this is not just strengthening their own internal fraud protection. it actually is generating direct revenue for Visa. So to give you an example, Visa is actually creating a lot more of this services revenue line. And we project that their services business by itself could be about 15 plus billion dollars by 2027. That's about 31 percent of their revenue from 10 billion in 2025. So the fraud and risk, the risk and security Solutions itself is doing$2 billion annual revenue run rate right now.

6:26And I think they're trying to build and catch on this opportunity that has come along with increased requirements. And by the way, the timing is amazing because a lot of global regulators are increasingly holding the banks liable for social engineering and scam losses. So this allows Visa to kind of bring a very monetizable solution to sell to financial institutions facing these complaints.

6:48Scarlet Fu:Stay with us. More from Bloomberg Intelligence coming up after this.

7:18Uh-huh. I'm seeing that, too. And they have a bunch of GE options in stock.

7:22Scarlet Fu:Oh, that's great. We've always had good luck with GE appliances. This one looks perfect. Scheduling for tomorrow. Gosh, Grand really makes it easy. Another crisis averted by the team at Grand Appliance. Visit GrandAppliance.com today. Grand Appliance. Appliance experts since 1930. Hi, I'm Barry Ritholtz, inviting you to join me for the Masters in Business podcast. Every week, we bring you conversations with the people who shape markets, investing, and business. I speak with CEOs, Nobel laureates, market innovators, and legendary investors. Whether you own stocks, bonds, real estate, commodities, even crypto, these are discussions you absolutely need to hear.

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8:11Scarlet Fu:You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business app. Listen on demand wherever you get your podcasts or watch us live on YouTube. Marriott reported second quarter earnings that beat estimates. This booking demand drew up higher room prices in the U.S., but the stock's down. So I'm guessing their forward guidance wasn't that great. So let's check in with an expert on all this stuff. Brian Neger, senior gaming and lodging analyst for Bloomberg Intelligence, joins us live here in our Bloomberg Interactive Broker Studio.

8:44no nantucket office for him uh talk to us about marriott what did they uh release today so marriott had an above expected level of revenue per available room growth we like to call it ref part and they also raised their full year metric uh as well so there was some second half upside so i don't think they really lowered guidance there may have been some expectation that the third quarter could have been even higher they got a bump in the second quarter and they'll get some of that in the third quarter from the world cup right i mean the weak weak spots globally are obviously the middle east um and there are some pockets of weakness but overall quite strong i think i think the outlook may have been people are looking for a bit more but um taking a step back it was overall a pretty pretty positive print so for these full service hotel groups like marriott hyatt hilton they have like a million brands right they really segment the market 30 31 right 30 you want if you count Bonvoy from Marriott.

9:41Yeah, I'm a Bonvoy thingamajig person. I guess that worked, right? I mean, that's proven to be the way to cut this market up? Yeah, and they report separately trends for luxury versus mid-scale versus limited service, and there have been differing trends since we emerged from the pandemic, but it does benefit them to have different segments. Overall, they skew a bit more upscale and luxury than, let's say, Wyndham or even Hilton. A little bit more like Hyatt. So they see, I presume, the K-shaped economy out there. Is that, in fact, reflected in their results? To a large degree, although I think increasingly the CEO of Hilton in the last quarter used the term C-shaped, which is interesting because I think what you're seeing is upscale luxury is still quite strong, but the limited service, which had been lagging in the last year or two, is actually coming back.

10:35And I think we're seeing a bit more strength in that part of the business. whether it's business travel or leisure travel. So are these companies like, again, Marriott or Hyatt, are these global companies? Yeah, I mean, they are. And so when they disclose the results, you get a picture into what's happening in Asia, Europe, Middle East, Africa, Latin America, as well as the U.S. So they are quite global. It's interesting. I think a lot of businesses today that over the last decade, or maybe even more, were really investing in the Middle East. UAE, Dubai, I mean, that area. And the casinos too, win.

11:10Yes, exactly. Are they rethinking that now? Are they getting, that's over there. That's not us, don't worry about that. Yeah, I don't think they're rethinking it, but obviously a major tragic world event happens and then it affects their overall growth. Like for example, in the second quarter for Marriott, Rev Par in the Middle East is down 43%. Not surprising given the level of disruption. I think the expectation is if you get a normalization in the geopolitical climate, that that growth will come back. But obviously, near-term has had an effect. And there's also been a little bit of a slowdown, not much, but a little bit in new openings in the pace of net unit growth or room growth because of some opening or construction delays in the Middle East as well.

11:54Interesting. So how about here in the U.S.? What's the industry doing capacity-wise? Are we building new hotels? Are we for being existing ones? What's going on? Yeah, there's kind of a mid-single-digit rate of overall growth. Now, some of that is new construction. Some of that, and it's true in the case of Marriott and Hilton, comes from conversions. So you basically get non-branded Hilton-branded hotels or not Marri-branded. And so some of that, Marriott and Grubit, is from conversions and not necessarily new ground-up construction. All right, it's been, I don't know, 10, 20 years of the Airbnbs of the world.

12:29How has it all shaken out with that, Sigma? I'm not sure what the term is for the Airbnb part of the world, versus hotels. First of all, remember, some of these entities have the equivalent of a vacation ownership type interest type of experience. I think for a price-sensitive, short-term bookings window, leisure customer, it had some effect on the margin. But I think the overall perception is that the leisure consumer and traveler, particularly for high-end stays, has been really resilient. And that's kind of the sweet spot of Marriott. Because I see like, you know, some of these, a courtyard by marit or some of the lower ends, I mean, they are dominated by travel teams.

13:11You pull into there and then, you know, you get like 27 lacrosse teams or ice hockey teams. That's a part of the business that didn't exist a while ago. Yes. I mean, it's a different type of experience and travel purchase, obviously, if you're looking at a vacation ownership or a home renting for a short term, but it does not seem to have detracted in any way for the overall leisure travel strength. That's amazing because you think about all the Airbnb inventory that's come onto the market. At one point, we thought it was going to be testing. There are individual consumers that certainly will choose one over the other.

13:41But overall, I think it represents a very niche segment of the market.

13:45Scarlet Fu:Stay with us. More from Bloomberg Intelligence coming up after this. The washer won't start and the laundry's already piled to the ceiling. Hopping on grandappliance.com. Great idea. I heard they have next day delivery. Uh-huh. I'm seeing that too. And they have a bunch of GE options in stock. Oh, that's great. We've always had good luck with GE appliances. This one looks perfect. Scheduling for tomorrow. Gosh, Grand really makes it easy. Another crisis averted by the team at Grand Appliance. Visit GrandAppliance.com today. Grand Appliance. Appliance experts since 1930. Hi, I'm Carol Masser with a helpful tip to keep you plugged in throughout the market day.

14:27Scarlet Fu:Subscribe to the Stockmovers report from Bloomberg. These are short audio episodes, five minutes or less, delivered right to your podcast feed. Stockmovers fills you in on the day's winners and losers on Wall Street and tells you about the news and data that's driving those gains and losses. Why spend all day watching tickers scroll across your screen? Subscribe to Stockmovers today on Apple, Spotify, or anywhere else you listen. You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business app. Listen on demand wherever you get your podcasts or watch us live on YouTube.

15:08I thought we're going to come in potentially for another farmer merger Monday. I'm not sure that's good. We've got some noise, but.

15:16Scarlet Fu:A lot of noise because you have the U.K. drugmaker AstraZeneca in talks reportedly to combine with U.S. rival Bristol Myers. if they combine, this would be a deal valued at almost$400 billion. But I don't know if it's a deal or not a deal. So let's check out somebody who follows this stuff for a living. Sam Fezzelli, he is, I don't know what his title is, but he's just a top pharma guy. Yeah, drug boss. He's shaking his head. Pharma analyst in the city of London. Sam, talk to us about you've known AstraZeneca and Mr. Miles Squibb of Princeton, New Jersey, for decades here. What do you think about a potential type of these two companies?

15:53So, Paul and Scarlett, go into your terminal and ask me and type, what has Pascal Soriot, CEO of AstraZeneca, said about mega mergers? Negative, negative, negative, negative, negative. How is this credulous? What happened since the results that came out recently and the last time the CEO said this? So, I'm going to speculate here, right? Because it's all speculation. This is FT saying, which of course is a very credible source, that perhaps there have been some discussions that may be on some segment to be put together, cardiovascular, oncology, or collaboration on an area where they could collaborate.

16:36The merger together, why would you do that if you'd be telling us the story just a few days ago at the Q2 that we have double-digit growth, earnings growth, to 2030, and then go and buy yourself a company that's got flat or negative earnings growth, potentially, depending on how quickly these patent expiries hit Bristol-Myers. Why would you do that? In which corporate finance book does that make sense?

17:01Scarlet Fu:I guess part of this is that AstraZeneca, which is listed, of course, in the UK, a member of the FTSE 100, completed a direct listing in New York this year. And maybe that got people thinking that that it has greater ambitions in the US. And I hear what you're saying about how there might be specific partnerships with BMI, but how did that direct listing in New York get people talking and thinking about what its ambitions could be? I think there's a little bit of effort going on by all pharma companies to show how US friendly they are because of all the obvious conversations that have been going.

17:36Some of it is sincere, some of it is not. Also, I think it's a signal to the Europeans and the U.K. specifically saying your environment is not great for research. The U.S. is. Some of that's going on. But AstraZeneca is already an international company. They've had no problem growing their business in the U.S., in China, in Asia, in any other country that they want to. So, really, I don't buy that story that this is geographic to get a better foothold in the U.S. And if you really want that, at least go after something that's complementary as opposed to exactly the same business area, which would cause quite a lot of questions at least, whether it's real or not, on the antitrust side of things.

18:16Yeah, with regulators. I don't buy it. I don't buy it. I think there's something else maybe going on, but I don't buy the full merger. I mean, is there a sense that if you were ever to want to get a deal of this size done, you do it while this administration is in office? Is that maybe just fueling this a little bit? Maybe, maybe. But again, go and do something that's secretive, not dilutive. I mean, you know, it would take them. It would take everything that Pascal has already been saying. It would take their eyes off of the pipeline. It would cause a huge amount of consternation within the companies.

18:50People wondering whether they have a job or not in a year. What do you think it happens? We've been around long enough to know these mega mergers in pharma don't tend to work unless you have a massive patent clip coming up. You merge two patent clips here, they get even worse. It just doesn't make sense. You know, Occam's razor, simple answer is it doesn't make sense.

19:08Scarlet Fu:It doesn't make sense. But you mentioned something about how Bristol Myers Squibb has seen flat growth. Why is it such a laggard? What is it having trouble doing right now? And does it need someone to buy it out? it doesn't need someone to buy it out they do have what they need to get to the degree growth or the or the restart of growth the thing is they're suffering from what all pharma companies at some point suffer patent expiries which is great for consumers we forget all that they go and invent drugs spend billions developing them and creating a market improving their drugs are good and safe etc and then 12 years or 10 years in they become generic people can get to buy them for a tenth of the price, if not less.

19:50So that's what's happening at Bristol-Myers. A couple of drugs are going off pattern. They're dealing with that. They have a pipeline that's developing. I want to point to a podcast I did on our Van Goghs of Healthcare podcast with the head of oncology, Christian Messegesi from BMS, BNY. You can listen to that. You hear a lot of great stuff going on in the company.

20:12Scarlet Fu:Stay with us. More from Bloomberg Intelligence coming up after this. The washer won't start and the laundry's already piled to the ceiling. Hopping on grandappliance.com. Great idea. I heard they have next day delivery. Uh-huh. I'm seeing that too. And they have a bunch of GE options in stock. Oh, that's great. We've always had good luck with GE appliances. This one looks perfect. Scheduling for tomorrow. Gosh, Grand really makes it easy. Another crisis averted by the team at Grand Appliance. Visit grandappliance.com today. Grand Appliance, appliance experts since 1930.

21:15on Apple Podcasts, Spotify, or anywhere you listen.

21:20Scarlet Fu:You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube. On Friday, New York State sued Calci for running, allegedly, an illegal, unlicensed gambling operation in the state. Right. They're basically saying that Calshi's prediction market exposes New York state residents to serious personal and financial risk and that the company did not seek a license from the New York State Gaming Commission. That gets to the heart of the matter here with prediction markets and whether they're gambling or something else.

21:59Scarlet Fu:And so the discussion continues. The debate continues. Jonathan Kaye is founder and CEO of Aptopia. He joins us right now from Boston. Jonathan, different states have different points of view on this. We know the federal government looks at prediction markets and says it's OK. Just give us the lay of the land right now in terms of how much market share prediction markets have taken when it comes to sports betting, or in this case, the terminology they use is events contracts. Yeah. Well, Paul and Scarlett, thank you so much for having me. Nice to be here today. generally what we're seeing is I think we're here today because we've seen prediction markets daily active users right the amount of people that go back to the app each day actually start to meaningfully surpass those of online sports books often known as DraftKings and FanDuel and what you've seen is actually since the Super Bowl the last like kind of four or five months you've seen parody so you've seen DraftKings and FanDuel and Calci kind of be in a dogfight frankly in terms of daily active users which I think for people that are avid gamblers or avid investors in this space Super Bowl to now is kind of a slow period so we were looking to see what would come out of the World Cup and what you saw was like the dogfight break up right you saw Calci essentially grow to be materially larger in terms of daily active users than the sports books and poly market kind of come out of this tier two positioning and now enter into the dogfight with DraftKings and Sport and FanDuel.