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Friday, May 11, 2012

Visa CEO discusses more than DOJ probe

In a May 2012 conference call, Visa Inc. Chief Executive Officer Joseph Saunders revealed the card company's debit card business is under investigation by the U.S. Department of Justice. He also discussed the company's second fiscal quarter 2012 profits, growth strategies, and new products and solutions. The quarter ended March 31.

"On March 13 … the U.S. Department of Justice Antitrust Division issued a civil investigative demand requesting additional information about PIN-authenticated Visa Debit and elements of our new debit strategies, including the fixed acquirer fee," Saunders disclosed.

He said Visa met with the DOJ in March to turn over the materials requested in the civil investigative demand. "In a business as complex as ours, the department's request is not unexpected," he said. "Visa has received four other requests for information from the department since 2007, each of which took from 9 to 24 months to complete. All have been resolved." He added that Visa is "continuing to provide materials and cooperate with the department."

Regarding the company's "strategies to compete for routing decisions, our incentive program for merchants is on track," Saunders said. "We've taken a tailored and surgical approach to win strategic volume and offered competitive incentives to merchants."

DOJ spokesperson Gina Talamona said the department has no comment on the investigation.

FANF fee explained

Visa instituted the Fixed Acquirer Network Fee (FANF) in February 2012 – after the Durbin Amendment to the Dodd Frank Wall Street Reform and Consumer Protection Act of 2010 cut debit card transaction fees in half. Saunders said the FANF would "offer merchants greater incentive to route transactions over our network" while lowering transaction costs. He told investors the DOJ began its investigation before the FANF went into effect April 1, 2012.

The FANF is a cost retailers pay to be a part of the Visa network. It applies to acceptance of all Visa products. Fees are charged to acquirers or processors based on a complicated formula that takes into account, among other things, merchant size and location.

According to the Merchants Payments Coalition, a national organization of retailers dedicated to credit card fee reform representing approximately 2.7 million stores, many retailers are complaining they unfairly end up paying both a brick-and-mortar FANF and a card not present FANF. Visa said the fixed acquirer fee lowers merchant transaction costs "in aggregate."

Debit volume growth

The Durbin Amendment hit Visa hard but "is playing out as we expected," Saunders said, adding that the company's aggregate debit volume grew only 2 percent in the company's second fiscal quarter 2012 (which ended March 31, 2012) and "has continued to decline in April."

Saunders also noted that Visa's Interlink PIN-based POS network bore "the brunt of the regulatory impact" and experienced a decline in every month of the quarter. "Interlink volume has experienced notable deterioration," he stated. However, he added that the network accounted for less than 10 percent of Visa's U.S. debit revenue. He also stated he believes Interlink will be more competitive in the fourth quarter 2012 when the impact from new regulations and new debit strategies will be evident.

The profit picture

Saunders said Visa posted net operating revenues of $2.6 billion in its second fiscal quarter – a 15 percent increase over the previous year. "These revenue gains were driven by double-digit payment volume growth globally, continued out-performance of credit spend worldwide and a strong cross-border activity," he stated.

Visa's credit card volumes grew 14 percent; debit payment volumes were up 7 percent during the same quarter; cross-border volume was up 16 percent globally; transactions grew 8 percent; and payment volumes increased 6 percent for all Visa products.

Saunders said Visa payment volume has grown every quarter for the last nine quarters in Latin America, with the second fiscal quarter 2012 realizing a 25 percent growth rate. He noted that growth was particularly strong in Brazil where the company has "just reached an agreement with a large Brazilian bank that has traditionally maintained the majority of its business with one of our largest competitors

"With this new agreement, we estimate that 50 percent of that client's card portfolio will be Visa branded in the next few years." He also expects more than 90 percent of Visa transactions in Brazil soon will be routed over Visa's own VisaNet, up from 63 percent today.

In addition, Saunders discussed a new agreement with mobile phone network Vodafone Group PLC to preload Visa mobile prepaid accounts onto the Vodafone virtual wallet now under development. He also referred to agreements to promote deployment of near field communication through its payWave technology, the importance of the company's investment in security and development of beta testing for Visa's digital wallet V.me. end of article

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