Tuesday, July 12, 2011
The Durbin Amendment to the Wall Street Reform and Consumer Protection Act of 2010 requires the Federal Reserve Bank to set interchange rates on debit cards. The corresponding final Federal Reserve rule, introduced in June 2011, capped debit interchange fees at 21 cents, plus small allowances for fraud cost and prevention. The cap amounts to approximately half the current average interchange fee of 44 cents.
"We remain confident Visa will continue to thrive as an innovative, globally oriented growth company," Saunders told investors in a phone conference. "We are still reviewing details of the 400-page [Federal Reserve debit interchange rule] document. On balance the rules are an improvement from the 12 cent flat fee [initially] issued [for comment and discussion by the Federal Reserve Bank] in December."
Saunders said Visa is "encouraged" by the new, final rule because it allows issuers to recover "at least some" of their costs. He was also cautiously in favor of the Federal Reserve's choice to require two unaffiliated networks be affiliated with the card for processing. Saunders called this the better of the two options, but he emphasized there may be negative unintended consequences for certain parts of the industry such as small banks, credit unions, prepaid and government programs, industry investments, security innovation and reliability.
He stressed Visa will be impacted by the new rule. "However, we continue to believe the impact is manageable based on the environment as we see it," he explained. "These rules will affect Visa but far from eliminating a portion of U.S. revenues which in total account for approximately 20 percent of global net revenues."
The Visa CEO said he was glad to have the final ruling because "the final rules provide the clarity needed to begin implementing our plans" in the new debit transaction environment. He promised Visa will have more to say about its debit transaction strategies during investor conferences later this July and in October. At that time, Saunders confided, "the majority of our strategies will either be announced or be well on their way."
Saunders said the company intends to fight to keep its position as the routing preference for Visa customers. "Providing some level of incentives to specific merchants may be an effective strategy to ensure Visa continues to receive routing profits," he said. "The assumption is some portion of transactions may be routed away from Interlink to alternative PIN networks."
He summarized the company's fiscal outlook stating, "We expect fiscal 2012 will bear the weight of the regulation's financial impact, and in fiscal 2013 revenue growth will gain momentum off of 2012's level. We will compete vigorously for a Visa routing preference."
The Visa Securities and Exchange Commission filing, made public just before Saunders' remarks, projected a 2011 annual revenue growth of between 11 and 15 percent with common stock earnings up 20 percent. In 2012, Visa has projected high, single digit or low, double digit increases in net revenue with stock earnings improving to between 15 and 20 percent. 
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