The Green Sheet Online Edition
July 25, 2011 • Issue 11:07:02
Visa says Durbin impact 'manageable'
Visa is ready to compete in the new debit environment," Visa Inc. Chairman and Chief Executive Officer Joe Saunders said in a recent investor conference. He also said Visa is confident projected revenues for 2011 will remain status quo after the Federal Reserve implements its final rule capping debit card interchange fees.
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 debit interchange fee of 44 cents.
"We remain confident Visa will continue to thrive as an innovative, globally oriented growth company," Saunders told investors in the 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 said Visa will be affected by the new rule, but the company continues to believe "the impact is manageable based on the environment as we see it. 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."
Onward for Visa
The Visa CEO also 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, "the majority of our strategies will either be announced or be well on their way," he added.
Saunders indicated 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."
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