The Green Sheet Online Edition
May 28, 2012 • Issue 12:05:02
Visa discusses DOJ probe, explains FANF, raises 'no signature' limit
In a conference call on May 2, 2012, 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 spokeswoman Gina Talamona said the department has no comment on the investigation.
FANF fee explained
In February 2012, Visa advised acquirers its new Fixed Acquirer Network Fee (FANF) would take effect in April 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.
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 (NFC) 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.
'No signature required' limit raised
Several days after Saunders' conference call, Visa reported it will double its "no signature required" limit to $50, effective Oct. 1, 2012. Visa said its new $50 Visa Easy Payment Service limit will apply to the following U.S. merchant categories: discount stores, grocery stores and supermarkets.
The Visa Easy Payment Service, launched in July 2010, currently allows merchants in most categories to accept Visa cards without requiring either signature or PIN for transactions up to $25. Visa said its Easy Payment Service offers more customer convenience, cuts down on transaction time and offers other merchant benefits.
The company stated it "may expand this higher transaction limit to additional merchant categories in the near future," adding that approximately 80 percent of its U.S. consumer transactions are for under $50.
"Merchants have asked us to expand the program to purchases up to $50, so that they can more efficiently support consumers' growing preference to use cards instead of cash or checks for everyday purchases," said William Sheedy, Visa Group President, Americas.
"This is a logical move from Visa's standpoint," said Ken Musante, President of the California ISO Eureka Payments. "When Visa first initiated the no signature required program, they started with the less risk-prone merchant types and expanded from there. It's likely they will expand the limit in the same way, based on merchant feedback."
Musante said that to make this program effective, cards would have to be mag stripe or have NFC capability. He stated the low transaction limit together with the cost of manufacturing a counterfeit card makes theft less attractive to thieves who might otherwise see a no signature, no PIN transaction as an easy target.
Musante gave a thumbs-up to the Visa program. "This is an opportunity for salespeople to go out there and talk about change," he said. "It's something else to talk to our merchants about."
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