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Carl F. Pascarella's decision to retire in September 2005 as chief executive of Visa USA is being greeted in the payments industry with expressions of praise for his leadership in transforming the San Francisco-based bank card network from a one-dimensional credit card company into a force to be reckoned with in electronic payments. But the praise is mixed with warnings that pending issues that have dogged Visa over recent months will not go away when Pascarella departs. His successor, some say, will confront major challenges over an array of thorny issues, chief among them interchange pricing, the mechanism of fees by which merchants and merchant processors reimburse card issuers. At least some of these issues will inevitably play out in court, they add, adding to the litigation woes of both Visa and MasterCard just as they are moving beyond the settlement last year of the class action suit led by Wal-Mart Stores Inc. against the bank-controlled card associations. The settlement cost the card networks $3 billion, forced them to at least temporarily slash their signature-debit interchange pricing, and swept away the networks' longstanding honor-all-cards rule, by which merchants that accepted the associations' credit cards were required to accept their debit products. The case was probably the biggest headache of Pascarella's 11-year tenure. Even those who have tangled with Visa over these issues pay tribute to Pascarella and credit him with expanding the breadth of the company's product portfolio into such markets as debit cards and the Internet. But they add the network's attitude has sometimes been its own worst enemy. “I wish him well,” says John K. Lannan, chief executive of Debitman Card Inc., a Chico, Calif.-based non-bank network for retailer-issued debit cards. “But Visa has grown into an organization that's fairly arrogant. You can see that in the issues that have been litigated and the positions they took.” Lannan and others say Visa will face litigation in the coming years over what he calls “preferential treatment” in interchange pricing for select merchants. Visa has reportedly offered certain chains accounting for significant transaction volume reduced pricing on Visa transactions. Such moves, Lannan says, have inflamed merchants and led to increased interest from them in non-bank card networks. “We're seeing a lot of traction for our company because of things that have gone on with interchange fees,” he says. “I applaud [Pascarella] and others for developing a wonderful franchise, but they left out some of the players.” In a memo included in a quarterly report to Visa members in December last year, Pascarella warned that debit networks relying on the automated clearing house for settlement, as Debitman does, are high risk ventures. Lannan responded with a letter to Pascarella rebutting the Visa USA chief executive, to which Pascarella did not reply (Digital Transactions News, Jan. 29). Visa USA board members credit Pascarella with turning Visa into a broad-based electronic payments company during his 11 years at the helm, with strong positions not just in consumer credit cards but also in signature debit and debit tied to personal identification numbers and in commercial and prepaid cards. In part because of the volume of Visa transactions, which during Pascarella's tenure ballooned from $227 billion to more than $1 trillion in value, electronic payments are finally having a long-predicted impact on paper checks, with the Federal Reserve recently reporting steady declines in check volumes. By the end of the year, Visa predicts, its branded cards will control 14% of all U.S. consumer spending. Pascarella's expansion of Visa's debit position has been especially dramatic: Debit now accounts for 59% of all Visa transactions, up from 7% when Pascarella became chief executive, and debit at the point of sale generally has become a mainstream payments channel. At the same time, Pascarella pushed through a huge root-and-branch overhaul of Visa's transaction architecture to incorporate Internet Protocol (IP) technology and to expand capacity. Visa says its VisaNet system now processes as many transactions in one hour as do all the world's stock exchanges in a day. Visa announced yesterday that Pascarella had informed the company's board “several months ago” he would not seek a new term when his contract expires in September of next year. G. Patrick Phillips, president of card services at Bank of America Corp. and chairman of the Visa USA board, will lead the effort to find and hire a successor. “While the Visa board is disappointed by Carl's decision, we're pleased that he's agreed to remain flexible in timing this transition so as to ensure an orderly change of leadership,” Phillips said in a statement. Pascarella says he intends to seek opportunities in investment banking after he leaves Visa.
