Both Credit & Debit Rise for Visa, Along with Acquirer Fees

Visa Inc.'s U.S. debit card purchase volumes again put on a strong performance in the quarter ending March 31 and the battered credit card sector continued a revival first seen in late 2009. Merchant acquirers, however, are paying more to process Visa transactions, and they can expect another price increase this summer.

The No. 1 payment card network reported late Wednesday that net income rose 33% to $713 million in its second fiscal 2010 quarter from $536 million a year earlier. Operating revenues increased 18.3% to $1.95 billion from $1.65 billion. The VisaNet network processed 10.6 billion transactions in the second quarter from all of Visa's card brands, up 13.8% from 9.36 billion in the year-earlier period.

Visa gets revenues from card issuers and acquirers through so-called service revenues, data-processing fees, charges for international transactions, and other sources. The charges that affect acquirers the most are transaction-based fees that generate the majority of Visa's data-processing revenues, which rose 33.8% in the second quarter to $728 million from $544 million a year earlier.

San Francisco-based Visa instituted an acquirer price increase last year (Digital Transactions News, March 17, 2009). In a conference call with analysts, Visa chief financial officer Byron H. Pollitt Jr. attributed the data-processing revenue growth to VisaNet's 14% transaction increase and “the continuing effect of previously enacted pricing actions,” according to the Seeking Alpha transcript service.

It looks like another “pricing action” is on the way. Referring to an April price increase by MasterCard Inc., an analyst asked Visa executives if “you have raised merchant assessment pricing as well?” According to Seeking Alpha, chief executive Joseph W. Saunders responded, “Well, we've already announced an increase in our acquirers fees similar to the one that MasterCard did and ours is effective in July.” A Visa spokesperson declined further comment.

A merchant-acquiring executive who asked not to be identified says both Visa and MasterCard are raising acquirer assessments to 11 basis points (0.11 percentage points) of charge volume. MasterCard's old rate was 9.5 basis points and Visa's was 9.25, which means the increases amount to 16% and 19%, respectively. A MasterCard spokesperson says the company does not comment “on specific pricing actions but we constantly review and evolve our pricing to ensure we remain competitive and are appropriately priced for the value delivered.” As they do with interchange, acquirers are likely to pass on such network fee increases to their merchant clients.

Meanwhile, Visa reported that U.S. credit and debit card payment volumes totaled $427 billion in the second fiscal quarter, up 12.7% from $379 billion a year earlier. Combined credit and debit transaction volumes hit 8.54 billion, a year-over-year increase of 13.8% from 7.51 billion.

As it has in recent years, debit led the way. Debit card purchases grew 20.9% to $245 billion from $202 billion a year earlier on 6.44 billion transactions, up 18.7% from 5.43 billion. The average debit ticket rose 2.2% from $37.23 in fiscal 2009's second quarter to $38.04.

After getting hammered in 2008 and much of 2009, Visa's credit card business is getting back on its feet, an indicator of nascent revival in the overall economy. U.S. credit payments volume totaled $182 billion in the second quarter, up 3.4% from $176 billion in the year-earlier period. Payment transactions increased 1.5% to 2.12 billion from 2.08 billion. The average credit card ticket rose 1.9% to $86.05 from $84.45 in fiscal 2009's second quarter.

Visa spent $372 million on so-called volume and support incentives in the second quarter, up 26.1% from $295 million a year earlier. These incentives, which Visa counts as reductions in revenue, are inducements to merchants to encourage customers to use Visa cards, and to financial institutions to issue Visa-branded cards. MasterCard, which is scheduled to report its earnings May 4, also has been spending heavily on such incentives.