Visa Reports Growth in Credit, Less Bleeding in Debit, Progress for Its V.me Wallet

Visa Inc. on Wednesday reported brisk growth in its credit business and a stabilizing debit market while touting progress for its new digital wallet, V.me.

Overall, the results released for Visa’s fourth quarter show the world’s biggest payments network is wising up about how to cope with a new, more regulated debit market, Visa’s outgoing chief executive said. “Quarter by quarter, we are getting smarter about how to operate in the new environment,” Joseph Saunders, who stepped down on Thursday as chief executive but will remain as executive chairman until March, told analysts in a valedictory conference call to discuss results for the quarter ended Sept 30. Former JPMorgan Chase & Co. executive Charles Scharf is taking over for Saunders.

Visa’s U.S. debit payment volume for the quarter fell 5.9% to $271 billion while payment transactions dropped 6% to 7.36 billion. The drop in payments dollar volume, however, was better than the 9.4% plunge recorded in the quarter ended June 30. Visa management indicated this improvement over the previous quarter indicated that Visa may be stopping the bleeding at Interlink, its PIN debit network, which has sustained a substantial loss of market share since debit routing rules mandated by the Federal Reserve Board took effect in April.

The rules, which implement the Durbin Amendment to the 2010 Dodd-Frank Act, require all bank-issued debit cards to work on at least two unaffiliated networks, a mandate that cost Interlink volume since a major share of cards were locked into Visa-Interlink network agreements for signature and PIN-debit processing. “A substantial part of our PIN market share was gifted to our competition [because of regulation],” drily noted Byron Pollitt, Visa’s chief financial officer, during the call.

But steps taken by Visa since the spring—including a new fixed acquirer network fee and incentives intended to encourage merchants to concentrate volume with Visa—may be taking effect. Payment volume at Interlink fell 48% in the fourth quarter compared to a 54% year-over-year drop in the June 30 quarter, Pollitt said. “While we are pleased our mitigation efforts are working as planned, we would caution that the U.S. debit environment is still evolving,” he said.

Indeed, though Saunders said Visa has signed long-term debit agreements with its 15 biggest issuers, Pollitt added later in the call that debit volume will continue to drop at least until the middle of next year. “The brunt [of the impact] is being felt by our Interlink product, where growth will be negative until we lap the implementation of the routing rules,” he told analysts.

By contrast, U.S. credit card payment volume climbed 9.2% to $250 billion, while payments transactions grew 11% to 2.66 billion. One cloud on this horizon is gathering merchant opposition to a massive credit card antitrust settlement announced in July in which Visa, MasterCard Inc., and several major banks would pay $7 billion to merchants and relax various network rules. A number of major merchant trade groups have loudly criticized the deal, charging it does nothing to reform credit card interchange and requires merchants to release the networks and banks from future liability.

Lawyers for the merchants in the case filed a motion for preliminary approval of the settlement on Oct. 19, and a hearing before Judge John Gleeson of the U.S. District Court in Brooklyn is set for Nov. 9. Saunders remains optimistic that the 7-year-old litigation is in Visa’s past. “An overwhelming majority of merchants will support the agreement and it will be approved,” he said.

Saunders sounded a similarly upbeat note about V.me. Some 34 “leading U.S. issuers” accounting for about 50 million consumer accounts have signed up to support the wallet, he announced. Two of these banks, PNC Bancorp and US Bancorp, have been announced. Introduced as a beta product late last year, V.me allows consumers to store a variety of cards and other media. Unlike competing digital wallets, it is intended for online use only. Visa expects that more than 1,000 merchants will be accepting the product by mid-2013, including 20 of the 50 biggest retailers on the Web, Saunders told analysts.

Commenting on competing wallets, Saunders praised the Isis mobile wallet introduced by AT&T Mobility, T-Mobile USA, and Verizon Wireless. After several delays, the Isis service launched last week in Austin, Texas, and Salt Lake City.  “Isis is currently enabling Visa payments,” Saunders said. “Isis’s open approach aligns with Visa’s strategy” of allowing consumers to use payment methods of their choice. Pointedly, Saunders omitted mention of Google Wallet, a major Isis competitor. Google has reportedly raised hackles with some networks with a new policy allowing consumers to save cards to the wallet without Google having reached prior agreements with the banks or networks.

Saunders did, however, comment on Merchant Customer Exchange (MCX), a merchant-controlled mobile initiative that was formed earlier this year in opposition to network-led mobile efforts but has yet to launch. “They have lofty aspirations,” he said. “I don’t think [MCX] will define who Visa is or isn’t in the near or moderate run.”