With Debit Booming, Visa Chief Says Durbin Throws Consumers ‘Under the Bus’

With much of the country buried in snow and ice on Wednesday, Visa Inc. released transaction and charge-volume numbers that likely warmed the predilections of electronic-payments watchers. The leading card network reported U.S. credit and debit card payments volume of $493 billion for its first quarter of fiscal 2011 ended Dec. 31, up 12% from $438 billion a year earlier. U.S. payment transactions hit 9.99 billion, up 14% from 8.75 billion.

Debit as usual led the way, with U.S. purchase volume up nearly 17% to $277 billion from $238 billion in fiscal 2010’s first quarter. Debit payment transactions grew 17% to 7.45 billion from 6.38 billion a year earlier. Visa’s average debit card purchase fell slightly to $37.16 in the first quarter from $37.30 a year earlier.

Credit continued its moderate recovery from its recessionary contraction. U.S. credit payment volume grew not quite 8% to $216 billion from last year’s $201 billion, and credit payment transactions increased 7% to 2.53 billion from 2.37 billion. The average credit card ticket increased 1% to $85.27 from $84.70.

Debit’s continued growth is a big question on payment executives’ minds as the Federal Reserve prepares final regulations to implement the debit interchange mandates and other provisions of the Durbin Amendment in the Dodd-Frank financial-reform bill Congress passed last year. The Fed is proposing 12-cent interchange caps that would affect large debit card issuers, caps that could cut their debit revenues by 70% or more. The interchange provisions won’t affect Visa directly, though they could reduce debit card usage, which would mean fewer revenue-producing transactions flowing over Visa’s networks. And Dodd-Frank’s provisions that will give merchants more transaction-routing choices will break up the exclusive arrangements Visa has with many issuers in which their debit cards offer the Visa brand for signature debit and only the Visa-owned Interlink network for point-of-sale PIN debit.

Asked by an analyst at Visa’s quarterly earnings call about whether delaying the Durbin Amendment’s provisions is possible, Visa chief executive Joseph W. Saunders noted that banking interests are lobbying Congress to reconsider the measure’s “unintended consequences.” Many banks have said they will raise demand-deposit account fees, cut debit card rewards programs, or take other steps to replace their lost debit revenues. “In our opinion, consumers have been thrown under the bus in this legislation,” Saunders said. But he wouldn’t predict whether the lobbying effort would succeed. Retailers, who stand to save on interchange expenses, strongly support the Durbin Amendment.

Meanwhile, Visa’s VisaNet processing network handled 12.6 billion transactions globally in the first quarter, up 15% from 10.9 billion in fiscal 2010’s first quarter. For the 12 months ended Dec. 31, VisaNet handled 47.1 billion transactions, up 15% from 41 billion in calendar year 2009. And merchant-services provider CyberSource Corp., now owned by Visa, posted 987 million billable transactions in the first quarter of fiscal 2011, up 40% from 707 million a year earlier. CyberSource processed 3.31 billion transactions in calendar year 2010, up 35% from 2.45 billion in 2009.

Visa posted net income of $884 million for the first quarter, up 16% from $763 million a year earlier, on operating revenues of $2.24 billion, an increase of 14% from $1.96 billion.