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Confirming other findings that payment card usage is picking up in the U.S., Visa Inc.’s credit and debit card dollar volume rose 9% in the network’s fourth fiscal 2011 quarter ended Sept. 30 to $516 billion from $474 billion a year earlier. Payment transactions increased 7.3% to 10.5 billion.
Visa’s robust operational and financial numbers came in the last quarter of unregulated debit card interchange in the U.S. New Federal Reserve regulations that cut average transaction revenues by more than 40% for debit issuers with $10 billion or more in assets took effect Oct. 1. The Fed’s rules implement the Durbin Amendment to 2010’s Dodd-Frank Act, which also has provisions that could divert transactions from Visa’s dominant Interlink PIN-debit network. In a conference call with analysts late Wednesday, Visa executives hinted at their pricing and routing strategies intended to keep Visa as the debit leader.
The Durbin Amendment bans cards from accessing only affiliated networks such as Visa for signature debit and Interlink for PIN debit, and also bans issuers and networks from limiting merchants’ transaction-routing choices. In the conference call, Visa chairman and chief executive Joseph W. Saunders said that about 20% of Visa’s total revenues are affected by the new U.S. debit regulations, and 75% of that comes from signature debit.
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Saunders also said that “an important competitive differentiator” is VisaNet’s ability to handle both signature and PIN-debit transactions on one network. With this arrangement, acquirers will be able to route PIN-debit transactions to Visa even though cards may no longer carry the Interlink logo. And, in response to an analyst’s question, he indicated that network fees for PIN-debit transactions through VisaNet might be priced at or even below PIN-debit pricing through Interlink.
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Visa chief financial officer Byron H. Pollitt said credit in the period ending Sept. 30 experienced its seventh consecutive quarter of year-over year growth, “I think what we’re seeing here is a just a continuation of a recovery,” he said. “The recession hit credit hard, and it actually turned growth negative.”
Saunders said that despite the Durbin regulations and new bank fees to compensate for lost debit card interchange, debit cards will remain strong. “I don't believe that anything that's happening is going to substantially alter the macro debit volume in the United States,” he said, according to the Seeking Alpha transcript service. “I don’t think it’s going to go away.” He also said issuers are putting more emphasis on prepaid cards, which are less subject to regulation than conventional debit cards.
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Continuing its pattern in recent quarters, Visa’s U.S. credit card payment indicators showed strength in the fourth quarter and even outpaced debit’s. Credit charge volume weighed in at $228 billion, up 10.3% from $207 billion in fiscal 2010’s final quarter. Credit payment transactions grew 9.5% to 2.66 billion from last year’s 2.43 billion. The only contraction on the credit side occurred in cards in force, which fell 4.1% from 269 million in September 2010 to 258 million as of June 30, the latest date for which Visa has data.
For all of fiscal 2011, credit card purchases totaled $867 billion, an increase of 9.2% from $794 billion in 2010, on 10 billion transactions, up 8.4% from 9.27 billion in 2010. Debit purchases hit $1.14 trillion, up 12% from $1.01 trillion in 2010, on 30.4 billion transactions, 11.3% above 27.3 billion the year prior.
Visa’s VisaNet network processed 13.3 billion transactions in the fourth quarter, up 9.4% year over year from 12.1 billion. For all of fiscal 2011, VisaNet processed 50.9 billion transactions, up 12.1% from 45.4 billion in 2010.
The leading payment network reported net income of $880 million in the fourth quarter, an increase of 13.7% from $774 in the prior-year quarter. Operating revenues rose 12.6% to $2.38 billion from $2.11 billion.
Visa spent $576 million on so-called client incentives in the fourth quarter, up nearly 37% from $421 million a year earlier. For the full year, incentives totaled $1.88 billion, up 20.5% from $1.56 billion in 2010. The incentives go to issuers to offer Visa-branded cards and to merchants to promote sales on Visa cards. Much of the fourth-quarter increase came from one-time incentives to merchants.
In its latest SpendTrend report, leading merchant processor First Data Corp. said its credit card charge volume grew 11.9% year-over-year in September. Signature debit and PIN-debit dollar volume grew 5.8% and 9.2%, respectively.
