Visa Rolls Out New Fee Program to Defend its Debit Business

NEW YORK | Thursday, July 28th, 2011 9:41am EDT

Quarterly profit of Visa Inc rose by 40 percent, and the world’s largest payment processor said it would introduce a new fee structure for U.S. merchants.

Visa Rolls Out New Fee Program 01

As Visa Inc. moves into the post Durbin-era, the debit card market leader plans to offer a fixed network participation fee and reduce its variable processing fee for Visa debit products in the United States. Photo: Hakan Dahlstrom/Flickr

Visa Inc.’s fiscal third-quarter earnings jumped 40% as customers world-wide used their cards more often. The company reported a $1 billion quarterly profit Wednesday, driven by increasing card spending world-wide.

Revenue rose 14% from a year earlier, to $2.32 billion. Excluding the one-time, noncash gain on its Visa Europe put option, Visa earned $883 million, or $1.26 per share.

Visa’s international business is becoming a larger portion of its quarterly results. Payments outside the U.S. – $422 billion – accounted for 44 percent of Visa’s third quarter volume, up from 41 percent a year ago, when such payments totaled $333 billion.

Byron Pollitt, Сhief Financial Officer, told investors during a conference call that revenue in the U.S. was the result of “six consecutive quarters of positive credit payment volume growth. We continue to be encouraged by this trend.”

Also Visa Chief Executive Joseph Saunders said the payment processor would introduce a network participation fee in the United States for all of its debit, credit and prepaid card services.

As part of the new program, Visa will lower the variable rate charged for transactions. Visa’s shift away from per-transaction fees is a large departure for the San Francisco-based company. It is being done in advance of new fee caps that take effect later this year as part of the 2010 Dodd-Frank financial reform law.

Joseph Saunders did not say what the participation fee will be. But he disclosed it will be based on a merchant’s size, and the merchants’ number of locations. He also said the new fees did not rule out future price changes.

Due to the overhaul and the new fee caps imposed by Dodd-Frank, Saunders said 2012 will be a “low point” for debit card processing fees. Joseph stated: “We won’t do as well as we have.”

The new program comes as Visa reported better-than-expected fiscal third quarter results, and plans to buy back an additional $1 billion in shares over the next year.

For Visa, the quarterly results highlight consumers’ increasing reliance on debit and credit cards rather than cash or checks to make everyday purchases.

Shannon Stemm, a financial services analyst with Edward Jones, said: “They’re getting better results as consumers are shifting from paper to plastic.”

He also said that the company’s continued profits drove the new share buyback program, following a similar $1 billion share buyback announced in April and completed in the fiscal third quarter. [Photo via Hakan Dahlstrom/Flickr; Story via Reuters, Digital Transactions and Fox Business]

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