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Helped by a rise in service and data-processing revenue and strong international transaction growth, Visa Inc. Thursday posted a fiscal second-quarter profit of $881 million, up 23.6% from a year earlier.
May 5
Visa Inc. said it plans on revisiting its incentive agreements with issuing banks after the Federal Reserve Board finalizes its capped rate for debit interchange this summer.
Doing so would alleviate pain some issuers will feel over reduced interchange revenue. Under the current proposal, interchange rates for debit cards would be capped at 12 cents per transaction for issuers with assets of more than $10 billion. Right now the average is 44 cents.
"We will naturally, at our impetus, want to revisit a number of those contracts to make sure that the incentives are structured in a way that makes sense, given the legal environment that we will be under post-Durbin," Byron Pollitt, Visa's chief financial officer, said in a conference call with analysts to discuss results of the company's fiscal second quarter.
The Durbin amendment to the Dodd-Frank Act instructed the Fed to come up with a plan that sets "reasonable and proportional" debit card interchange rates, which would go into effect July 21.
"We are going to want to … adjust the incentives so that it is a win-win for both us and the financial institution," Pollitt said.
He added that the extent to which those incentives are going to be adjusted depends on whether the Fed changes its capped rate.
Visa said Thursday that its profits in the quarter that ended March 31 rose 23.6%, to $881 million, from a year earlier.
The company's net operating revenue increased 14.8%, to $2.25 billion.
Analysts expected solid results from Visa, which they said benefits from the same trends that lifted earnings at MasterCard Inc.
Both companies have complained that the Durbin amendment could harm consumers, but Visa has been active in adapting to the changing payments landscape. It has said that it would support a two-tiered interchange system to accommodate higher interchange rates for smaller financial institutions.
Visa's chairman and chief executive, Joseph Saunders, highlighted several reasons for the company's successful second quarter, including data and fraud protection initiatives at its CyberSource Corp. subsidiary and recent deals with U.S. Bancorp, Kroger Co. and Gap Inc.
The Gap deal allows the retailer to send its shoppers "real-time, location-based discounts and promotions" as text messages after a consumer enrolls in the Gap Mobile 4 U program, Saunders said.
Industry watchers said they expect to hear more announcements soon about similar promotions from the major card companies.
"The card brands have a challenge — they have been increasingly viewed as more pro-bank and they are trying to show the merchant community and regulators that they offer merchants value and consumers value in the face of rising interchange," said James Van Dyke, the president of Javelin Strategy and Research in Pleasanton, Calif.
Saunders also hinted at an announcement later this month that will involve its "global e-commerce and mobile strategy," hot topics in the payments industry.
Not everyone was impressed.
"The last time they hyped something was RightCliq," an e-commerce hub, "and boy is that a cutesy little thing which is probably $200 million not well spent," said Wedbush analyst Gil B. Luria. "I'm not holding my breath."
No matter the outcome of Durbin, Visa will be fine, Saunders said. "Whether the legislation gets delayed or not, we still expect to deliver revenue growth," he said.
