Visa's CEO swipes at interchange settlement dismissal

David Paul Morris/Bloomberg

Just when it looked like the long battle over payment fees between the U.S. card networks and merchants was nearing a conclusion, a recent court decision has sent the litigants back to the drawing board.  

"We strongly disagreed with the decision" to reject the settlement, said Ryan McInerney, Visa's CEO, during Tuesday's earnings call, adding that the judgment did not factor in the complexity of payment transactions. "The decision failed to take into consideration a number of things." 

For the quarter ending June 30, Visa reported earnings per share of $2.42, up 20% from about $2 the prior year. That was slightly better than the analyst forecast of $2.41 per share for the quarter, according to Nasdaq. The card network also reported net revenue of $8.77 billion, up about 8% from $8.1 billion the prior year and below the analyst estimates of $8.92 billion. 

 McInerney was questioned about the interchange battle between Visa, Mastercard and merchant plaintiffs.  Visa and Mastercard have been fighting with merchants over payment fees for at least 20 years through a series of court cases, lawsuits and appeals. That battle had appeared to reach a conclusion in March via a settlement in which Visa and Mastercard agreed to lower interchange, which determines the fees merchants pay for card transactions. The card networks agreed to reduce posted fees by four basis points for at least three years, with a reduction of at least seven basis points below December 31, 2023 levels for at least five years. 

But a federal judge in June notified Visa and Mastercard  that the settlement would be rejected. Visa and Mastercard expressed disappointment in the settlement, claiming that it was a fair resolution of the multi-year dispute. Members of the National Grocers Association and Merchant Payments Coalition said the settlement would provide only temporary relief from fees. 

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Analysts from Aristotle Atlantic said the lingering dispute could weigh on Visa's financial performance. 

"Uncertainty surrounding the possible outcomes of the litigation has created an overhang for Visa's shares, even though interchange fees are charged by card-issuing financial institutions, not networks like Visa and Mastercard," Aristotle analysts said in a research note. 

McInerney did not address a potential future settlement on interchange during Tuesday's earnings call.

'"It's too early to speculate on what a settlement could be," McInerney said. "It could happen at any time including before a trial." 

Beyond the legal battle, Visa reported a relatively strong quarter, maintaining a recent series of steady earnings reports as investors look for signs that softer consumer spending is hurting financial performance of payment companies.  

Visa's total payments volume was $3.95 trillion, better than analysts' estimates of $3.42 trillion, and up from $3.81 trillion the prior year. Operating expenses totaled $2.96 billion, down from $3.42 billion in the prior quarter and $3.10 billion the prior year.

Visa may additionally get a boost from the upcoming Paris Olympics. Visa has long been an Olympics sponsor and uses the games as a way to showcase new payment technology. The card network is focusing on new contactless payment features, artificial intelligence and virtual worlds during the upcoming Olympics. In the past, Visa had demonstrated Near Field Communication, a key technology in mobile wallets such as Apple Pay, and more recently signed an agreement to be a marketing partner for the 2026 football World Cup and related International Federation of Association Football events. FIFA's focus on youth soccer fits Visa's broader strategy to reach younger consumers. Visa "should get a tailwind" from its Olympics sponsorship, Jeffries analysts said in a research note. 

Visa's stock fell about 2.7% after the market closed Tuesday. In a prepared statement before the call, McInerney said key business drivers were "relatively stable."

For the full fiscal year, which for Visa ends in September, analysts are projecting EPS of $9.94, up from $8.30 per share the previous year. Full-year revenue is expected to be $35 billion, up from $33 billion. In its earnings release, Visa projected full-year EPS growth in the "high end" of the low teens, which would be roughly in line with analysts' projections.  

For the prior quarter ending March 31, Visa reported revenue of $8.8 billion, up 10% over the prior year and net income of $4.7 billion, up 10% from the year earlier. While payment-focused technology companies have struggled during the period of inflation and small business duress that followed the pandemic, Visa, Mastercard and American Express have thus far reported that payment volume has held up. 

Amex, which reported earnings July 18, said its higher-end consumer base is mostly shielded from higher prices, adding that it is investing for long-term growth in the small-business segment. Mastercard reports earnings July 31.