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Visa Seeks to Delay Debit-Fee Cuts as Card Use Jumps

Thursday, 03 Feb 2011 08:08 AM

Visa Inc. said Wednesday it is aggressively lobbying the Federal Reserve and members of Congress in a bid to have them reconsider a pending rule that would slash the fees that banks charge merchants for processing debit card transactions.

As proposed, the rule would cut those fees to 12 cents per transaction, from an average of 44 cents for PIN-based purchases and 56 cents for signature-based purchases.

Visa Chairman and CEO Joseph Saunders said that would end up hurting consumers, who would end up bearing the cost differences, along with banks of all sizes and credit unions.

"We are encouraged by the increasing number of voices speaking up about the unintended consequences of this legislation," Saunders said during a conference call to discuss the company's fiscal first-quarter results.

He said there are signs some lawmakers are willing to revisit the part of last summer's financial regulatory overall that called for the Fed to impose the rules, in order to allow banks to recover more of their costs associated with debit cards.

"As we have seen, the more this issue is debated, the more questions are raised about who will really benefit in the end," Saunders said.

Visa does have strategies ready if the rule does take effect, he said, although he declined to offer many details beyond noting that one way to offset any impact is to increase the size of its international business, which wouldn't be subject to that rule.

Moving toward the company's stated goal of having half of its revenue come from overseas by 2015, Saunders said more than 60 percent of revenue growth in the quarter ended Dec. 31 came from outside the U.S.

Revenue rose across all of the world's largest payments processing network's main businesses, gaining 14 percent to $2.24 billion, compared with $1.96 billion in the prior-year quarter.

The increase reflected more frequent use of both debit cards and credit cards worldwide. It fueled a 16 percent profit increase.

The San Francisco-based company said net income for the period rose to $884 million, or $1.23 per share, from $763 million, or $1.02 per share, in the 2009 quarter.

The total number of transactions handled in the quarter rose 15 percent to 13 billion.

The results topped Wall Street expectations. Analysts had forecast profit of $1.20 per share on $2.22 billion revenue, according to data provided by FactSet.

Visa's shares, however, slipped in afterhours trading. The stock gave up 79 cents, or 1 percent, to $71.30, after closing up $1.39, or 2 percent, at $72.09.

UBS analyst Jason Kupferberg said traders were likely disappointed that Visa's results did not exceed expectations by a larger margin. The company often posts better numbers than Wall Street predicts.

Nevertheless, he said the quarter was strong, there were no major surprises and the increase in global spending on cards was positive. Higher consumer spending "started to emerge over the last couple of quarters, and now seems to be gaining a little traction," Kupferberg said.

Saunders said the company is "intensely focused" on increasing global revenue. He pointed to efforts to expand card use in countries where cash and checks still dominate, and to its money transfer business, mobile payments and e-commerce as ways to achieve the company's goal.

Growth during the quarter was not limited to overseas. U.S. credit card use, which dropped off during the recession, rose 7.5 percent, while domestic debit card use jumped 16 percent.

International credit card use saw a 20 percent bump. Global debit card use, a much smaller business, rose 34 percent.

The company said it continues to expect better-than-20 percent earnings per share growth for the year, implying earnings of at least $4.84 per share. Wall Street was expecting, on average, $4.80 per share, with estimates ranging from $4.57 to $5.01.

Visa also kept its forecast for revenue growth between 11 and 15 percent for the new fiscal year, implying guidance ranging between $8.95 billion and $9.11 billion. Wall Street expects $9.05 billion in revenue, with estimates ranging from $8.65 billion to $9.29 billion.

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