SAN FRANCISCO -- Visa Inc. is implementing a new merchant fee in the wake of Dodd-Frank financial reform and Durbin amendment interchange-fee changes, CEO Joseph Saunders said during the company's fiscal third-quarter 2011 earnings conference call last week, offering an update "on Visa's activities to adapt to the new United States regulatory environment" created by the legislation and the Federal Reserve's new debit rules.
"Visa is implementing a new fixed acquirer fee called the network participation fee, which will apply to the acceptance of all Visa products and is [image-nocss] based on both the size of the merchant and the number of merchant location," said Saunders. "This fee will allow Visa to continue investing in our secure, reliable and interoperable global payments network, a longstanding area of strength for our organization."
The new fee applies to all of Visa's debit, credit and prepaid card services. As part of the new policy, Visa also will lower the variable rate charged for transactions.
Saunders added, "Our intention is clear, and that is to affect this change in our infrastructure while at the same time reducing fees to all merchants in every category. So the variable fee reductions are obviously an offset to fixed fee. If you look at our 2012 guidance, it presumes that there will be a deterioration in our debit card revenues for the year. We said that 2012 will be the low point. So that is the net result. The net result is that we won't do as well as we have here for in the debit card business at least in 2012. Hopefully, we can grow off of what we do in 2012 to 2013. But what we have done is, in our opinion, consistent with helping to ensure that Visa will be successful in the long run, and done within the spirit, and the intention of the regulation."
The move is intended "to help the company win routing business and maintain debit volumes," said a report by The International Business Times, which offered a roundup of analysts' opinions.
Visa will also lower variable processing fees and the actions are designed to lower merchant fees and essentially let the retailer capture more of the scale benefit. Visa is the first company to reveal its Durbin migration strategies, Daniel Perlin, an analyst at RBC Capital Markets said in a note to clients.
"We believe more pricing competition between Visa, MasterCard and other PIN networks will accelerate. Given Visa's overall unit cost advantage relative to the competition, however, we believe they will be able to retain a significant portion of its debit volume," said Perlin.
"We believes the new 'membership fee' charged to acquirers on a per merchant/per site basis for accepting any Visa card (credit or debit) will attempt to offset lost fees from Durbin price concessions to issuers," said Gil Luria, an analyst at Wedbush Securities; however, he said that he believes Visa may encounter at least some level of resistance from either acquirers and/or merchants (to the extent the fee is passed on to them), in spite of the lower variable fees that will go hand-in-hand.
Jason Kupferberg, an analyst at Jefferies, said the new fee seems to be designed to increase the fixed versus variable component of network fees paid by merchants, thereby theoretically incenting them to route more volume over Visa's network to lower their unit costs and enjoy economies of scale.
Scott Valentin, an analyst at FBR Capital Markets., said, "For competitive reasons, management did not provide too much detail; however, we believe the idea of a new pricing model may lead to margin concerns."
San Francisco-based Visa reported better-than-expected results for the quarter, posting net income of $1 billion, up from $716 million a year ago, and net revenues of more than $2.3 billion, a 14% increase over the same period last year.
Click hereto view the full transcript of the Visa call at SeekingAlpha.com
Separately, Princeton, N.J.-based card payments processor Heartland Payment Systems Inc. said during its second-quarter 2011 earnings conference call last week that through its new "Durbin Dollars" initiative, it is "going to send every single dollar that was mandated in the Durbin legislation to the place it was intended--to our merchants' bank accounts."
Robert Carr, Heartland's executive chairman and CEO, said, "Heartland believes this is the right thing to do. But just as importantly, we believe that we can build sustainable organic growth in this way. ... We believe our Durbin dollars campaign will give us lasting momentum in growing our business."
He added, "This is mostly trench warfare, and we're preparing for each one of our merchants. We're going to give them an estimate of the annual dollar savings. It's going to average about $1,200 a year, about $100 a month. And ... beginning in October, we will be producing and telling each merchant each month how many dollars that we passed back to them as a result of the Durbin amendment .... And I know it's really ingenious to keep some of this money, and we're idiots for giving it all back. I know that's how we're described by some of our competitors. But I think our motto is much more sustainable. We don't have to worry about our margins being 'competed away.' ... The law was not intended to increase the acquirers' margins. I don't think that was what Durbin had on his mind."
(Click here for previous CSP Daily News coverage of the swipe-fee reform issue.)
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