U.S. Antitrust Probe of Debit Strategy Causes Visa’s Market Share Drop

The shares of Visa Inc. slid 4.7 percent, the biggest since August. This happened after an investigation on its pricing for debit-card transactions was done by the U.S. Antitrust Division. Visa Inc. is the world’s largest electronic-payments network.

According to Joseph W. Saunders, Chief Executive Officer of Visa Inc., the U.S. Justice Department’ Antitrust Division  inquired for information on March 13 about the company’s debit strategy  in San Francisco.

Visa must do some adjustment in some elements of its strategy, according to Tien-tsin Huang, a JP Morgan Chase & Co. analyst. Huang further said that it may take 9 to 24 months to resolve the issue and the investigation may put the revenue at risk by 2 percent.

After the U.S. ruling on the debit –card processing took effect in October, Saunders made an adjustment on the network’s fee structure to protect the market share of Visa.

Saunders said that they are confident about the actions that they are taking. In fact, in a conference call held, he mentioned that Visa posted an increase of 47 percent profit during the fiscal second-quarter. Saunders also said that the U.S. Justice Department requested for four other information from Visa since 2007 and all these issues have been resolved. For three months ending March 31, the net income rose to $1.29 billion, or $1.91 per share, from a previous record of $881 million, or $1.23 per share. The adjusted earnings per share excluding an accounting gain were $1.60 which is over than the forecast of 32 analysts by Bloomberg. The forecast was $1.51 earnings per share.

U.S. Credit products grow

The strong financial performance of Visa for this quarter was primarily due to the sustained growth of U.S. credit products and the cross-border spending and expansion of the company in the international markets, according to Saunders.

Visa and MasterCard, the number 2 network increased their profits because consumers worldwide are shifting from cash and checks to electronic payments. According to MasterCard, its profit increased by 21 percent in the first quarter surpassing the estimates of Wall Street. As spending increased the firm enlarged its market share resulting to a profit of $682 million.

Dodd-Frank Act helped MasterCard gained market share

MasterCard expanded its market and has been winning deals because of the limits imposed by the Dodd-Frank Act on debit-card transaction fees and processing, said Chief Financial Officer Martina Hund-Mejean. Charlotte, North Carolina-based Bank of America Corp., the biggest U.S. debit-card issuer has switched to MasterCard, Huang said.

Visa gives incentives

Visa made adjustments in its debit-card fees in April and designed incentives for merchants to attract more transactions. The fees are broken into three components, the fixed fee, the incentive portion that rewards credit to merchants for more use of the network, said CFO Byron Pollitt.

According to the Nilson Report, a newsletter based in Carpintera, California, Visa’s share of worldwide purchase transaction dropped by 1.1 percent points last year to 64.67 percent while that of MasterCard’s share recorded a growth of 0.5 percent to 25.57 percent.

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