Visa 2011 Annual Report Download - page 13

Table of Contents
transaction, the issuer may return the transaction to the acquirer, an action termed a "chargeback." We enforce rules relating to chargebacks and maintain a
dispute resolution process with respect to chargeback disputes.
Credit Risk Management. We indemnify our clients for any settlement loss suffered due to another client's failure to fund its daily settlement
obligations. In certain instances, we may indemnify clients even in situations in which a transaction is not processed by our system. We have incurred no
material loss related to settlement risk in recent years.
To manage our exposure in the event our clients fail to fund their settlement obligations, we established a credit risk policy with a formalized set of
credit standards and risk control measures. We regularly evaluate clients with significant settlement exposure to assess risk. In certain instances, we may
require a client to post collateral or provide other guarantees. If a client becomes unable or unwilling to meet its obligations, we are able to draw upon such
collateral or guarantee in order to minimize any potential loss. We may also apply other risk control measures, such as blocking the authorization and
settlement of transactions, limiting the use of certain types of agents, prohibiting initiation of acquiring relationships with certain high-risk merchants or
suspending or terminating a client's rights to participate in our payments network. The exposure to settlement losses is accounted for as a settlement risk
guarantee. The fair value of the settlement risk guarantee is estimated using our proprietary model, which considers statistically derived loss factors based on
historical experience, estimated settlement exposures at period end and a standardized grading process for clients (using, where available, third-party
estimates of the probability of customer failure). See Item 8—Financial Statements and Supplementary Data-Note 12—Settlement Guarantee Management
elsewhere in this report.
Payment System Integrity
The integrity of our payments system is affected by fraudulent activity and other illegal uses of our products. Fraud is most often committed in
connection with counterfeit cards or card-not-present transactions using stolen account information resulting from security breaches of systems not associated
with VisaNet that store cardholder or account data, including systems operated by merchants, financial institutions and other third-party data processors.
Our fraud detection and prevention offerings include:
• Verified by Visa, a global Internet authentication product, which permits cardholders to authenticate themselves to their issuing financial
institution using a unique personal code;
• Visa Advanced Authorization, which provides enhanced fraud detection capability by adding real-time risk scores to authorization messages;
• Chip technologies, embedded microprocessors that provide enhanced security, which reduce the incidence of counterfeit card fraud. As a result,
Visa has created incentives for merchants and issuers to adopt them, including in the United States. Chip technologies can also carry other
applications that enhance the consumer payment experience; and
• CyberSource's globally proven Decision Manager solution, which provides access to over 200 validation tests to assess the legitimacy of card-
not-present orders.
We work with all participants in the payment system to ensure that any entity that transmits, processes or stores sensitive card information takes
necessary steps to secure that data and protect cardholders. For example, we mandate protection of PIN data through use of the Triple Data Encryption
Standard and work with the payments industry to manage the Payment Card Industry Data
12