Visa 2014 Annual Report Download - page 29

operating regulations require that all authorization, clearance and settlement of international
transactions must be done through VisaNet. These are commonly referred to as routing rules.
The Dodd-Frank Act already limits our and issuers’ ability to adopt network exclusivity and
preferred routing in the debit area. See —The Dodd-Frank Act may continue to have a material,
adverse impact on our financial condition, revenues, results of operations, prospects for future growth
and overall business. Additional regulations like the Dodd-Frank Act in the United States and
elsewhere could materially decrease the number of transactions we process. In order to retain that
transaction volume, we may reduce the fees we charge to issuers or acquirers or increase the
payments and other incentives we provide to issuers, acquirers or merchants. Any of these outcomes
could have a material, adverse effect on our financial condition, revenues, results of operations,
prospects for future growth and overall business.
The Dodd-Frank Act may continue to have a material, adverse impact on our financial
condition, revenues, results of operations, prospects for future growth and overall business.
As of October 1, 2011, in accordance with the Dodd-Frank Act, the Federal Reserve capped the
maximum U.S. debit interchange reimbursement rate charged by large financial institutions at twenty-
one cents plus five basis points, before applying an interim fraud adjustment up to an additional one
cent. This amounted to a significant reduction from the average system-wide fees charged previously.
The Federal Reserve also issued regulations requiring issuers to make at least two unaffiliated
networks available for processing debit transactions on each debit card. The rules also prohibit us and
issuers from restricting a merchant’s ability to direct the routing of electronic debit transactions over
any of the networks that an issuer has enabled to process those transactions.
On March 21, 2014, the Court of Appeals for the D.C. Circuit reversed a district court ruling
invalidating these rules and agreed with the Federal Reserve, except for a single issue related to the
interchange cost calculation which was referred back to the Federal Reserve for reconsideration. On
August 18, 2014, the plaintiff merchants filed a petition for review of the appeals court’s decision in the
U.S. Supreme Court, seeking review of a portion of the rules pertaining to the interchange cost
calculation. The rules, described above, remain in place while the case is ongoing. These regulations
have adversely affected our U.S. debit business and associated revenues by creating negative
pressure on our pricing, reduced the volume and number of U.S. debit payments we process, and
diminished associated revenues. Although we believe we have absorbed the principal impact of the
regulations as issued in October 2011, our business could continue to be affected, including if the
Federal Reserve issues new regulations.
These pressures have arisen through various channels. Other debit networks may become more
aggressive in offering merchant cost reductions to win routing preference, which in turn puts more
pressure on the business terms offered by Visa. A number of our clients obtained fee reductions or
increased incentives from us to offset their own lost revenue. Some clients elected to issue fewer cards
enabled with Visa-affiliated networks or reduced the number of debit cards they issued and
investments they made in marketing and rewards programs, while others imposed new or higher fees
on debit cards or demand deposit account relationships. Many merchants have used the routing
regulations to redirect transactions or steer account holders to other debit networks based on lower
cost or other factors. Other clients and merchants are likely to take similar actions in the future.
The Dodd-Frank Act created an independent Consumer Financial Protection Bureau, with
responsibility for most federal consumer protection laws in the area of financial services and new
authority with respect to consumer protection issues, including those pertaining to us to some extent.
These actions may make payment card transactions less attractive to issuers, consumers and
merchants by further regulating disclosures, payment card practices, fees, routing and other matters
with respect to credit, debit and prepaid cards.
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