Visa 2014 Annual Report Download - page 42

available financial resources. Any such failure could materially and adversely affect our business,
financial condition and results of operations. In addition, even if we have sufficient liquidity to cover a
settlement failure, we may be unable to recover the amount of such payment. This could expose us to
significant losses, and materially and adversely affect our financial condition, results of operations and
cash flow.
We estimate settlement exposure under the indemnity based on the sum of three inputs. The first
is average daily volumes during the quarter multiplied by the estimated number of days to settle plus a
safety margin. The second is four months of rolling average chargebacks volume. The third is the total
balance for outstanding Visa Travelers Cheques. We generally guarantee the payment of any validly
issued Visa Travelers Cheque that has been negotiated in good faith and properly presented for
payment in the event that the Cheque is not honored by its issuing institution. Additionally, from time to
time, we review and revise our risk management methodology and inputs as necessary. See Note
11—Settlement Guarantee Management to our consolidated financial statements included in Item 8 of
this report.
Some of our clients are considered group members under Visa’s operating regulations. As a
result, some of these group members have elected to limit their responsibility for settlement losses
arising from the failure of their constituent financial institutions in exchange for managing their
constituent financial institutions in accordance with our credit risk policy. To the extent that any
settlement failure resulting from a constituent financial institution exceeds the limits established by our
credit risk policy, we would have to absorb the cost of such settlement failure, which could materially
and adversely affect our financial condition, operating results and cash flow.
If we cannot keep pace with rapid technological developments to provide new and innovative
payment programs and services or comply with new laws and regulations, the use of our
products, our revenues and net income could decline.
Rapid, significant technological changes continue to confront the payments industry. These
include developments in smart cards, eCommerce, mobile, and radio frequency and proximity payment
devices, such as contactless cards. We cannot predict the effect of technological changes on our
business. In addition to our own initiatives and innovations, we work closely with third parties, including
some potential competitors, for the development of and access to new technologies. We expect that
new services and technologies applicable to the payments industry will continue to emerge. These new
services and technologies may be superior to, or render obsolete, the technologies we currently use in
our products and services. In addition, our ability to adopt new services and technologies that we
develop may be inhibited by industry-wide standards, new laws and regulations, resistance to change
from clients or merchants or third parties’ intellectual property rights. If we are unable to develop new
technologies and adapt to technological changes and evolving industry standards, it could materially
and adversely affect the use of our products, our revenues and net income.
If our transaction processing systems are disrupted or compromised, the perception of our
brands, and our revenues or operating results could be materially and adversely affected.
Our transaction processing systems may experience service interruptions or degradation because
of processing or other technology malfunctions, fires, natural disasters, power losses, disruptions in
long-distance or local telecommunications access, fraud, military or political conflicts, terrorist attacks,
effects of climate change or other catastrophic events.
In addition, our visibility in the global payments industry may attract terrorists and hackers to
conduct physical or computer-based attacks. The latter could include computer viruses, worms or other
destructive or disruptive software, process breakdowns, denial-of-service attacks, malicious social
engineering or other malicious activities, or any combination of the foregoing. Any of these incidents
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