Visa 2010 Annual Report Download - page 13

Table of Contents
standards through agreements with, and in certain cases non-equity membership interests in, our subsidiaries. These rules and standards relate to such matters
as the use of our brands and trademarks; the standards, design and features of payment cards, devices and programs; merchant acquiring activities, including
acceptance standards applicable to merchants; use of agents; disputes between members; risk management; guaranteed settlement; client financial failures and
allocation of losses among clients.
We establish dispute management procedures between clients relating to specific transactions. For example, after a transaction is presented to an issuer,
the issuer may determine that the transaction is invalid for a variety of reasons, including fraud. If the issuer believes there is a defect in a 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. No material loss related to
settlement risk has been incurred in recent years.
To manage our exposure in the event our clients fail to fund their settlement obligations, we have 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. Key inputs to the model include the probability of clients becoming insolvent,
statistically derived loss factors based on historical experience and estimated settlement exposures at period end.
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 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 adds additional fraud detection capability by adding real-time risk scores to authorization messages;
• Chip technologies that have been demonstrated to reduce the incidence of counterfeit card fraud at point-of-sale locations; 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.
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