Visa 2012 Annual Report Download - page 27

Table of Contents
provide, the quality of our service and the viability of our brand. If we cannot employ our organizational resources effectively, we will
be unable to do so.
We risk loss or insolvency if our clients fail to fund settlement obligations for which we have provided indemnifications.
We indemnify issuers and acquirers for any settlement loss they suffer due to the failure of another issuer or acquirer to fund
its daily settlement obligations. In certain instances, we may indemnify issuers or acquirers even in situations in which a transaction
is not processed by our system. This indemnification creates settlement risk for us due to the difference in timing between the date
of a payment transaction and the date of subsequent settlement. The term and amount of our indemnification obligations are
unlimited, but restricted to the amount of unsettled Visa payment transactions at any point in time.
Concurrent settlement failures involving more than one of our largest clients or several of our smaller clients may exceed our
available financial resources, as could systemic operational failures lasting more than a single day. 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,
materially and adversely affecting our financial condition, results of operations and cash flow.
We estimate settlement at risk (or exposure) 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 traveler's cheques. Additionally, from time to time, we review and
revise our risk management methodology and inputs as necessary. See Note 12—Settlement Guarantee Management to our
consolidated financial statements included in Item 8 of this report.
Some of our clients are composed of groups of financial institutions. Some of these clients 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 cash flow.
If we cannot keep pace with rapid technological developments to provide new and innovative payment programs and
services, the use of our products could decline, reducing our revenues and net income.
Rapid, significant technological changes continue to confront the payments industry. These include developments in smart
cards, eCommerce, mobile commerce, and radio frequency and proximity payment devices, such as contactless cards. We cannot
predict the effect of technological changes on our business. We rely in part on third parties, including some of our competitors and
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, by resistance to change from clients or merchants or by
third parties' intellectual property rights. Our success will depend in part on our ability to develop new technologies and adapt to
technological changes and evolving industry standards.
If our transaction processing systems are disrupted or we cannot process transactions efficiently, 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 malfunction, fire, natural disasters, power loss, disruptions in long-distance or local telecommunications access, fraud,
terrorism, climate change or accident.
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 could result in a degradation or disruption of our services or damage to our properties, equipment and data. They
could also compromise data security. See —Account data breaches involving card data stored by third parties or by us could
adversely affect our reputation and
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