Visa 2012 Annual Report Download - page 36

Table of Contents
This management’
s discussion and analysis provides a review of the results of operations, financial condition and liquidity and
capital resources of Visa Inc. and its subsidiaries (“Visa,” “we,” “our” and the “Company”) on a historical basis and outlines the
factors that have affected recent earnings, as well as those factors that may affect future earnings. The following discussion and
analysis should be read in conjunction with the consolidated financial statements and related notes included in Item 8 of this report
.
Overview
Visa is a global payments technology company that connects consumers, businesses, financial institutions and governments
around the world to fast, secure and reliable electronic payments. We provide our clients with payment processing platforms that
encompass consumer credit, debit, prepaid and commercial payments. We facilitate global commerce through the transfer of value
and information among financial institutions, merchants, consumers, businesses and government entities. Each of these
constituencies has played a key role in the ongoing worldwide migration from paper-based to electronic forms of payment, and we
believe that this transformation continues to yield significant growth opportunities, particularly outside the United States. We
continue to explore additional opportunities to enhance our competitive position by expanding the scope of payment services we
provide.
Overall economic conditions and regulatory environment. Our business is affected by overall economic conditions and
consumer spending. Our business performance during fiscal 2012 reflects the impacts of a modest global economic recovery.
The Dodd-Frank Act. As of October 1, 2011, in accordance with the Dodd-Frank Act, the Federal Reserve capped the
maximum U.S. debit interchange reimbursement fee assessed for cards issued 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 interchange fees charged before the Dodd-Frank Act was implemented. The Federal
Reserve has 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.
The interchange, exclusivity and routing regulations have impacted our pricing, reduced the number and volume of U.S. debit
payments we process and decreased associated revenues. A number of our clients have sought fee reductions or increased
incentives from us to offset their own lost revenue. Some have reduced the number of debit cards they issue and reduced
investments they make in marketing and rewards programs. Some have imposed new or higher fees on debit cards or demand-
deposit account relationships. Some have elected to issue fewer cards enabled with Visa-affiliated networks. Additionally, the
routing regulations have allowed merchants to redirect transactions or steer cardholders to other networks based on lowest cost or
other factors.
We have had to re-examine and renegotiate certain of our client contracts to ensure that their terms comply with new
regulations and will continue to do so with others. As a result, our clients have sought and will continue to seek to renegotiate terms
relating to fees, incentives and routing. In some cases, we may lose placement completely on issuers' debit cards.
During the third quarter of fiscal 2012, we began implementation of our strategy to mitigate the negative impacts from the
Dodd-Frank Act to some extent by making pricing modifications and working with our clients and other business partners to win
merchant preference to route transactions over our network. For fiscal 2012, the overall net impact of the Dodd-
Frank Act, including
restructured pricing, incentives, other mitigation strategies and volume loss, was a decrease of approximately $0.15 in diluted
earnings per class A common share.
Our broad platform of payment products continues to provide substantial value to both merchants and consumers. We believe
that the continuing worldwide secular shift to electronic currency may help buffer the impacts of the Dodd-Frank Act, as reflected in
our overall payments volume growth, particularly outside the United States. As a leader in the U.S. debit industry, we continue to
develop and refine our competitive business models to adapt to the Dodd-Frank Act and mitigate some of its negative impacts. We
remain committed and prepared to adapt to and compete effectively under this new U.S. debit regulatory environment.
Notice of Proposed Adjustment. On May 23, 2012, the U.S. Internal Revenue Service (the "IRS") issued a Notice of Proposed
Adjustment (NOPA) to our fiscal 2008 U.S. federal income tax return seeking to disallow the
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ITEM 7. Management’
s Discussion and Analysis of Financial Condition and Results of Operations