Visa 2013 Annual Report Download - page 34

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A decline in non-U.S. and cross-border activity and in multi-currency transactions could
adversely affect our revenues and profitability, as we generate a significant portion of our
revenue from such transactions.
We generate a significant amount of our revenues from cross-border transactions, and our clients
pay us fees in connection with them. Some of those fees differ when conversion from the merchant’s
currency to the issuer’s billing currency is required. Thus, revenue from processing cross-border
transactions for our clients fluctuates with cross-border activity and the need for transactions to be
converted into a different currency.
In addition, Visa derives revenue from foreign currency exchange activities that result from our
clients’ settlement in different currencies. A reduction in multi-currency transactions may reduce the
need for foreign currency exchange activities and adversely affect our revenues. Limitations or
changes in our ability to set foreign currency exchange rates for multi-currency transactions as a result
of regulation, litigation, competitive pressures or other reasons may also adversely affect our revenues.
Cross-border travel may be adversely affected by global geopolitical, economic, social and other
conditions. These include the threat of terrorism, social or political instability, natural disasters, effects
of climate change and outbreaks of diseases. The need for conversion of currencies declines as cross-
border travel is impacted, which could adversely affect our revenues and profitability.
Moreover, if our clients decide to change practices (e.g., prohibit certain transactions or increase
account holder fees associated with cross-border transactions) there could be a decline in account
holder spending because their value proposition to the consumer could be reduced.
Transactions outside the United States represent an increasingly important part of our strategy,
which we hope will continue to grow. However, a decline in non-U.S. and cross-border activity and
multi-currency transactions will decrease the number of cross-border transactions we process and our
revenues and profitability may be materially and adversely affected.
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 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. While the term and amount of our indemnification obligations
have no limit, our exposure under the indemnification is 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, several of our smaller
clients or systemic operational failures lasting more than a single day could cause us to exceed our
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
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