Visa U.S.A. has moved to prevent merchants and processors from circumventing its network on certain transactions.
On Tuesday the association told members that it would require the use of Visanet for any transaction made with a card that bears its logo and is not authorized using a personal identification number.
The primary effect of the rule is to remove an exception that Visa had extended for "on-us" transactions, in which the same bank is the card issuer and the merchant acquirer. Prior to the change, the association had permitted in-house processing.
The changes also affect a less frequent but growing practice that is usually called PIN-less debit. In such transactions, Visa debit card payments for a sale made via mail, telephone, or the Web are processed over an automated teller machine network, even though the consumer cannot enter a PIN. These merchants will no longer be allowed to route the payments over outside networks unless the customer explicitly chooses that network brand. (Visa also required online, phone and mail order merchants that accept its cards to clearly identify it as a payment option.)
Tolan D. Steele, senior vice president of financial operations, cast the move as a security issue. He said that collecting information on all Visa transactions is necessary to develop risk management and fraud prevention capabilities. On-us and PIN-less debit transactions do not provide enough data, he said.
"Processing every Visa transaction is important … to ensure that Visa is in a position to stand behind all Visa-brand transactions," Mr. Steele said in an interview Tuesday.
Seeing that cardholders get rewards points was another factor in the rule change, he said. Members "prefer to see transactions routed over Visanet."
But Paul Tomasofsky, the president of Two Sparrows Consulting LLC of Montvale, N.J., saw other motivations for the changes. He called them an effort to push as much volume over the Visa network as possible.
"I think this is about business," Mr. Tomasofsky said. "We are in an era where transaction volume counts."
Visa could use volume statistics to help persuade merchants to take its credit and debit cards, he said, but its stated reasons make sense.
Mr. Steele said it would be "flexible" with issuers that have arrangements requiring some off-network transactions.
One example: the Starbucks Visa card, launched in 2003 by JPMorgan Chase & Co., Visa's largest issuer. It functions as a private-label stored-value card in Starbucks Coffee Co. outlets and as a regular Visa card elsewhere.
Similarly, next month General Electric Corp.'s GE Consumer Finance will start issuing a product that will be a private-label card in Wal-Mart Inc. stores and a Discover card at other merchants.
Mr. Steele would not rule out other arrangements requiring some off-network transactions.
"Nothing would impact Visa's or Visa members' ability to do something like that," he said. (The company included an "exception request" form in the bulletin announcing the rule change.)
Some processors, most notably First Data Corp., have used the "on-us" construction to skip Visanet for card transactions in which it represented both the issuer and the merchant acquirer. When First Data announced in 2002 that it planned to conduct as many as 15% of its payment card transactions that way, Visa sued and called for a moratorium on the practice. The case is still unresolved.
In a memo accompanying the member bulletin Tuesday, Visa president and chief executive Carl Pascarella said the revisions are necessary to ensure Visanet's peak performance.
"Since numerous Visa services, applications, and products require full transaction life-cycle data, including real-time or near real-time authorization data, Visa's ability to process every Visa-branded transaction is integral to Visa's delivery of value to each of its stakeholders," Mr. Pascarella wrote. (The rules will go into effect May 15.)
First Data, which owns the Star debit network, also uses PIN-less debit. Utilities that accept payments over the Internet use it.
In an interview last year, Julie Saville, the vice president of product development at First Data's debit services unit, said debit card networks such as Star have offered even lower fees for PIN-less debit than for regular ATM transactions, because of their low risk.
A spokeswoman for First Data said Tuesday that it was studying Visa's rule changes and could not immediately comment on them.
Mr. Steele said that less than 1% of all Visa card transactions are routed on-us, and far less than 1% as PIN-less debit. Problems are not expected with merchants, which he said would view the changes as worthwhile.
"They are tremendous beneficiaries of fraud reduction tools," Mr. Steele said.
