It's about the war, not the battle.

After several challenging months, Visa (NYSE:V) is trying to stem the tide of PIN debit losses from recent regulations that require issuers to put at least two unaffiliated networks on debit cards.

Observers are watching closely to see how effective the San Francisco company is at implementing several previously announced strategies designed to motivate merchant-routing decisions. Whether the company can win back a substantial portion of the business remains to be seen, particularly as it balances concerns over an ongoing Justice Department investigation into whether its new tactics in that market violate antitrust law.

"The question is, can they claw back what they've lost?" says Sanjay Sakhrani, an analyst with Keefe, Bruyette and Woods.

Analysts estimate that the payments network, which had previously accounted for approximately 50-60% of the market, lost roughly half that share by the middle of this year. That's because Visa had a number of debit contracts with issuers that included exclusive use of both its signature and PIN debit networks.

It's hard to know how much Visa has lost in revenue, but it could be more than $100 million over a full year at current market-share levels, according to estimates.

The rule banning exclusivity — required by the Durbin Amendment — took effect in April, though Visa reported that business on Interlink, its PIN debit network, began to "deteriorate" starting as early as January.

Rival MasterCard (MA) has likely picked up about two-thirds of that lost share, with others including First Data's STAR network taking the balance, estimates Michael Taiano, an analyst at Telsey Advisory Group.

"I can't recall that kind of shift so quickly in network market share in the last ten years," says Eric Grover, a principal with payments consultancy Intrepid Ventures.

Spokesmen for both Visa and MasterCard declined to comment for this story.

But the latest estimates provided by Visa last month on an earnings call with analysts suggest the worst may now be over, in line with the company's previous predictions.

"So far, the month of April has proven to be the trough in debit-payment-volume loss, and since then, we have seen sequential monthly progress during the quarter in recapturing portions of this Interlink volume," said Byron Pollitt, the company's chief financial officer, on the fiscal third-quarter earnings call.

The company reported that while debit payments volume, including both signature and PIN transactions, was down 9% for the quarter ended June 30 from a year earlier, it had fallen just 7% for the subsequent period through July 21.

"Deceleration of growth seems to have kind of troughed somewhat," notes Sakhrani. "We're now possibly going the other way, which would suggest they are starting to take back a little bit of what they've lost."

And while its PIN debit business accounts for just 2-3% of total revenue, Visa has announced that it's taking several measures to combat the decline.

"This is more about market share and affecting their transaction and volume numbers, and less about directly impacting them financially," says Greg Smith, an analyst at Sterne Agee.

Last year the company announced that it was changing its price structure in response to the new rules, adding what's known as a fixed acquirer network fee (FANF) and reducing variable fees merchants and acquirers pay for each transaction.

The change, which went into effect in April with the start of the rules, may motivate merchants because their incremental costs for each transaction processed will be reduced under the new pricing regime.

The company has also said it's rolling out its ability to process PIN debit transactions over its signature debit network, called PIN-authenticated Visa debit, or PAVD, which could also help retain some of the PIN debit business.

"To date, we're pleased with how our strategies have taken hold to start," Pollitt said of the new strategies on the most recent earnings call.

By contrast, MasterCard has said it's working to get its PIN debit network on the back of debit cards, but that its efforts are based on more of a wait-and-see approach.

"We have not changed our strategy, which is get ourselves onto the back of those debit cards, get ourselves enabled for them to be used, watch how that goes, do not try and apply rebates and incentives in a broad way," Ajay Banga, MasterCard's chief executive, said on a second-quarter earnings call earlier this month.

"I'm not in the position of protecting a large, pre-regulatory-change market share. I am in the business of growing market share in this opportunity," Banga added.

But some speculate that Visa is also likely striking deals with the largest merchants to further encourage routing over the company's networks.

"Visa has done deals with merchant acquirers and I believe merchants to incent routing their way. Also with issuers," says Smith. "The deals are still being cut."

"It's not public, but I think a lot of these have been done," he adds. "It's a competitive marketplace. There's pricing that's cookie cutter, but also all these kinds of one-off deals."

Such deals to incentivize routing could prove particularly critical for Visa debit cards that include both Interlink and an unaffiliated PIN network on the back of the card. Under the new rules, debit cards must include at least two unaffiliated networks, meaning that issuers could retain both Visa networks and simply add a third.

Visa's has retained the Interlink logo on the "majority" of its largest issuers, Chief Executive Joseph Saunders said on the company's most recent earnings call.

Moreover, revenue from FANF provides a nice pool for funding rebates and discounts to merchants, says Intrepid Ventures' Grover.

"If you're sitting in Visa's shoes, you've got this big pot of money — you're working to cut deals with merchants and merchant processors to get routing," he says.

"Historically networks paid overwhelming rebates as discounts to large issuers," Grover adds. "Now at least for debit there is some incentive to woo acquirers and merchants."

For example, attorneys Jeffrey I. Shinder and Matthew L. Cantor of Constantine Cannon argued in an American Banker column in June that the company is offering FANF discounts if merchants achieve a certain level of volume for the network, a move they charge is anticompetitive.

The company is "using the FANF as a billy club, extracting Visa transaction volume commitments from merchants in exchange for a 'discount' on the FANF," they write, citing a May 27 investor conference in which executives said "a substantial number of merchants" had signed on to such volume-based agreements.

And in fact, Visa's already facing a DOJ investigation over whether some of its PIN debit strategies, including FANF and PAVD, violate antitrust law, and some say that could temper how aggressively Visa pursues efforts to win back business. The company announced DOJ's March civil investigative demand in May.

"If you're DOJ, it's really hard to bring a serious antitrust suit against Visa if they've been knocked off their perch in debit. How do you say Visa has market power?" Grover says.

"If, however, Visa claws back market dominance …that makes it more likely that DOJ pursues a case," he adds. "Clearly the folks managing Visa debit are unhappy with what's happened to PIN debit share and there's tension there — but they should be cautious."

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