SAN FRANCISCO — Visa (NYSE:V) Chief Executive Charles Scharf vowed Thursday to find a way to repair the card network's relationship with the very retailers it has spent the last decade fighting.

Though Visa and rival MasterCard (MA) agreed last year to pay merchants $7.25 million to settle a long-running dispute over interchange fees, the relationship remains frayed. Many merchants have opted out the suit and last week several big ones, including Target and Macy's, filed another suit against Visa and MasterCard alleging that the card networks violated federal antitrust laws in setting interchange rates.

At an investor day event here, Wedbush Securities analyst Gil Luria asked Scharf whether the strained relations can be repaired.

"Absolutely it's not too late," Scharf said. "Is it easy? No, it's extremely hard to change the dialogue that we have."

Since becoming Visa's CEO in October, Scharf has repeatedly stressed the importance of improving collaboration with merchants, as well as the banks that issue Visa cards.

In February, the Foster City, Calif., company extended a small olive branch to merchants by lifting a ban on their offering special deals to customers that pay with a specific bank's credit or debit card. Still, many large retailers believe they're paying Visa and MasterCard far too much for the right to accept plastic cards from their customers.

Despite numerous signs of strength at Visa — including strong revenue growth and a more than 50% climb in the company's share price over the last 12 months — the company clearly sees benefits in turning down the heat in its multifront battle with merchants.

In recent months, the fight has mostly played out in court, where large segments of the retail industry are trying to derail a proposed settlement that Visa and MasterCard struck with a dozen or so relatively small merchants.

A federal judge in New York is currently deciding whether to approve that deal, which analysts see as advantageous for Visa and MasterCard because it would allow them to control future pricing.

Asked to assess the efforts by Wal-Mart, Home Depot, and other retail giants to scuttle the deal, Scharf said that he believes around 25% of U.S. merchants by transaction volume opted out of the settlement prior to last month's deadline.

"And we don't think it changes the outcome of our position or the court's," he said.

Scharf and fellow Visa executive William Sheedy also admitted that Visa has made missteps in its approach to dealing with lawmakers in Washington, D.C., where merchants prevailed in their 2010 push to cap interchange fees on debit card transaction.

Visa was hit harder than its rival card networks by the new law, known as the Durbin Amendment, since the company enjoyed a dominant position in the U.S. debit card market, and the law required that merchants be given more choices on how to route such transactions.

"I think we can all agree that the company and the industry got caught flat-footed," said Sheedy, a Visa global executive, acknowledging that the company's lobbying approach was too confrontational.

Scharf sought to put the fight over the Durbin Amendment in the larger context of Visa's fractured relationship with the merchants that accept its debit and credit cards.

"D.C. is not the cause," he said. "That's the effect of what the entire industry and our partners have done to each other."


Sheedy made the case that Visa has the opportunity to provide value-added services to merchants, to help them reduce their costs, and to aid in their efforts to market themselves. But for all the talk about increasing collaboration with merchants, there is little sign that most retailers view reconciliation as a realistic possibility.

In addition to the ongoing and escalating litigation, leading merchants last August announced the formation of a new payments company, known as Merchant Customer Exchange, or MCX, meant to challenge the existing payment networks.

Scharf did not refer by name to the challenge from merchants, but in his prepared remarks he did say: "Over time, the only way we're going to be successful as a business is by putting customers first. … We're not interested in competing with them."

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