Debit Lifts Visa

  The challengers may keep coming but Visa U.S.A. has been the leader in the card industry for 30-something years. Recently, Visa's credit card market share has been slipping as MasterCard International, puffed up by Citibank's tilt toward MasterCard, mounts a strong challenge. MasterCard is now ahead in cards while Visa still retains the charge-volume lead, with Visa's receivables slightly lower. That makes it tough to name a definitive number-one card company for 2002.
  San Francisco-based Visa points to its dominant market share on the signature-based (offline) debit side, and argues that the name of today's game is payments, not just credit. On its face, that contention can seem self-serving. But the industry has changed. In the first six months of 2002, fast-growing debit began to reach its potential when transaction volume on Visa's signature-based check card surpassed that of the Visa credit card.
  For the card industry, perhaps Bill Clinton's phrase should read, "It's the payments business, stupid."
  Fact is, Visa saw debit's potential in the mid-1990s, planned accordingly, marketed the cards smartly, and is now reaping the benefits. Because of its foresight, Visa turned in another strong year at the check-out counter and controls nearly 80% of the offline debit market.
  "We look at cash and checks as our basic competitors," says Carl Pascarella, Visa U.S.A.'s president and chief executive. "People continue to choose debit. There's a huge opportunity for growth."
  Visa's 2002 U.S. card volume, including credit and debit purchases and cash transactions, increased 8% to $989 billion. There were 386 million Visa credit, debit, prepaid and smart cards and 14.4 billion transactions last year, a 9% rise. The average active Visa credit card generated about $4,500 in charge volume.
  Spending with Visa credit cards reached $609.3 billion, up 3%. Receivables slipped a bit to $266.6 billion, according to CCM's estimate. That reflects the near completion of Citibank's conversion to MasterCard. The number of credit cards outstanding actually dropped slightly to 258.4 million.
  'Way Ahead'
  But time will tell if Citi, a latecomer to offline debit, can help MasterCard put a dent in Visa's debit market share. And that's where the growth was. Purchase volume on the Visa check card rose 21% to $248.1 billion. Transaction volume grew 22% while cards issued rose 9% (page 32).
  Pascarella says Visa began to build its debit lead nearly eight years ago. "In 1995, 1996, we ran awareness ads emphasizing (debit's) utility to the consumer," he says. "We got way ahead of the competition."
  At the same time, Visa has no intention of ceding the credit card market to MasterCard. "The underpinning is the credit business. We don't overlook that," says Pascarella, noting that credit cards accounted for about two-thirds of Visa's U.S. purchase volume in 2002.
  But lingering in the background of the generally upbeat picture are several lawsuits. Visa often attempts to brush off these cases as mere speed bumps in its road to a landmark $1 trillion in annual U.S. charge volume. Yet the bumps could pose a serious threat to Visa when the power of the association's opponents is considered: Wal-Mart Stores Inc., the world's largest retailer; First Data Corp., the world's largest third-party card processor; and the U.S. Department of Justice.
  Wal-Mart is leading several million merchants in a class-action lawsuit against Visa and MasterCard for which trial was set to begin April 28. The suit involves debit card acceptance rules. If they lose, the associations could be liable for tens of billions in damages.
  Meanwhile, Visa last year sued First Data to thwart the processor's nascent First Data Net, a network that could siphon off 15% or more of Visa's processing volume ("The Closed-Loop Battle of Giants," December 2002). And Visa is appealing a federal trial judge's ruling in the antitrust case brought by the Justice Department that would allow Visa's and MasterCard's U.S. member banks to issue American Express and Discover cards.
  Pascarella insists the court cases are separate from Visa's ultimate goal-replacing cash and checks with its cards.
  "The litigation does not affect in any way how we focus on business," he says, adding that Visa credit and debit cards had a 12% market share in personal consumer expenditures in 2002. "That's more than all the other card companies combined."
  Visa can be satisfied it did well against tough competition last year. But it can't rest. It's 2003, and things will just get tougher.