Visa: Record Revenues, Historic Ruling

  It may have been one of the biggest events for the card industry in years, but Visa USA executives are downplaying last October's U.S. Department of Justice legal victory that forced Visa to allow its members to issue American Express and Discover cards. After all, they point out, Visa had a pretty good year.
  "I don't say we're not worried about any competitor; we are," says Carl Pascarella, Visa USA president and chief executive. "[But] I don't see this as a disruption in any way. We're the market leader in the payments area."
  The number of signature-based, or offline, Visa check cards issued in the U.S. to consumers as of the end of last year totaled 156.7 million, up 10.7% from 141.6 million in 2003. The number of consumer purchases on those cards in 2004 was 9.1 billion, up 18.2% from 7.7 billion last year.
  The total number of Visa consumer credit cards issued in the U.S. at the end of 2004 was 277.7 million, up 4% from 266.9 million the previous year. Purchases on those cards totaled 6.6 billion, up 10% from 6 billion in 2003.
  Purchase volume on U.S. credit cards was $516.7 billion, up 11.4% from $464 billion in 2003. Gross dollar volume on U.S. credit cards last year reached $624.2 billion, up 10.4% from $565.4 billion in 2003. Visa is accepted at 5.7 million U.S. merchant locations.
  Visa's $302.9 billion in 2004 U.S. receivables were up 7.8% from $280.9 billion in 2003.
  For its 2004 fiscal year ended Sept. 30, Visa generated revenues of $2.42 billion, up 22.8% from $1.97 billion in 2003. Expenses totaled $2.08 billion, down 39.2% from $3.42 billion in fiscal 2003.
  The better-than-expected revenue gain and careful cost controls helped Visa reduce negative equity that resulted from settling the merchant class-action suit, led by Wal-Mart, in 2003, Pascarella says. In its settlement, Visa agreed to pay the merchants a little more than $2 billion, to lower debit card interchange rates and to give merchants the right not to accept Visa check cards if they accept Visa credit cards. Negative equity for fiscal 2004 decreased to $246 million, a 45% improvement from $445 million in negative equity the previous year.
  "The underpinning of our revenue really is significant growth in all our product areas," Pascarella says. "Credit, which is supposed to be a mature market, is up 11%, and our debit [purchase volume] is up over 20%." [Consumer check card purchase volume in 2004 actually was up 19.7%, to $345.8 billion from $288.8 billion in 2003.]
  As AmEx and Discover move into Visa's territory, Visa is going after theirs, particularly AmEx's affluent cardholders and commercial accounts. During the 2004 Summer Olympics, Visa launched a marketing campaign for the Visa Signature Card, which targets consumers with at least $125,000 in household income. In 2004, Visa Signature had $97.8 billion in sales volume, up 28.4% from the 2003 total, Visa says.
  While Visa may downplay the Justice Department's victory, the case may have forced the card association to make some changes, observers say. Visa earlier this year announced a card redesign, which includes moving the hologram to the back to make more room on the front.
  Visa executives, however, deny that the antitrust ruling had anything to do with the redesign. "We've been working on this for 18 months," Pascarella says. "It was totally irrelevant."
  In its current fiscal year, Visa continues to face challenges from greater competition, along with retailer grousing about an increase in interchange rates that took effect in April. Pascarella says Visa's expansion into emerging payment technologies, such as contactless, and such nontraditional categories as quick service restaurants, online bill pay, government payments and payroll cards will continue to help the card association grow. "We're not just about resegmenting the pie," he says. "As a market leader, we've contributed solutions that grow the pie."