Visa's Trillion-Dollar Year

  When you're No. 1, everyone wants to knock you off. Visa USA knows.
  In the past few years, the association's biggest member, Citigroup Inc., shifted allegiance from Visa to MasterCard. Last year, Visa and MasterCard settled the mother of all card lawsuits, the one that lowered debit card interchange, gave merchants the right to reject Visa/MasterCard debit cards and extracted $3 billion from the associations.
  Meanwhile, Visa/MasterCard rules banning members from forming partnerships with American Express and Discover seem unlikely to survive an association appeal to the Supreme Court. And Visa and processor First Data Corp. are still in court over First Data's plan to have some Visa transactions bypass Visa's network.
  But Visa USA President and Chief Executive Carl F. Pascarella prefers to look on the bright side. "2003 was a banner year for us," he says.
  Total U.S. purchase and cash volume on Visa-branded credit and signature-based debit cards hit $1.1 trillion, up 12% from 2002 and topping the trillion-dollar mark for the first time.
  Credit card dollar volume posted a respectable 7% increase. But Pascarella is particularly impressed with the Visa check card, the signature-based debit product whose prospects were muddied by the settlements. Check card purchases hit $304.4 billion last year, up 23% from 2002, and transactions rose 20% to 7.8 billion.
  Debit now accounts for over 40% of Visa USA's dollar volume, up from 6% in 1993, and 50% of transactions.
  "A lot of folks thought debit was dead after the settlement," he says. "If that's a bad product, give me more."
  The settlements also enabled merchants to cut their own interchange deals with Visa and MasterCard. No. 1 retailer and lead plaintiff Wal-Mart Stores Inc. is widely rumored to have a custom interchange plan with Visa, but Pascarella won't confirm that. Asked about whether other merchants have their own rates, he says, "the published rates we've got are petty much the rates we've got."
  In the world of personal identification number-based debit, Visa's Interlink point-of-sale network continues to make trouble for Star, the leading electronic funds transfer network that is now owned by First Data by virtue of First Data's recent acquisition of Star's parent company, Concord EFS Inc. In the past year, Interlink has persuaded several large banks to shift business its way from Star.
  Acceptance costs were the main reason why retailers revolted against signature-based debit cards. That didn't stop Visa and MasterCard from raising a number of credit card interchange rates last month. Pascarella doesn't foresee another merchant uprising, saying that Visa has worked carefully to "balance the interests" of credit card issuers and merchants. Visa left some touchy areas alone, particularly e-commerce rates.
  Meanwhile, Pascarella questions the value of MBNA Corp.'s plan to issue AmEx-branded cards. Merchants will pay AmEx discount rates, which are higher than Visa/MasterCard discount rates, with every transaction on an MBNA-issued AmEx card.
  "I don't see how that business proposition is sustainable if you look at the fee structure in the value chain," he says. "It certainly disadvantages the merchants."
  Visa enjoyed success in 2003 on the merchant-acceptance frontiers. Charge volume at quick-service restaurants approached $7 billion, bill-payment volume grew 26% and move-ticket charges rose 38%. "We're looking at significant new inroads," Pascarella says.
  Bank-issued prepaid cards for various markets-including government and payroll-represent the next great opportunity, with Visa expecting volume to rise from about $1 billion currently to up to $50 billion within five years.
  "All of these things attack the whole cash and check arena," Pascarella says.