Geopolitical and regulatory risks are rampant in Europe, but Visa Europe is well positioned to weather the storm.
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For example, while no one is completely insulated from
And what would a potential default or restructuring by Greeces new government on its debt to the EU mean to card revenues and profitability? This question relates to whether Greece's GDP will be affected and the answer very much depends upon the extent to which the Greek economy implodes and the collateral effects on other European economies.
From a card business perspective, the Visa Europe system manages multiple currencies, so if Greece decouples, the Visa card business is protected. Should decoupling happen, transactions in process would be managed, new currencies (such as a new drachma), would be introduced with conversion or settlement handled as needs require.
Just as the U.S. has seen vast new regulatory influences affecting lenders of all types, Europes regulators are also busy. This means more oversight will be focused on consumer debt levels throughout the EU and keeping them from under control.
The European Commission's regulations, in particular the Payment Services Directive 2 (PSD2), are focused on customer choice, customer transparency, billing and merchant protections.
Regulators are proposing capping on APRs, which will help to protect customer debt from spiraling out of control. Capital adequacy requirements now make it expensive for banks to lend, so many are becoming more cautious in their risk management. New regulations are forcing the banks to be more prudent about the type and amount of credit they give - most segmentation work around credit these days is in the premium segment, the high net worth.
New regulation is also expected to address interchange caps. Regulations will likely mandate merchants rights to see a breakdown of their discount rates, so the scheme fees, interchange and the acquirers margins must be totally transparent. Another big issue in Europes post-Interchange cap environment is circumvention, which is shifting costs to acquirers from issuers to make up for their loss of interchange income. This will be perceived as disguised interchange and will be strictly regulated and carry heavy penalties. Regulators will also ensure acquirers don't pick up the cost of authorizations, an expense that would be passed onto merchants.
Visa Europe, with more than 3,078 bank and payment provider owners in 37 European countries, is well positioned to ride out the present climate of uncertainty and the new wave of regulation. 2015 is shaping up to be extremely interesting for all financial institutions and their payments businesses. Expect continued innovation, some powerful regulator statements in the form of examples being made of large companies, and lingering liquidity problems until the Russian situation resolves.
George White is the London-based president of EMEAR for Profit Insight.
