News

Visa feels the impact of new regulations

June 1, 2012

Dodd Frank Act regulations on debit card fees have hit Visa in the wallet. This week the company reported a three percent decline in payments volume through April and May. The news resulted in a decline in the card giant's share price.

An article at 4-Traders said that debit spending declined 12 percent in April and eight percent in May. However, credit spending was up eight percent in April and 10 percent in May.

The shift reflects banks' promotion of credit cards over debit cards for everyday spending in response to debit fee limits imposed by the Durbin amendment to Dodd-Frank.

Visa has also felt the impact of an additional provision that took force in April. The new rule forces banks to offer merchants the choice of two payments networks for debit transactions.

More than half of Visa's U.S. debit cards were under exclusive agreements prior to the regulation, said Visa CFO Byron Pollitt at an investor's conference this week, according to the 4-Traders report. "There was no way to respond to the new legislation without surrendering market share," Pollitt said.

In response to the new rule, Visa implemented a fee restructuring plan to entice merchants to continue to choose the company's network. The plan includes a fixed fee for use of the Visa network, variable transaction fees and merchant incentives, the 4-Traders story said.

The restructuring is supposed to result in lower costs to merchants, but is currently under investigation by the Justice Department for possible anti-competitive effects.

For more on this topic, visit the regulatory issues research center.