Visa Inc. (V) has reported that it has spent $1.53 million during the second quarter 2010 to address concerns related to credit card regulations and other issues. The lobbying charges nudged up 14% for Visa from $1.34 million in the year-ago quarter and $1.12 million during the first quarter of 2010.
According to the report filed on July 20, Visa lobbied the federal government on the sweeping new legislation reform and other legislations involving overdraft coverage and the consumer financial protection agency.
Other issues concerning Visa were related to cybersecurity, personal data privacy and protection, and the tax code. In the April-to-June period, Visa lobbied the Congress, the Federal Reserve and the Federal Trade Commission.
Besides Visa, its competitors Mastercard Incorporated (MA) spent $2.3 million, Discover Financial Services (DFS) spent $280,000 and American Express Company (AXP) spent $630,000 in the second quarter to lobby the federal government on issues tied to the recently passed health care reform bill and other issues.
In the April-to-June period, Mastercard lobbied the Congress and the Federal Reserve about issues related to payment cards usage and issues related to access to global markets, the Anti-Counterfeiting Trade Agreement and intellectual property enforcement.
On the other hand, American Express lobbied Congress, the office of the president, the Treasury Department, the Federal Reserve, the Office of Thrift Supervision and the Federal Deposit Insurance Corp. and the Internal Revenue Service along with the U.S. Postal Service and Congress regarding laws related to Postal Service retiree health benefits.
Another competitor of Visa, Discover lobbied the federal government and the Congress on tax issues.
The sweeping new reform became law in July 2010 to tighten the regulation on banks and capital markets following the 2008-09 financial meltdown. It has placed new fees and limits on Visa and other nation’s biggest credit card companies, changing the interest rate hike, charging over-the-limit fees and changes in the banks’ requirements to apply payments to higher-rate balances. Apart from this, the law has imposed new restrictions on the $450 trillion derivatives market and developed a new consumer-protection division for mortgage and credit-card products.
Though Visa reported impressive second quarter results benefiting from transaction growth, the ongoing economic recovery and strong cash flow generation, we believe that the new regulations will impact Visa more than its peer Mastercard since the former is more exposed to the debit processing market, which contributes a chunk of its revenues. Visa is also challenged by higher expenses and the new regulatory compliances for debit cards, compelling Visa to snip its debit processing fees.
Moreover, the final provisions of the Credit Card Accountability Responsibility and Disclosure Act (CARD Act) came into effect on August 22 and are expected to have longer term repercussions on card issuers. Though the new rules will protect credit card users from unreasonable late payment fees, interest rate hikes and other penalty fees, it could adversely impact the profitability of Visa and major card issuers.
Nevertheless, the recent CyberSource acquisition is a part of Visa’s long-term growth strategy, which would provide greater exposure in the rapidly-developing eCommerce industry. This is not only expected to boost revenue growth but will also increase the company’s merchant and clientele across the globe, ensuring reduction in monetary loss from fraud. It would also provide them with fast and efficient connectivity to multiple payment networks. Hence, CyberSource is expected to be a feather in Visa’s cap in the long run.
Currently, Visa carries a Zacks #3 Rank, which translates into a short-term Hold recommendation, indicating no clear directional pressure on the shares over the near term.