Justice Officials Probe Visa's 'Competitive Responses' to Reform

Visa, the world’s largest payment network, revealed today that the U.S. Justice Department is investigating changes to its debit card processing system in response to reform rules on so called merchant “swipe fees.”
Justice officials in March presented Visa with a request known as a “civil investigative demand (CID),” part of a procedure by antitrust regulators used to obtain information from companies.
News of the probe came as Visa also reported a strong first-quarter profit that beat Wall Street estimates.
But during March, Visa said it met with Justice personnel twice and provided materials in response to the CID.
“Visa is continuing to provide materials and cooperate with (Justice) in connection with the CID,” the company said today.
At the center of the antitrust request is Visa’s strategy and new fee structure affecting merchants and firms that contract with businesses to process payments.
“The CID focuses on PIN-Authenticated Visa Debit and Visa’s competitive responses to the Reform Act,” Visa said in a filing today.
The “Reform Act” is a reference to 2010’s Dodd-Frank Act, a provision of which reduces the fees card networks and banks can charge merchants for every debit card transaction.
Visa and MasterCard set the interchange fees that their bank partners receive as revenue.
One provision, which took effect in April, requires that banks use at least two unaffiliated processing networks on their debit cards to give merchants an option.
Prior to the reform, some banks may have used Visa to process debit-card transactions authorized with a consumer’s signature, while using Visa’s Interlink debit network to authorize transactions made with a PIN.
Such deals are not allowed under Dodd-Frank. A single bank cannot use Visa for both signature and PIN authenticated transactions.
“In March, Visa met with the Division twice and provided materials in response to the CID. Visa is continuing to provide materials and cooperate with the Division in connection with the CID,” Visa said in a statement.
Visa has also initiated fee changes affecting companies that contract with merchants to process card payments. Visa has introduced a new fixed fee based on merchant size, number of locations and monthly volume. At the same time, Visa has decreased variable fees assessed on each transaction.
The revelation of the antitrust probe overshadowed an impressive earnings report.
Visa’s net income for the first quarter of 2012 surged 47 percent to $1.29 billion, or $1.91 a share, from $881 million, or $1.23, a year earlier. Adjusted earnings per share, excluding an accounting gain, were $1.60, beating the $1.51 average estimate of 32 analysts surveyed by Bloomberg.

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