July 29, 2011 by Leave a Comment
This week Visa held its earnings call and one of the key announcements was a pricing restructuring. In what appears to be a direct response to Durbin regulations, Visa is lowering its variable per-transaction fees and introducing a “network participation fee” in the United States for all of its debit, credit and prepaid card services. The participation fee will apparently be based on a merchant’s size and the merchants’ number of locations. While not disclosing the specifics, Visa claims that the overall fees will be reduced. According to JP Morgan securities analysts, Visa has about 75% signature debit market share and 55% PIN debit share in the US, so clearly has the most to lose from the final Durbin ruling requiring all debit cards to carry two unaffiliated network badges. Many large issuers in the past carried both Signature and PIN networks from the same company (e.g. Visa/ Interlink or MasterCard/ Maestro); now, they will have to either change one of the networks or to add another network to their cards, which will give more routing choices to the merchants. Visa’s change to the pricing structure is designed to keep competition at bay and to encourage merchants to continue routing the transactions over Visa’s networks and benefit from lower transaction fees and economies of scale. The last thing that the networks need is a price war and Joe Saunders, Visa’s chairman and CEO was keen to make that point by saying “we have no intention, nor do we think we have to start, a race to the bottom” on pricing. Yet, it is clear that Visa does not intend to give up its leading market position without a fight. The gloves are coming off; it will be interesting to see how MasterCard responds. Their earnings call is next week – not long to wait.
July 15, 2010 by Leave a Comment
In the Celent report Reg, Reg, Go Away: Sorry Banks, They’re Here to Stay, I laid out a stark landscape for checking accounts due to the implications of Reg E. Revenue will drop and profits will drop likely moving into loss. What should banks do? A few of the options were:
- Raise price
- Create bare bones accounts
- Create bundles
- Reduce cost