This is an updated version of a story that appears in the May 2009 issue of Cards&Payments.
Visa Inc. made its debut as a public company in 2008 in a highly anticipated event that turned out to be a bright spot during a year when card networks began to experience measurable effects of the darkening economy.
Optimism was high March 18 when Visa began trading on the New York Stock Exchange under the stock symbol "V," selling 406 million shares at $44 each. The company raised $18 billion in the offering, which analysts say was the most lucrative IPO in U.S. history.
With the proceeds from the IPO, Visa in April socked away $3 billion in a litigation escrow account to cover past and pending legal actions.
In October, Visa reached a legal milestone when it jointly agreed with MasterCard Inc. to pay Discover Financial Services a total of $2.75 billion to settle long-running antitrust lawsuits. Discover sued both networks in 2004, alleging their rules prevented financial institutions from issuing cards on the Discover Network. Visa's share of the settlement was $1.89 billion, to be paid out over the next four quarters.
Visa's 2008 earnings reflected ongoing payouts to American Express Co. related to a similar antitrust lawsuit Visa settled with AmEx in 2007 for $2.25 billion.
In the latter half of 2008, Visa credit card spending volume began to soften because of the faltering economy. Throughout the year the company reported healthy gains in U.S. debit card use and strong growth across all product categories outside the U.S. The company reported that at the end of 2008, debit represented 53% of all Visa transaction payments worldwide.
Total Visa credit card accounts decreased slightly to 258 million at the end of December from 259 million a year earlier. The total number of Visa cards issued declined 8.5%, to 334 million from 365 million. U.S. purchase volume on Visa credit cards last year totaled $824 billion, up 2.1% from $807 billion in 2007 (see chart).
Visa's total debit card accounts grew to 227 million by the end of 2008, up 15.2% from 197 million a year earlier. The total number of Visa debit cards issued grew 12.8% to 333 million from 295 million a year earlier. U.S. purchase volume on signature-debit Visa check cards totaled $818 billion, up 12.5% from $727 billion in 2007.
Operating revenue for Visa's 2008 fiscal year, which ended Sept. 30, was $6.3 billion, up 21.2% from $5.2 billion from fiscal 2007. Visa reported operating profits of $804 million compared with a net loss of $861 million the previous fiscal year.
Joseph W. Saunders, Visa CEO, told analysts at a May 2008 presentation that Visa expected its debit business to continue to grow and that the company also was investing in the development of prepaid cards, funds transfers, Internet and mobile-payment applications.
Visa has been very successful in developing its debit business, says Red Gillen, an analyst with Celent, a member of Marsh & McLennan's Oliver Wyman Group.
"Consumers continue to shift spending from cash and other channels to debit as part of an ongoing trend," Gillen says. "An economic downturn may hurt Visa in the short run, but in the long term Visa is well-positioned to succeed because its products are becoming increasingly diverse and less dependent just on credit card volume growth." CP