Visa USA spent 2007 in the pupal stage preparing to emerge as part of the international public company Visa Inc. Shedding the last vestiges of the association model was a complicated task, but Visa's U.S. operation managed to grow its cardholder base and transaction volume while it went about the business of restructuring.

A big part of preparing for the initial public offering was taking care of old business, namely tying up legal loose ends on a couple of old lawsuits and setting aside funds to pay for other suits that could take years to run their course.

In November, Visa and some of its member banks agreed to pay American Express Co. $2.25 billion to have their names dropped from a lawsuit AmEx filed in November 2004. The suit alleged that Visa and MasterCard Worldwide had colluded to keep banks from issuing AmEx cards in the U.S.

Earlier, in January, Visa and MasterCard agreed to pay the U.S. government $3.5 million–Visa's portion was $2 million–to settle a complaint over debit card fees the government had paid as a merchant accepting Visa- and MasterCard-branded cards at military commissaries, the Smithsonian Institution and other federal sites.

Indeed, Visa made clear in 2007 it would set aside a large piece of its IPO earnings to pay for still-pending lawsuits.

"It's one of Visa's key challenges to get their merchant lawsuits behind them," says Aaron McPherson, director of payments research for Financial Insights, of Framingham, Mass. "They have a good incentive to reach a deal if they can do it in ways that will not constrain them in the future."

All payment networks faced the threat of card-data theft and fraud, and Visa spent 2007 using penalties and rewards to prod merchants to better protect cardholder data. The record-breaking TJX Cos. data breach announced in January 2007 provided merchants extra motivation to lock down their networks.

The total number of Visa consumer and commercial credit cards issued in the U.S. as of the end of 2007 was 365 million, up 18.1% from 309 million cards issued by the end of 2006 See chart.

U.S. purchase volume on Visa credit cards last year totaled $807 billion, up 3.3% from $781.1 billion in 2006.

U.S. purchase volume on signature-debit Visa check cards totaled $499.21 billion, C&P estimates, up 8.6% from $459.7 billion in 2006. Visa no longer reports pure check card signature-debit data.

Operating revenue for Visa USA's 2007 fiscal year, which ended Sept. 30, was $3.6 billion, up 24.1% from $2.9 billion fiscal 2006.

In a filing with the U.S. Securities and Exchange Commission, Visa reported a net loss for Visa USA of $1.1 billion for fiscal 2007 compared with net income of $455 million the previous fiscal year. A litigation provision of $2.7 billion to fund the cost of litigation contributed to Visa's fiscal 2007 net loss.

Not surprisingly, most analysts agree the threat of litigation against Visa USA and its member card issuers is what prompted Visa to abandon the association model. But with some legal matters settled and Visa Inc. restructured into a public company independent of its issuing and acquiring banks, some observers expect Visa will be better able to focus on more-creative tasks, such as launching new payment products and methods.

With Visa's stock price hovering at about $65 per share–48% higher than its initial opening price of $44 per share–two weeks after its IPO, Visa's new investors seemed optimistic.  CP

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