Visa Swells Abroad As It Better Navigates The Adoption Of Dodd-Frank

| About: Visa Inc. (V)

Visa (NYSE:V) continues to benefit from improving economic conditions and a worldwide shift toward electronic payment medium as the company's net income for the third fiscal quarter of 2013 increased 16% year on year. The company also reported net revenue growth of 17%, as payments volume grew by 13% on a constant dollar basis and total processed transactions grew 14% over the prior year's figure. Visa also benefited from the market adaptation of the Dodd-Frank routing rules with quarterly interlink payment volume growth turning positive in June after a year of negative growth.

The Dodd-Frank bill requires banks with more than $10 billion in assets to use separate payment processing networks for signature-authorized and PIN-authorized debit card transaction. Visa's signature logo is present on nearly three-quarters of the debit cards in the U.S., and due to its market dominance it had been adversely affected by the new regulations. Visa reported a 3% decline in debit payment volume for the first quarter of 2013, followed by nominal growth of 0.3% during the second quarter. However, with the market adapting to the new regulations, Visa saw a revival in debit purchase volume growth. The company's U.S. debit volume grew 12.4% through the three months ending June. Based on these positive trends, Visa raised its full-year revenue guidance from low double digits to 13%.

Visa earns revenues from its banking clients that issue cards bearing the Visa logo. Assessment fees are charged as a percentage of the gross dollar volume (GDV) of transactions processed for a client, while data processing fees are charged on the basis of the total number of transactions processed for a client. The company also charges cross-border fees for transactions where the issuer or cardholder's bank and the acquirer or merchant's bank are based in different countries. Around 40% of the company revenue comes from assessment fees, while 30% comes from transaction fees. Cross-border fees account for 25% of Visa's revenue.

Going Strong in the U.S.

More than half of Visa's GDV comes from the U.S. This GDV is evenly split between credit and debit cards. For the last quarter, Visa reported a 11% increase in payment volume in the U.S., with credit volume up 10% and debit volume increasing 12% over the prior year. The company has around 12,000 issuer clients in the U.S., long-term contracts with over 600 financial institutions, and accounts for 22% of the personal consumption expenditures (PCE) in the country. With the country's economy on the road to recovery, we expect higher PCE in the coming years, with Visa in pole position to capitalize. (For more, please see "Visa's U.S. Business Is Booming On These Trends.")

Expanding Outside the U.S.

Visa reported a 13% year-on-year increase in credit volume outside the U.S., while debit volume increased by 24%. Unlike the U.S., credit cards are more popular throughout the rest of the world accounting for 80% of Visa's payment volume outside the U.S.

In terms of geographic distribution, nearly 60% of Visa's payment volume outside the U.S. comes from Asia-Pacific where the company reported a 14% year-on-year increase in volume. Around 20% of the payment volume comes from Latin America and the Caribbean, where the figure grew by 19% over the prior year. Central and Eastern Europe, the Middle East and Africa (CEEMEA) is Visa's fastest-growing region, with volume increasing 28%. CEEMEA and Canada each account for around 10% of the payment volume from outside the U.S.

Visa has a market share of nearly 9% of the PCE in emerging markets like India, China, Mexico, Brazil, Russia, Indonesia, South Africa, and UAE. With its global position and reputation, Visa will be looking to gain market share in these emerging markets. For more on growth prospects, please read the following: "The Potential For Credit Card Growth Outside The U.S. - Part 1" and "The Potential For Credit Card Growth Outside The U.S. - Part 2."

Disclosure: No positions.

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