Visa Eases Merchant Debit Rules, Satisfying Regulatory Probe

  • Merchants won’t have to ask cardholders to choose a network
  • FTC drops investigation of Visa’s practices after changes

Visa Inc., the world’s largest payments network, revised rules for merchants using its new chip technology for debit-card transactions after some retailers claimed the requirements inhibited competition.

Merchants won’t be required to ask the cardholder to choose which network processes the debit transaction, San Francisco-based Visa said Tuesday in a statement. Stores can also continue to prompt cardholders to enter a personal identification number, or PIN, on in-person transactions.

“The modifications and clarifications follow new guidance recently issued from the Federal Reserve and address a Federal Trade Commission inquiry,” Visa said in the statement.

The FTC notified Visa on Tuesday that it has closed an investigation it began in July.

“I am pleased that Visa has changed its debit routing rules,” FTC Chairwoman Edith Ramirez said in a separate statement. “This will ensure that merchants, including many small and medium-sized retailers, can benefit from greater competition and route debit card transactions to the payment network they choose.”

Visa fell 2.7 percent to $79.48 at 1:27 p.m. in New York, the worst performer in the 30-company Dow Jones Industrial Average.

Retailer Complaints

Retailers have complained that the fees they’re charged for debit payments have climbed in the aftermath of the U.S. transition to chip-embedded, or EMV, cards. Unlike magnetic-strip cards, whose codes can be copied and stored by hackers for later use, EMV technology generates distinct codes for each transaction. Visa long pushed for the U.S. to accept the technology -- named for founders Europay, Mastercard and Visa -- saying it provided greater security against fraud.

Merchants including Wal-Mart Stores Inc., Home Depot Inc. and Kroger Co. sued Visa this year over the fees as EMV technology has become more widespread. The retailers preferred that customers use a PIN when paying with a debit card, while Visa said shoppers should have the choice of using a signature. Merchant fees on signature debit networks are often more than double what they are on comparable PIN debit networks, according to data compiled by the Fed.

Visa gets about 20 percent of its total revenue from U.S. debit transactions, with those authorized by PIN accounting for 2 percent to 3 percent, Jason Kupferberg, a Jefferies Group analyst, estimated.

“Visa will likely lose some amount of U.S. PIN debit market share, but we would not expect this to represent more than a very low single-digit EPS impact even in a worst-case scenario,” Kupferberg, who has a buy rating on the stock, said in a note to investors.

The Fed said Nov. 2 that requiring merchants to allow cardholders to choose how to route a debit transaction violated the agency’s rules governing such activities.

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