Are Visa’s Practices Dropping Discover’s Pulse?
Thanks to Discover CEO David Nelms, the story of David and Goliath is getting a payments twist.
During Discover’s quarterly earnings call on December 20, an analyst asked Nelms about a slight slowing of Discover-owned Pulse’s growth. The electronic funds transferring network grew 16.1 percent year-over-year in the 2012’s fourth fiscal quarter, but saw a 16.8 percent increase in fiscal Q3 2012.
That’s when Nelms took a less-than-subtle jab at the biggest U.S. network, and when the Goliath moniker came into play.
“[Pulse’s growth] would have been even higher without some of the competitive challenges, I’ll say, and one of those competitors is the Goliath in the industry,” Nelms said.
What challenges is Nelms referring to, and how is Visa stifling Pulse’s growth?
Look no further than Visa’s Fixed Acquirer Network Fee (FANF): a program that “rewards merchant acquirers with lower variable processing costs if they send more transactions Visa’s way,” according to Digital Transaction. Visa created the program as a response to the Durbin Amendment, which diverted over half the volume from Visa’s PIN-debit network, Interlink, to competitors such as Pulse.
While some may describe FANF as an innovative way to circumvent regulations, Nelms had a different term for it: transaction hijacking.
““As they continue to roll out some of these new, kind of hijack-transaction actions—a lot of those are just being rolled out now and will have an increasing effect on all the other competitors in the market, including Pulse,” Nelms said.
Despite Nelms’ lamentations over FANF, Discover posted overall positive Q4 results, seeing sales volume on its credit card jump 6 percent to $26.5 billion, with volume on Discover, Pulse and Diners Club International cards rising 10.4 percent to $76.4 billion.
To see more of Nelms’ comments, read the Digital Transaction story here.