Are Visa’s Practices Dropping Discover’s Pulse?

What's Next In Payments®
2:27 PM EDT December 27th, 2012

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.

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