Cybersecurity and debit represent the two major common themes as it relates to recent regulatory attention globally, a top official at Visa noted in a recent analyst discussion.
During the discussion with Morgan Stanley analysts, Byron Pollitt, Visa’s chief financial officer, said the company is broadly and fully engaged in both areas. Debit represents the fastest-growing portfolio for the card brand outside the U.S., but it’s also the one where governments are taking a keen interest, he noted.
"When you think about financial inclusion, you should think about in the context of debit,” Pollitt said. “So there is a very clear supportive government agenda with regards to debit and the notion that it should be regulated."
A worldwide net
As such, Visa has deployed government-relations representatives “all over the planet” to help establish relationships early with governments in order to educate, “because economically how you structure or potentially regulate debit can have a dramatic impact on the speed at which it penetrates a market,” Pollitt said. “And there is a tendency for governments to think starting out low cost, put pressure on interchange. These types of pressures taken too far can significantly limit the rate of growth for debit."
The recent agreements made in Europe with the European Commission on debit are good example. Under a recent settlement Visa Europe made with the commission, merchants will be charged 0.3 percent of the sale per transaction. This move harmonizes Visa Europe’s fee structure with MasterCard. Though they share common rules and brands, Visa Europe isn’t part of Visa Inc. and remains a card association comprised of member banks.
Visa Europe CEO Nicolas Huss stated publicly that the company will move to accept the agreement rather than fighting it in court. “Visa Europe will continue to focus on developing and providing payment solutions for the benefit of consumers, rather than pursuing lengthy legal cases,” he said.
Tops on the regulatory agenda
Topping the top two global regulatory themes Visa faces, however, is cyber security, which the Target breach caused to catapult to the top of the agenda, Pollitt said.
"So cyber security is undoubtedly topic number one, and this is one that very quickly gets you to chip on cards,” he said. With the chip on cards in an EMV environment, it eliminates where 70 percent of the physical point-of-sale fraud in that it eliminates counterfeit fraud, he said.
Many merchants contend that not including the PIN, which eliminates the lost or stolen card fraud, doesn’t do enough to combat the fraud issue sufficiently, and they would prefer a chip-and-PIN requirement instead of allowing users to sign for transactions. Pollitt countered by saying two-thirds of U.S. merchants aren’t equipped to accept PIN-based transactions.
"If PIN were to be included as a fix at the same time, it would, in our view, dramatically slow the rollout of EMV, which is chip. And chip is what gets you to 70% of the fraud,” Pollitt said.
On Friday, both Visa and MasterCard announced the creation of a group whose initial primary focus is the adoption of EMV in the U.S. Click here to read more.