) is the largest global electronic payment solutions company in the
world and has the largest network of credit and debit cards in
circulation. The company makes money by providing transaction
information and resources between the customer, merchant and their
respective banks, collecting a fee based on the number
and dollar value of transactions that it processes. Visa
competes with other card networks like MasterCard (
), Discover (
Our price estimate for Visa stands at $85.03
, which is about 19% above the market price.
In a recent House Financial Services Committee hearing regarding
the proposed Durbin Amendment, members of Congress questioned the
Federal Reserve Governor Sarah Bloom Raskin over the proposed rule
and its impact on small banks and credit unions. The Fed proposed
in December last year to limit the debit card swipe fee at 12 cents
per transactions. The move was supported by merchants and retailers
such as Wal-Mart (
) and Target (TGT) but was opposed by banks such as Bank of America
(BAC) and JPMorgan (JPM) as it could cost them $12 billion in
The U.S. Senate and House will propose a bill to put a hold on
the Federal Reserve's rule over debit card fees. The House bill
will put a one year delay and a study on the composition of the
interchange fees that will review the costs associated with the
debit card transactions and the effect of Fed's proposal on
consumers, merchants and banks.
The assessment fee is charged by Visa to its customers (banks)
based on the total payment volume of business generated for
customers through Visa branded products. The assessment fee as a
percent of gross dollar value of business generated from Visa card
has been historically stable at 0.09% during the last five year
from 2006 to 2010 but is expected to decline gradually if the Fed's
proposal to restrict debit card swipe fees is implemented.
Visa in a response to the Fed's proposal has said that it will
implement a two tier system to allow small and large banks to
charge different processing fees. While the effect of two tier
system on assessment fee remains to be seen, a delay in Fed's
proposed fee limit would let Visa maintain its current level of
fees in the hopes that the law will be amended to repealed. If the
fees stayed as is, this would result in about 5% upside to our
price estimate for Visa.
See our estimates for Visa.