Merchants exposed to a US-style myriad of ever increasing scheme fees while Visa enjoys a constantly rising share price.
I am greatly concerned by this week's announcement that
Visa Europe is set to be taken over by its US-based sister company Visa Inc for $20bn.
Unlike Visa Inc, which has been listed on the NYSE since 2008, Visa Europe is a non-for-profit organisation owned by the banks that use its network.
Critics have long argued that this ownership structure results in the same issues that have affected its listed sister; Visa Europe returned an impressive operating profit of €342mn in FY2014 and has done little to actually encourage interchange regulation.
However, it should be noted that Visa Europe has been far more compliant than its counterpart MasterCard in helping the European Commission to reach its goal of fair interchange fees. Where MasterCard has heavily litigated, Visa Europe has been more willing
to assist the Commission by, for example, setting up the Visa Cross-Border Domestic Interchange Programme, which has meant that many merchants have been enjoying regulation-level interchange fees on most Visa card transactions since 1st January 2015.
What does it mean for merchants?
The outcome of this takeover could be bleak for European merchants. Visa Inc, like any business, acts in the best interests of its shareholders and, with institutional investor shareholders to answer to, there appears to be little incentive to do anything
other than maximise profits by setting very high non-negotiable headline scheme fees. The Durbin Amendment, which capped debit card interchange fees, has made this much easier because merchants can now afford to swallow higher scheme fees.
The situation is perhaps not quite so clear-cut for Visa Europe, however, whose shareholders are banks and acquirers who are partially reliable on merchant relationships for income and may, therefore, be less willing to risk enraging the merchant
Sadly, one could argue that there is plenty of evidence of Visa Inc penalising merchants. Since the Durbin Amendment was introduced in 2011, we have seen Visa Assessment Fees and International Service Assessment Fees increase while the newly created Fixed
Acquirer Network Fee (FANF) has been particularly punishing, with some merchants paying up to $340,000 per month.
Naturally, this has all been reflected in profitability. Visa Inc enjoys both a far higher revenue per transaction and profit per transaction than Visa Europe. Equally naturally, such a compelling business model has delighted investors; Visa Inc’s share
price has seen an astonishing rise over the past 5 years - far higher than the All Countries World Index (ACWI).
Sadly for the merchant community, it seems that Visa Europe is being lined up as another string to the Visa Inc bow, with impending interchange regulation offering the perfect opportunity to increase merchant fees.
Considering this, I fear that interchange regulation in Europe is at risk of lulling merchants into a false sense of security. Merchants have already been compromised by a diluted regulation and now, without realising it, they are in fact more vulnerable
than ever to extortionate replacement fees. Therefore, I anticipate a situation where there is increasing divergance in costs between efficient and non-efficient merchants.