Visa sees credit card industry restructuring

By Juan Lagorio

NEW YORK (Reuters) - Visa Inc (V.N), the world's largest payment network, said on Tuesday that U.S. legislation curbing certain practices by credit card companies would force the industry to restructure as revenue expectations shrink.

"It's going to cause the whole industry to rethink itself," Visa's Chief Executive Joseph Saunders said in an interview. "It will result in less credit being offered to less people."

The bill, due to go into effect in February 2010, will restrict the ability of credit card issuers' to raise interest rates on cardholders' existing balances, to charge certain fees, and to impose penalties on consumers that the government deemed unreasonable.

Citigroup Inc (C.N), Bank of America Corp (BAC.N), JPMorgan Chase & Co (JPM.N), American Express Co (AXP.N), Capital One Financial Corp (COF.N), and Discover Financial Services (DFS.N) have over 80 percent of the U.S. credit card industry.

The companies enjoyed hefty gains in recent years due to an explosion in credit, but now they are losing billions as debt-burdened Americans lose their jobs and default on credit card payments.

Americans owed more than $945 billion in credit card debt in March. And even though that has declined from $962 billion in December, credit card indebtedness is still up about 25 percent over a decade ago.

Visa is partially insulated from the global credit crisis because it processes transactions rather than lending funds. However, its revenue growth has slowed along with transaction volume as consumers try to reduce their indebtedness.

Saunders said any slowdown in credit card use would be offset by a secular change from cash and checks to electronic payments, and by increased use of debit cards. He said debit cards represented "a significant part of the company's future".

Spending on debit cards surpassed credit volume in the United States in the first three months of 2009 for the first time in history.

Saunders said Visa does not expect to change its earnings or revenue forecast due to the legislation.

"It doesn't look like we are going to fall off a cliff. It isn't a tsunami. It is going to be an issue that we are going to have to deal with," he said.

"I don't think it is going to particularly change our guidance or our notion of where we are going. Of course, if things never changed we would have had more transactions, but I don't think that this does anything to slowdown the momentum of the change."

Visa expects annual net revenue growth of high single digits in 2009 and of between 11 to 15 percent in 2010. It also forecast annual adjusted diluted Class A common stock earnings per share will grow over 20 percent.

SLOW ECONOMIC RECOVERY

Saunders said he saw some signs of economic improvement in the United States, particularly stronger consumer confidence. but he said he did not expect a speedy recovery. He said the economy would be more solid in the first half of 2010.