Sunday, October 02, 2005

Credit Card Associations Seeking To Limit Legal Exposure With IPO's

Visa chief dismisses idea of following Mastercard IPO

Visa's most senior European executive has dismissed suggestions that the card payment association should follow its rival Mastercard by floating on the stock market. Hans van der Velde, president and chief executive of Visa Europe, also questioned whether Mastercard's plans for an initial public offering would help shield the association from future regulation and litigation by retailers.

"The association model is very much in our DNA. To change that would be very difficult," he said in an interview with the Financial Times. "If you change your structure for litigation or regulatory reasons, it seems you don't have a good reason to do it."

His comments come weeks after Mastercard announced plans to raise up to $2.45bn through an IPO that will shrink the interests of its 1,700 member banks to a 41 per cent non-voting stake.

The move is designed to distance Mastercard from its members and limit their exposure to liabilities from future lawsuits. Visa and Mastercard are under attack from retailers and regulators over high "interchange" fees that they charge merchants for processing card transactions.

Last week four merchant associations in the US sued Mastercard, Visa and large banks, claiming they colluded to set interchange fees at a high level. In September, the UK's Office of Fair Trading criticized Mastercard for its interchange fees, which it said represented a "tax on consumers".

Visa is protected from regulatory probes in Europe by a deal it struck with the European Commission in 2002 to end a long- running investigation.

Visa last year responded to the threat of litigation by reorganizing its operations into regional entities in the US and Europe, both of which are independent corporations. The two companies control Visa International, which manages the association's global network.

Mr van der Velde said Visa's structure allowed it to treat all member banks equally, regardless of their size, but that a stock market listing would force it to concentrate on maximizing profits. "The fact that we don't need to make a profit is hugely important," he said. "If we did an IPO, how could I keep the members together?"

However, industry observers said the moves by both Mastercard and Visa were only able to protect banks in connection with future actions but would not shield them from lawsuits related to past behavior.

"It is not at all clear that European banks have achieved all the protections they thought they were getting," said Michael Lafferty, chairman of Lafferty Group, the financial industry research and advisory group.

Some analysts have suggested that Mastercard's IPO could enable the group to open its network to companies that are not banks.

But Mr van der Velde said he believed card payments would continue to be handled by regulated financial groups.

Source: MSNBC / Financial Times. Copyright 2005 Financial Times