Europe’s annual results for 2006 reveal that the payment network is
enjoying strong growth across a range of card segments. Peter
Ayliffe, president and CEO of Visa Europe, spoke to CI
about the network’s progress over the past year.

Visa Europe: Breakdown of 2006 revenue streamsVisa Europe’s annual
results for 2006 have highlighted how the payment network is making
additional strides in its efforts to persuade European consumers to
use payment cards instead of cash and cheques. Payments made using
Visa cards now account for €1 in every €9 spent in the region, and
Visa’s objectives are to further drive up the use of non-cash
payments through the use of prepaid cards and contactless cards.
Peter Ayliffe, president and CEO of Visa Europe, outlined the
network’s major achievements and growth objectives in an interview
with CI, following the release of Visa Europe’s results.

Visa Europe’s 2006 figures demonstrate that the volume and value of
Visa cards and products are growing healthily across the European
region. During the year ending 30 September 2006, Visa Europe saw
8.8 percent growth in the number of cards in force, reaching over
320 million cards in Europe, accounting for 10.9 percent of all
consumer spending. Visa cardholder expenditure (including at the
point of sale and cash) rose to €1.2 trillion ($1.5 trillion), a
rise of 11.9 percent. In terms of transactions, the number of
transactions made at the point of sale rose to 13 billion, an
increase of 11.7 percent, while the number of point of sale
transactions per average card was 44 – a rise of 2 percent.

Visa cardholder expenditure at the point of sale rose to €768
billion, an increase of 12.6 percent, while the point of sale spend
per average card was €2,583, a rise of 3 percent.

Debit still dominates

It is in the debit market where Visa Europe has made the most
significant inroads, both in volume and value. In terms of card
numbers, as of September 2006, Visa Europe had 197 million debit
cards in circulation, a rise of 10.9 percent compared to the
year-ago period, while the number of credit cards was 115.6
million, an increase of 4.6 percent. Point of sale consumer
expenditure value (CEV) on debit cards was €520 billion, an
increase of 16.7 percent, while point of sale CEV on credit cards
was €201.8 billion, a rise of 2.6 percent.

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Ayliffe told CI: “Visa now accounts for one in every nine euros in
consumer spending in Europe. The European market differs from other
markets around the world in that it relies upon debit, so if you
look at Visa Europe overall, we now account for 50 percent of
worldwide Visa debit expenditure, and within Visa Europe, 70
percent of all our card expenditure is on debit.”

In terms of card numbers, the three countries with the highest
growth rates were Luxembourg (49.3 percent growth compared to
September 2005), Latvia (33 percent) and Estonia (29.4 percent).
Other Eastern European countries also showed impressive growth
rates: Poland registered growth in card numbers of 18.8 percent,
Lithuania 18.2 percent growth and the Czech Republic 17.7 percent.
In stark contrast, the heavily saturated UK card market showed
growth of only 1.1 percent.

In terms of point of sale CEV, Eastern Europe again outshone other
European markets. Estonia recorded growth of 75.1 percent,
Lithuania of 67 percent and Latvia of 58.3 percent. Meanwhile, the
UK recorded growth of 9.9 percent.

Ayliffe said: “The strongest growth in debit in percentage terms is
in the Eastern European region. They’re getting their payment
infrastructures in place, they’re getting new cards out to the
marketplace, and their whole objective is to increase usage of
those cards. We achieved growth in every European market, and if
you look at the UK, £1 in every £4 that is spent with retailers is
spent on a Visa card.”

As for Visa Europe’s growth objectives, prepaid and contactless
cards are the two main drivers that the network is looking to build
on, as evidenced by the recent announcement of the
Visa/Barclaycard/Oyster deal.

Ayliffe said: “I think that contactless will be a massive growth
opportunity. The deal we announced with Barclaycard and Transport
for London [operator of the Oyster scheme] before Christmas will be
an enormous driver for contactless going forward. Like all
payments, there is a cost involved with putting the infrastructure
in, but we believe that this project is the big one in terms of
wider adoption of contactless, because people are already used to
using the technology because of the Oyster scheme.”

Visa’s Single Euro Payments Area (SEPA)-compliant debit scheme, V
PAY, is at the forefront of Visa Europe’s expansion in the debit
market, and so far Visa Europe has signed up 60 acquirers across 25
markets, accounting for over 90 percent of Visa Europe’s sales
volume. Some 500,000 merchants across 12 countries show the V PAY
acceptance marque, and there exists a significant V PAY footprint
across the region, comprising 3.5 million point of sale terminals
and 195,000 ATMs.

“The good news for us is that in just two years we’ve made massive
progress in terms of increasing acceptance across Europe. Visa
previously had not been an established player in the old eurocheque
markets. In response to that, we developed V PAY, which is now
firmly established in the marketplace. If you look at the countries
in terms of point of sale spending, a lot of those are the old
eurocheque markets, and it’s why we believe V PAY’s potential for
growth is still very substantial. Germany, Austria, Belgium and the
Netherlands are all at the low end of point of sale spending and we
now have a huge presence in those markets, and our V PAY product
will enable us to drive our business further,” Ayliffe said. “We
were absolutely driving as hard as we could to get the V PAY
acquirers in place, and we then looked towards getting the issuance
in place alongside that.”

In December 2006, Visa Europe signed an agreement with the
association of German co-operative banks (BVR), DZ Bank and WGZ
Bank, representing a major breakthrough for V PAY in one of the
most important debit markets in Europe. The agreement means that V
PAY will be co-badged with Germany’s electronic cash scheme. “This
was a massive deal for V PAY, as it covers about 23 million cards
and 1,200 banks in the German market. It also brings competition to
the German market for the first time, and we’re pretty confident
that on the back of that, we’re now going to have a number of
issuance deals which we will be able to announce soon,” Ayliffe

Benefits of membership model

Asked whether Visa Europe’s members are tending to favour
co-badging V PAY with national schemes instead of using V PAY as a
stand-alone proposition, Ayliffe said: “We’ve taken the view that
the most important thing is to get people used to using V PAY –
we’ve always said that we’re very relaxed about how members want to
work with us on this, and if members want to co-badge then we’re
happy to do that. There are significant benefits of V PAY which,
over time, members will get to understand, and from then on it’s
their decision in terms of what they want to do.

“Quite often, as has been the case with normal Visa cards, people
have started off co-badging and then decided that they want to
move. We want to encourage competition in the marketplace. With V
PAY, we’ve concentrated on the old eurocheque markets, but there is
clearly great potential for growth in Eastern Europe as

Visa International announced in October 2006 that it would
restructure, with Visa Europe remaining a membership association.
“Our view is that the reason we were able to get the V PAY deal in
Germany was because of our decision to stay as a membership
association, and that was one of the reasons why we wanted to stay
as a membership association as well,” Ayliffe said.

“Our decision to stay as a membership association model, outside of
the initial public offering that the rest of Visa is aiming to do,
was also taken to support the massive changes that are taking place
in Europe with SEPA. It was a decision by our members which was
supported by us in terms of what we needed to do, and we’ve taken a
very different approach to that of MasterCard.

“The key reason for retaining the association model is because we
believe we can be far more responsive to the European market, and
it gives us the best of both worlds. We’re European-managed and
-controlled but we still have the interoperability and worldwide
acceptance. The most difficult people to please when it comes to
restructuring are the analysts and the investment bankers who tend
to be slightly cynical about these things, but the good news is
that many analysts have said it makes a lot of sense to them
because the European market is different and has specific needs,
and what Visa Europe is doing is very sensible.”

On the issue of regulation in Europe, and the ongoing discussion
over interchange, Ayliffe is adamant that interchange is a crucial
component of the payments industry. The European Commission’s
European Sector Inquiry into Card Payments report, published in
January 2007, will have a fundamental impact on the European card
market. Ayliffe said: “Having spoken at the inquiry, we laid out
very clearly what we thought the industry needs to continue to grow
and benefit, and top of the list has always been that we
passionately believe that interchange is critical for the way that
the payments infrastructure works. Most importantly, it enables
cards to be made available for everyone.”

He continued: “I also find it very difficult to understand that, at
a time when the European Commission [EC] is asking the banks in
continental Europe to establish SEPA, at huge expense to them in
terms of infrastructure and the way they operate their businesses,
the EC also brings interchange on top of them. I think if they [the
EC] were to do something with interchange, it could scupper the
desire of the banks to get SEPA in place if the EC were to suggest
that the banks could operate without interchange.

“The other thing is that we need consistency across Europe – what
you can’t have is national regulation officials saying one thing
and international regulation officials saying something else. We
want a level playing field for all schemes in the marketplace.”

Visa Europe: Growth in number of cards year-on-year endign September 2006