Visa Europe will have been relieved to see that
despite the most difficult economic conditions for generations, its
2008 fiscal year results showed continued growth in the usage of
its bank members’ payment cards across Europe. Cardholder spending
at retail and merchant locations – classed as point of sale (POS)
cardholder expenditure – rose by 10.3 percent to reach €883 billion
($1.14 trillion).

Cash usage trendsBut one surprising indicator,
and a growth rise Visa Europe will be less pleased about, is that
European consumers have actually increased the amount of cash
withdrawals they make using Visa cards.

CI’s analysis of Visa Europe’s
results shows that, when looking at POS expenditure relative to
gross or overall expenditure (which includes POS spending and cash
volumes), the volume of cash withdrawals on Visa cards rose by 19.9
percent in 2008 compared to 2007, or alternatively, that cash
withdrawals represented 36.5 percent of gross cardholder
expenditure in 2008, up from 33.3 percent in 2007. These figures
suggest consumers are becoming more dependent on cash as a payment
method in an economic downturn (see Cash remains an indomitable foe).

And while card transaction numbers at the
POS are still growing (11 percent compared to 2007), there are
signs that consumer usage of credit and debit cards is slowing down
in tandem with the wider economic slump – last year’s 10.3 percent
growth rate in POS expenditure is down from the 11.5 percent rate
in 2007, and 12.6 percent in 2006.

Growth slowdown in card

Another metric indicating that consumers
are reining in their spending was the average POS transaction
value, which fell to €56.2 compared to €56.5 in 2007. And it can be
expected that, given Visa Europe’s fiscal year ended in June 2008,
the slowdown in spending at the POS will be much sharper by the
time next year’s results come around. Visa Europe revealed POS
spend growth slowed to 8.5 percent for the quarter ended September
2008, with that figure expected to have dipped to 5 percent by
December 2008.

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Card issuance is also slowing down, with
the total number of cards across the Visa Europe operating region
amounting to 361 million, a 5.2 percent growth rate in 2008
compared to the 6.8 percent growth rate in 2007. For credit cards
in particular, in 2008 Visa Europe reported POS expenditure growth
of 7.1 percent (€282.6 billion), compared with 7.6 percent growth
in 2007, while the number of credit cards issued rose by only 1.5
percent to total 121.3 million in 2008, compared to 4.2 percent
growth in 2007. On the other hand, debit cards in circulation rose
by 7.1 percent to 227.3 million, and recorded 10.9 percent growth
in spending to amount to €599.8 billion.

The outlook for 2009 is tempered by the
fact that Visa Europe stated it had seen a further slowdown in
spending in the fourth quarter of 2008, estimating POS spending
rose by only 5 percent.

Speaking to journalists, Visa Europe CEO
Peter Ayliffe also said the organisation had seen a slowdown in
international travel spending during September and October 2008.
However, he remained confident Visa Europe’s results evidenced
continued migration away from cash and cheques.

“The continued success of Visa Europe in
these difficult economic conditions demonstrates the quality of the
service we offer to banks, retailers, businesses and consumers in
Europe,” Ayliffe said.

Credit growth by

Although credit growth continues to slow
in the UK, elsewhere in Europe Visa reported healthy uptake and
spending growth in countries such as Sweden, Norway, Denmark,
Finland, Germany, Spain, Portugal, Belgium and Turkey. Visa Europe
also pointed to France as having major growth potential for credit,
given that country’s recent entry into co-branding.

Visa Europe said it had worked with
issuers in France to win tenders for the majority of new co-branded
programmes. Across Europe, around one in eight of all Visa Europe
credit card programmes is now co-branded, and annual growth rates
are exceeding 40 percent. Much of this growth is being driven by
the conversion of private-label retail cards to fully-fledged
credit cards.

One way of driving credit growth is in the
use of multifunction or combination cards which can support two or
more payment applications, and Visa Europe is developing programmes
combining Visa credit and debit applications on one card, called
‘Visa SimplyOne’, with several launches planned in the coming
months. Visa Europe says it sees a real market opportunity for such
a proposition as it gives consumers increased spending power, while
giving issuers the ability to cross-sell credit and increase
customer retention.

Innovation and debit

Visa Europe also pointed to continued
strong growth in debit as a highlight for the organisation, with
debit now accounting for 70 percent of spending across the Visa
Europe operating region. In the UK, for example, it is reported
Visa-branded debit cards generate seven times more international
usage than other competitor-branded cards. Visa also pointed to
debit portfolio migrations by the Royal Bank of Scotland, HSBC and
Citibank to Visa as evidence of the strength of its debit

Visa Europe also stated that debit’s
growth is evidence of its “resilience” given the wider economic
downturn. Visa’s SEPA-compliant debit scheme V PAY is also
continuing to gain traction, with 2008 commitments for V PAY cards
standing at 41 million, compared to 19.4 million in 2007. Almost 1
million cards are already in circulation and 10 million are
expected to be issued by the end of 2009. By the end of September
2008, 40 banks in nine countries had committed to issuing V PAY
cards, and around 6 million terminals now accept the cards. V PAY
acceptance at ATMs has been achieved at around 300,000 locations,
and Visa Europe estimates by the end of 2009 around 99 percent of
European ATMs will accept V PAY.

Contactless payment is also gaining
traction, with Visa’s payWave proposition now launched in the UK,
France, Italy, Poland, Spain, Switzerland and Turkey. In the UK,
Visa Europe has partnered with five issuers and four acquirers who
have collectively recruited over 5,000 merchants to accept
contactless cards. Visa is also examining how payWave can be
extended to more retail environments and remote locations such as
parking and vending terminals, along with mobile phone

Visa Europe also reported strong growth in
prepaid, with the segment being its fastest-growing product
category. By the end of fiscal 2008, more than 300 Visa-branded
prepaid programmes had been launched across 22 European countries,
with new programmes being launched at the rate of more than eight
per month. Overall, more than 10 million Visa prepaid cards are now
in issue across Europe.

Interchange issue drags

Payment trendsOn the issue of interchange,
Ayliffe said he expected to reach an agreement with the European
Commission (EC) on fees charged for cross-border card transactions
by the end of 2009. Visa Europe has been negotiating with the EC
over cross-border interchange fees since the Commission’s 2007
ruling against MasterCard, when it was forced to repeal its
interchange fee, a move which MasterCard is now appealing

In March 2008, the EC also launched a
probe into Visa Europe’s interchange fees. Ayliffe said that,
following months of discussions with EC Competition Commissioner
Neelie Kroes, the outcome had been “very constructive” and he
expected to reach a deal “as soon as possible.”

But in the organisation’s 2008 annual
report, he also hinted that Visa Europe would be prepared to fight
the EC on the issue if a satisfactory outcome was not reached.

“In order to encourage investment and
steer innovation, the payments industry needs the freedom to
continue to set interchange rates at appropriate levels. If no
agreement is possible we will robustly and proactively defend our
views throughout Europe,” Ayliffe said.