FINAL COMMUNICATION

PLAN
Team Planet:
Crista Braunreiter
John DeSouza
Bradley Friedman
Reed Jones
Gerald Machen
 Visa Final Communication Plan 1

Table of Contents
Executive Summary ..2

Introduction....3

Root Cause, Stakeholders...3

Situational Variables...4

Questions and Processes4

Key Issues..5

Analysis..5

Recommendations......6

Communication......7

Next Steps..8

Conclusion.....8

Appendix ......9

Works Cited ..11

 Visa Final Communication Plan 2

Executive Summary

In this paper you will understand the underlying problem that Visa Inc. is currently facing within
its industry. You will also be learning about all the parties affected by these problem causing
variables. Another thing that will be transparent in this paper is the future recommendations for
solving the issues presented and the numbers that go with these recommendations. A broad
specification of our findings show that over 14 million small businesses in the United States
alone do not have the capability to process credit cards. In our communication plan you will find
out our solutions to gain a reasonable amount of these small businesses and what impact this will
have on our revenues and profitability. We will also be providing the reader with the ROI on this
project, the specifications of the budget for this project and the timeline necessary to complete
the implementation of this project.
 Visa Final Communication Plan 3

Visa is the biggest credit card processing company in the United States today. As such, it may
come across certain dilemmas that come with having the biggest market share in this industry.
The problem of interchange fees in a major one for Visa because it can prevent the company
from reaching out to new markets, specifically in the smaller business sector. This paper goes
over the situation surrounding the interchange fees, background of why it is important, steps of
our analysis, and finally, our recommendation and solution for the problem.

Root Cause

The main problem is interchange fees restricting bottom line for Visa. The root cause of the issue
of interchange fees stems from 3 things. The number one cause is the regulation of fees through
the Dodd-Frank Act and Durbin amendment putting a cap on the amount that can be charged by
credit card companies. These laws cap the fee at 21 cents per purchase plus 0.05% of the
purchase amount in the transaction (Beranke & Yellen, 2011). Another root cause is the other
processing companies like credit unions that arent completely regulated by these laws. Finally,
the amount of security Visa provides is another cause adding to the problem as new EMV
terminals add more fees and tension to the relationships between Visa and merchants (Kharif,
2016).

Stakeholders

There are three main stakeholders for this specific problem in Visas situation. The main
stakeholders are the merchants who have to directly pay these interchange fees. Visa has 18.9%
of the market share in the industry (up 2% from January to February) where merchants make up
a majority of the market (Hoffman, 2017). Merchants with a smaller amount of business would
suffer the most from high service fees due to fewer transactions being able to recoup the
expenses. Larger businesses, such as Target and Macys, would have an easier time with the
service fees, but many still feel that the added expense for each transaction is detrimental to
profits.

The second stakeholders for this problem are Visas shareholders. Initially, in 2007, Visa was
selling just over half a billion shares. Visa now has over 1.87 billion shares outstanding
worldwide (Visa Inc., 2017). Visa wants to increase earnings per share, but lowering interchange
fees too much would decrease profit. Shareholders interests include increasing profit, although
they have little say in company action. The shareholders interests, in this case, conflict with the
interests of the merchants since shareholders want to increase interchange fees (thereby raising
profits) and merchants (especially smaller ones) want to decrease fees.

The third and final stakeholders for this problem are the consumers who purchase from the
merchants who pay these interchange fees. Interchange fees make banking services more
expensive and less accessible to the consumer. Interchange fees are recouped by the merchants
by charging more for their goods and services. The consumer has to pay this price during their
purchases even if they are not paying it directly. If Visa lowers their interchange fees then the
merchants can lower their prices. This in turn saves the consumer money if merchants pass on
the savings.
 Visa Final Communication Plan 4

Situational Variables

There are several situational variables which have an effect on how Visa can formulate a solution
to this issue. One important situational variable is the security climate of the United States.
Security is a major issue when it comes to the money transferring industry. This is important to
merchants because when merchants pay interchange fees, it is as if they are buying the security
Visa provides along with it. When events like the major Target leak happen, where nearly 40
million people lost debit/credit card information, merchants and consumers lose confidence in
the usage of their cards. Major security revamps like the EMV chips are developed by Visa to
combat these security risks (Kharif, 2016). However, this puts more interchange fees on the
merchants in order to set up the EMV terminals correctly.

A second situational variable is the economic status of businesses and merchants overall. If the
economy is doing well, most businesses will be thriving. The businesses that are making enough
revenue will have little difficulty paying interchange fees. These businesses that are performing
successfully will most likely be less hesitant regarding the cost of the fees too. If the economy is
not doing as well as merchants want then interchange fees will be scrutinized by companies for
restricting their net profits.

One last situational variable that has an effect on this problem of interchange fees is the external
view of Visa by stakeholders. Company image matters, if Visa is seen as a company trying to
squeeze out small businesses to make a profit it is not good for the company or any stakeholders
involved. Some kind of middle ground must be reached so small businesses do not suffer for the
fees as much.

Research Questions and Process

When doing research on Visa and its central problem, we asked ourselves four questions prior to
doing any research. The first question we asked ourselves was how does the debit card
processing and money transferring industry work? The second question was what is the biggest
problem this industry (specifically visa) is facing? Then we asked what is interchange regulation,
and how does the durbin amendment affect interchange rates? And finally, we asked ourselves
how to break down the research and convey it accurately and in a comprehensible way.
After we asked ourselves these questions, we followed a process of dividing specific research
topics based on our individual sections of the presentation.

We divided this research into problem analysis, stakeholder analysis, company/industry

background, and the time periods before and after the Durbin amendment. We limited our
research to academic papers and journals, press releases, and industry/market reports. The next
step in our process was to meet and discuss the implications of our research on the central
problem. Our final step is a cohesive application of our research to support our presentation. Our
research findings answered all the questions that we asked. We found that the Dodd-Frank
amendment hurts merchants and merchants are roughly 62% of the credit card processing
industry market, which garners around 77.9 billion USD in revenue a year. The Durbin
amendment is heavily opposed and viewed as an outdated government regulation.
 Visa Final Communication Plan 5

Key Issue

Interchange fees affect not only merchants but also consumers and banks as well. This
amendment reduced banks annual revenues by 8 million dollars (Zywicki, 2014, p. 5). Costs
have increased for banks because they have to cover the extra costs of the interchange fees.
Zywicki states that 50 percent of banks have had to reduce the amount of fee-free services they
offer (2014, p. 1). They are not able to keep up with the fees of the interchange regulation.

Banks have also lowered the quality of their banking services. Banks are not able to offer all the
rewards programs they used to due to the increase in fees. The banks want to focus on the top
20 percent of its most profitable customers (Zywicki, 2014, p.12). They have turned to getting
rid of their unprofitable consumers. These are the low-income households that were able to join a
bank when there was a boost in fee free accounts.

The lower-income households have to turn to other financial institutions such as payday lenders
and pawnshops. These types of financial services are higher priced than banking and this
increases the cost for the lower-income households. The number of unbanked houses has
increased by 10% in the last two years (Zywicki, 2014, p.14). This is the equivalent to 1 million
households. These households costs have increased because they have had to use different
financial services.

41 per cent of retailers have no intent of passing their cost savings onto consumers (Zywicki,
2014, p.27). Consumers were promised cost savings when the amendment was passed.
According to a study done by George Mason University School of Law, if the merchants pass the
cost savings on it will save $8.3 billion annual (Zywicki, 2014, p. 26). The retailers who sell
lower priced items have had to increase their prices to cover the interchange fees. This has
affected the consumers because their costs have gone up.

Analysis

We chose 3 of our initial research questions to research in-depth and analyze in order to better
frame our situation. Those questions are What are interchange fees?, Who is this issue
affecting the most?, and Why is this a problem? As a team, we felt that these questions
provided the best coverage and overall foundation for what we really wanted our solution to
cover.

The best metaphor for how interchange fees work is the roadway toll system. If a person wants
to get from one place to another on a toll road, they have to pass a toll booth to access the
network of roadways to ultimately get to their destination. In this example, the person represents
the purchase funds, the roadways are the payment network, and the destination is the final bank.
Visa plays the role of the toll booth you must pay in order to get access to this roadway.

The Durbin Amendment set interchange fees at 21 cents plus .05% of purchase (Layne-Farrar,
2013). That is to say, the smaller the purchase the higher percentage of the purchase price the
interchange fees are, whereas with a larger purchase the fees are a lower percentage of total
purchase price. This is illustrated when you imagine buying anything less than 21 cents, the
merchant will be paying greater than 100% of the purchase price in interchange fees.
 Visa Final Communication Plan 6

Consumers are the most affected group because Visa charges merchants a per-purchase fee which
the merchant feels it must recover by charging slightly higher prices on all purchases. This rate
charge even applies to cash customers in most cases. If youve ever seen gasoline stations have
different prices for cash and card, youve seen an example of a merchant choosing not to recover
fees from cash customers.

Small business are also affected because they may not have the volume to make up for the
difference with small price increases which requires them to try to recover the fees with higher
price increases. This is detrimental because it interferes with their ability to match volume
sellers prices and can lead to financial hardships for them.

This issue cuts to the heart of business by affecting Visas triple bottom line. Visa does not want
to lower their interchange fees from the maximum because this cuts directly into their profits. In
2016, Visa received approximately 6.3 billion dollars in processing revenues. According to their
10K retrieved from Visas official website, their entire net income after adjustments was about
6.9 billion. When these numbers are compared, you can easily see that with all other revenue
sources making up for their expenses, any decrease in processing revenue leads to an
approximately equivalent decrease in net income.

This information can help put the issue into a clearer context and allow for a better dissection in
order to further analyze and develop a response. The combination between Visas responsibility
to their customers and their desire to increase and maintain profitability is what makes this a
problem for Visa and for you as a consumer.

Recommendations

Our recommendations for this problem are numerous. Our recommendations will seek to lower
the interchange fee for smaller purchase fees as well as to gain more of the market from small
businesses that dont process credit cards. Our plan for the future will be to lower small purchase
fees from the charged $.21 + (.05%) of the purchase to $.18 + (.05%) of the purchase. We sought
to figure this problem out because before the Durbin Amendment the interchange fees on small
purchases were $.04 + 1.55% and this lead to businesses becoming upset at the amount being
charged per swipe (Layne-Farrar, 2013). The calculations for our research will be in the next
steps portion of this paper. Another reason we sought to fix this problem is because if Visa cant
reasonably price the interchange fees to small purchase fees than most companies will be
questioning our ethics if we go after the non-swipe market.

Our next recommendation for the future is going to be acquiring a target goal of 35% of the cash
only business market. Some of these businesses include restaurants, salons, laundromats, and
frequent fair vendors. From our research we identified that there are roughly 27.1 million small
businesses in America (Small Business Administration) and of those 27.1 million small
businesses about 55% of those small businesses are non-swipe businesses (Intuit). 55% of the
27.1 million businesses leaves 14,905,000 businesses completely untapped. This is a huge
opportunity for Visa to gain even more market share. When we approach these businesses we
will be offering a $.10 flat rate for all debit and credit transactions. We approach them with this
 Visa Final Communication Plan 7

price because Visa understands that the majority of small businesses survive because of small
purchases and Visa doesnt want to be detrimental to their business. Another thing we will offer
to these cash only companies will be Visa Integrated Marketing Solutions or VIMS. This
program will help these newly transformed businesses to grow at an accelerated rate with the
help of our trained marketing staff.

Communication

We want to make these changes public and transparent to businesses that do not currently use
credit cards, our current small businesses, and our shareholders. We will notify them through
various newsletters and press conferences in the upcoming months. First we would like to
introduce this plan to small businesses that currently do not use any credit card service. We will
initially solicit small business names and addresses via Twitter, Facebook, and small business
publications. We could also go to our marketing department to inquire about a list names and
addresses of small businesses that currently dont use our services. We will then follow up with a
newsletter in the mail or email inviting these small businesses to inquire about our low
interchange fees. Figure 1-1 is an example of an email we would be sending these business
owners.

We will also inform these small businesses that we will be holding a press conference in a
month. The press conference will give them more information if they are still unsure about if
they should start using Visa as their processor. They will also be able to view this press
conference live or at a later date online. They will also have an option to use the Visa Integrated
Marketing Solutions through an account manager. By using Visa Integrated Marketing Solutions
we will inform our customers that they can see an improvement in their ROI and they are able to
reach more consumers. After the press conference we will follow up with each company and
answer any specific questions they have related to their specific business model. We will keep in
contact with all the non-swipe businesses and each month we will send out a newsletter about
what is going on within our company while trying to gain their business.

In regards to our current small businesses that use Visa we will be notifying them via mail or
email about their upcoming changes to their fee plans. Figure 1-2 is an example of an email we
would send to our current small businesses. In this letter we will also let them know of an
upcoming press conference to announce these changes. We will also thank them for continuing to
use Visa as their credit card processor. We will ask for them to submit any questions regarding
this change via email or through the business customer service department.

We will send a notice to our shareholders about a change in our current business model. Figure
1-3 is an example of an email we would send to our shareholders. Our shareholders will also be
able to view the press conference. We want our shareholders to know that we are lowering the
fees but this will not affect our profits. We hope to generate new relationships with small
businesses who currently dont use our processing system. We do not want to keep anything
about this change private. By making this public we are also hoping other small businesses that
use MasterCard or American express will switch over to Visa because of the lower interchange
fees.

Next Steps
 Visa Final Communication Plan 8

The initial budget projection for this program is approximately $3,834 per business as displayed
in figure 2-1. In order to contact current non-swipe merchants, we would expect to repurpose
current employees or hire during any time they are not actively engaged in other projects. We
will have to invest directly in the travel and incidentals of our salespeople to facilitate face-to-
face communication. We hope to stay below our budget on this phase, but the expenditures
would have to monitored and evaluated in order to ensure that our project remains profitable.
During the final phase, we dont expect to incur any fees not already budgeted for.

The return on investment grows as we seek to acquire more contracts. Eventually, we hope to be
able to achieve our target of 35% new acquisitions from non-swipe business and it will not be
long before we see significant monthly and yearly gains. If we are able to reach our target, we
are capable of lowering the interchange fees assessed to small purchases by 3 cents to 18 cents
plus .05 percent of purchase and still achieve a $27 billion annual revenue increase. Our team
feels that this is a conservative estimate and we will achieve even greater customer conversion.

The timeline for implementation is approximately 4 years from acquisition. The initial goal is to
convert many of the non-swipe small businesses in a timely manner. Our current goal has us
converting our target 35% in the first year of the program. During the new clients early years
with Visa, they receive two contracts of two years. These contracts, which have been previously
discussed are what lead us to the four year timeframe. We hope to convert these customers to
lifelong Visa customers and our program will continue to push for more swipe coverage amongst
small businesses.

Conclusion

With Visas current approach to marketing in small businesses, there is an underserved market in
which we believe Visa can move to. The above outlined program will be implemented over the
course of 5 years and will add to Visas revenues. With the entrance into this market, it enables
Visa to return some of this revenue in the form of savings to its current customers. With support
from Visas management, we believe our program will add to Visas portfolio, both socially and
economically.

Appendix
Figure 1-1 - Sample Non-Swipe Business Message
 Visa Final Communication Plan 9

Figure 1-2 - Sample Current Business Owner Message

 Visa Final Communication Plan 10

Figure 1-3 - Sample Shareholder Message

Figure 2-1 - Budget

 Visa Final Communication Plan 11

Works Cited

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Cumming, C. (2015). Target, Banks Reach $39M Settlement on 2013 Breach. American Banker,
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http://investor.visa.com/sec-filings/sec-filings-details/default.aspx?FilingId=11692112

Haltom, R., & Zhu, W. (2015). Did the Durbin Amendment Reduce Merchant Costs? Evidence
from Survey Results. Richmond Fed Economic Briefs, 15(12), 1-5.

Hoffman, E. (2017, October). IBISWorld Industry Report 52235. Credit Card Processing &
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Holmes, E., Tamara. (2016 June 22). Credit Card Market Share Statistics. Retrieved from
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Kharif, O. (2016, May 11). Chip cards slap U.S. merchants with unexpected higher debit fees.
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Layne-Farrar, A. (2013). Assessing the Durbin Amendment's Debit Card Interchange Fee Cap:
An Application of the 'Tourist Test' to US Retailer Data. Review Of Network Economics,
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McCue, Tj (2013, August 16). Why Dont More Small Businesses Accept Credit Cards. Retrieved
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businesses-accept-credit-cards/#60f0294c15b4

Saad, L. (2014, August 29). The "40-Hour" Workweek Is Actually Longer -- by Seven Hours.
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Salary: Account Manager. (n.d.). Retrieved March 06, 2017, from

https://www.glassdoor.com/Salaries/account-manager-salary-SRCH_KO0,15.htm
 Visa Final Communication Plan 12

Small Business Administration. (2010). Frequently Asked Questions. Retrieved from

https://www.sba.gov/sites/default/files/FAQ_Sept_2012.pdf

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https://www.entrepreneur.com/page/216022

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Zywicki, Todd J. and Manne, Geoffrey A. and Morris, Julian, (June 4, 2014). Price Controls on
Payment Card Interchange Fees: The U.S. Retrieved from:
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