isa International's announcement this month of its intention to become a public entity is an implicit acknowledgement that its "governance structure was wrong and MasterCard's was correct," said Celent Senior Analyst Dan Schatt.

Visa plans to restructure and merge Visa U.S.A., Visa Canada and Visa International to create Visa Inc., prior to an initial public offering (IPO). Visa Europe will remain a member-bank Association and operate as a licensee of Visa Inc., according to Visa.

The boards of directors of Visa's six regions and Visa International approved the restructuring plan, which is still subject to approval by Visa members and regulatory authorities. The Association left many questions unanswered, including in what region the company will be publicly listed and when. MarketWatch.com quoted Visa Chairman William Campbell and Peter Hawkins, Visa's Restructuring Committee Head, as saying they expect the IPO to take place in 12 to 18 months.

Also unclear was the role of Visa U.S.A. Chief Executive Officer John Philip Coghlan post-reorganization. Visa did not respond to requests for information.

The decision to take the Association public, replacing its member-bank-controlled board structure with outside directors, three months after rival brand MasterCard's IPO, is expected to shield the organization against future claims by merchants that its governance structure violates antitrust laws.

A class-action merchant lawsuit is pending in U.S. District Court, the Eastern District of New York, against the two leading card brands' methods of setting interchange rates. The creation of an independent board will reduce Visa's legal liability because it will no longer be a coalition of banks, Schatt said. "Visa tried to take a hybrid approach to governance, with an independent board setting pricing, but banks controlling everything [else]," Schatt said. "Kudos to MasterCard for being the first to admit" its governance structure was wrong. "Visa as a second mover will still gain ... because it is still the largest" credit card brand in volume, Schatt added. Visa will likely reap benefits from reduced legal exposure and increased competitiveness.

More players at the party

To now, Visa has been regional "siloed organizations that are completely bank-controlled," Schatt said. Visa needs to involve nonbanks and other interested parties in pricing and overall policy moving forward, he added.

"If you open that to other parties like mobile players and third-party technology providers, you can be much more effective in guiding a course for Visa that ensures that whatever way consumers move in payment patterns, Visa will stay relevant," Schatt said.

The trend toward mobile-phone payments is real, making mobile carriers a player in the payments process. As an entity answerable to outside shareholders, Visa will be more attractive to outside parties, which are more important now that Visa is trying to hold market share.

In the Internet world, an increasing number of merchants and customers are funding their accounts with the automated clearing house (ACH) system. PayPal was once funded 100% by credit cards, but that has dropped to 52%, Schatt said.

Nonbank third parties such as First Data Corp. now play a much larger role in processing card transactions. First Data's attempt to leverage on-us transactions outside the Visa network told the Association that all nonbanks were looking for a way to settle at lower cost, Schatt said.

The competitive pressure from credit and debit products like Bill Me Later and Debitman and from FastLane, which provides merchants with an ACH solution, threatens to make Visa less relevant, Schatt added.

Europe prefers the status quo

Visa Europe exempted itself from the reorganization, opting to remain as an Association with continued ownership by its 4,500 European member banks, which will operate as a licensee and shareholder of Visa Inc. The structure will enable Visa Europe to focus on the formation of the Single Euro Payments Area (SEPA), Visa stated.

According to Schatt, European banks want to integrate more tightly to find ways to lower the cost of moving money across borders. "Visa Europe can certainly play a role in unifying the payments capabilities," he said.

The consolidation of the other Visa regional entities will enable Visa to operate on a larger scale, finding synergies across a single platform, Schatt said. As banking and payments become ever more cross-border, having a cohesive set of policies, rates and platforms makes sense from both a technology and business-market perspective, he added.

Theories abound

Buzz began on the GS Online MLS Forum when the Visa news was announced. MLS Forum member jcolvin asked why Visa would agree to share the wealth. "No one goes from owning the universe to sharing ... Does Visa see a 'tops' ... or [do] they want to share the debt-failure rate they see coming on the horizon? Or do they see legislation coming no one sees?"

MLS Forum member hipoint stated, "Visa is figuring out that the time is right to try to establish dominance in emerging markets and is tapping into the public trough for the money to finance this effort. China's looking good right now (among others)."