Local Visa Firm ICC-Cal Could Lose License to Clear International Payments

The storm over the fat retirement package given to Israel Discount Bank chairman Shlomo Zohar to convince him to resign nicely is still raging, and now subsidiary Israel Credit Cards-Cal Ltd., which issues Visa cards, is in big trouble. IDB announced yesterday that ICC-Cal is being fined 9 million euros. Visa Europe says it could withdraw the ICC-Cal's permit for international clearing and might even kick it out of Visa.

ICC-Cal subsidiary Cal International clear international online transactions in risky sectors such as Internet gambling and pornography as well as nutritional supplements and drugs.

Visa International guidelines restrict canceled international online transactions to 2% of the total. It was excessive cancelations for supplement purchases that netted ICC-Cal the fine and warning.

Analysts believe that ICC-Cal is readying for a share issue, at a company value of NIS 2.5 billion-NIS 3 billion. The fine and the threat of being booted out of Visa International certainly won't add to ICC-Cal's investing luster.

ICC-Cal began providing clearing services for the purchase of nutritional supplements from Web sites at the end of the first quarter of 2009, and immediately reaped high transaction volumes. By the end of the second quarter it had already made provision for NIS 1.5 million in its reports for this activity. A higher provision is expected in the next report, which will be issued within days.

By the end of July ICC-Visa and Visa Europe were discussing remedies. Last week Visa Europe issued its official report, according to which 90% of the irregularities concerning canceled transactions were for purchases of nutritional supplements.

The 9 million euro fine covers the period ending August 31. ICC-Cal could face an additional 3 million euro fine for the following period.

ICC-Cal officials noted yesterday that the company's contracts permits it to force businesses to bear responsibility for the sanctions, reducing its own exposure. In addition, they pointed out, ICC-Cal has received collateral from some of the businesses, further reducing its own exposure.

Visa Europe informed ICC-Cal that it expects it to take immediate action to reduce the number of canceled transactions and to implement a risk-reduction plan starting December 1 and continuing for the next three months. If the demands are not meant then the ICC-Cal could lose its permit for international payment clearing.

ICC-Cal officials announced that it had introduced such a program and was taking additional measures to meet the demands.

These measures include the November 12 decision by the board of directors to suspend CAL International CEO Steve Greenspan, who in any event told ICC-Cal CEO Boaz Chechik more than a month ago that he was leaving the company. No replacement has been named.

Company officials said that in light of the measures it's been taking, the company is unlikely to lose either its international clearing permit or its membership in Visa.

A significant proportion of ICC-Cal's growth and rise in profitability comes from its international clearing business in general, and in particular from transactions on Internet porn and gambling sites and the purchases of pharmaceuticals - including the erectile dysfunction remedy Viagra.

ICC-Cal is the only Israeli company that engages in international clearing in these sectors. The higher risk associated with them has two main sources: Customers are more likely to regret, and deny, such transactions on the one hand, while on the other hand the businesses that engage in them are less likely to be legitimate.

ICC-Cal's local credit card competitors, LeumiCard and Isracard have declared their unwillingness to venture into these sectors.