Visa Inc's quarterly profit rose 16 percent, slightly beating expectations, as consumer spending ramped up and the company processed more transactions abroad.

But the days of outsize returns on low expenses appear to be ending for Visa, the world's largest credit and debit card processing network. It failed to beat expectations by as much as investors have come to expect, and it has yet to address investor concerns about how it will cope with new U.S. regulations that may reduce future revenue.

Shares fell 1.5 percent in after-hours trading, after closing 2 percent higher at $72.09.

Visa said it expects operating margins to remain around 60 percent for 2011, in what investors said signaled a shift from its earlier days of high revenues and relatively low expenses.

This quarter is a pretty clear view of the transition that's going on within the business for Visa and most likely for MasterCard, said Jim Tierney, chief investment officer of money management firm W.P. Stewart.

The business is settling down into a really nice healthy fundamental growth rate that's coming from revenue growth and free cash flow usage instead of operating margin expansion, said Tierney, whose firm owns shares of MasterCard Inc and has owned Visa shares in the past.

Total operating expenses rose 17 percent in Visa's fiscal first quarter, ended December 31, from a year earlier to $872 million, while total revenue rose 14 percent from a year earlier to $2.2 billion, in line with expectations.

REASSURING ON REGULATION

Visa and MasterCard are facing increased regulation under the U.S. Dodd-Frank financial reform law, which will restrict the fees that merchants pay banks and networks for processing debit card transactions.

Visa's shares fell more than 12 percent in December after the Federal Reserve proposed a 75 percent cut in debit card processing fees, and have not fully recovered since.

The rules are expected to cost the debit card industry some $13 billion of an estimated $23 billion of annual debit card processing fee revenue. Visa and MasterCard are making a furious last-ditch effort in Washington to blunt the law's impact, but industry experts say that effort is likely too little, too late.

Since the rules were proposed in December, investors have awaited more comment from Visa and MasterCard about how they will protect their revenue.

It was a good quarter, not a great quarter, in terms of beating expectation and clearly there are more issues at stake, said Signal Hill analyst Mayank Tandon. The market will be looking for some clarity on how they plan to mitigate the impact of regulation.

Investors will be awaiting similar reassurance from MasterCard executives on Thursday morning, when Visa's smaller rival reports fourth-quarter results.

SPENDING GROWTH

Visa's results were fueled by continued growth in payments volume, cross border volume and processed transactions globally -- our core business, Chief Executive Joseph Saunders said in the company's earnings release on Wednesday.

The San Francisco-based company, which processes transactions done with credit and debit cards bearing the Visa name, makes money every time someone buys something with one of the cards. Its revenues have grown this year as U.S. consumers have become more willing to spend again.

Payment volume on Visa credit and debit cards rose 14 percent to $829 billion in the quarter ended in September from a year earlier, boosting revenue in the latest quarter.

Cross border volume growth was 15 percent for the quarter ended in December, indicating that consumers are increasing spending on travel and other discretionary items, instead of restricting themselves to basic necessities, as they did during the worst of the recession.

The company said it finished repurchasing 15.3 million shares during the quarter, completing a $1.1 billion share buyback program.

Visa reported a quarterly profit of $884 million, or $1.23 per share, compared with year-ago earnings of $763 million, or $1.02 per share.

Analysts on average expected Visa to earn $1.21 per share, according to Thomson Reuters I/B/E/S.

(Editing by Steve Orlofsky)