Money Matters - Simplified

Visa, MasterCard stocks plunge on card fee regulations

The Congress is poised to tighten restrictions on the fees that merchants pay when customers swipe debit cards at cash registers.

Shares of Visa Inc. and MasterCard Inc. went into a tailspin on the New York Stock Exchange on the news of the U.S. Senate’s proposal to control fees paid by merchant establishments on debit card swipes.

The proposal, if passed into a law, would empower the Federal Reserve to revise the interchange fees that retailers in the United States have to pay to issuers of debit cards.

Proposal to crimp issuer’s revenue
Visa, the world’s biggest payments network, fell 9.9 per cent to $77.26, while shares of MasterCard plunged 8.6 per cent to $212.45 in New York Stock Exchange composite trading.

“The biggest harm to the stocks could be the perception that this bill hinders growth and the uncertainty it creates about the regulatory environment,” opined Morgan Stanley’s Adam Frisch.

The Senate voted 64-33 to approve the measure sponsored by Dick Durbin, senior Democratic senator from Illinois.

The limits to be imposed by the Federal Reserve may shrink revenue at leading debit card issuers, including Bank of America Corp., and JPMorgan Chase & Co.

If the data of the Nilson Report, an industry newsletter based in Carpinteria, California, is anything to go by, Visa and MasterCard commanded a 91 percent share of the credit-and debit-card purchase transactions globally last year.

The Senate cleared the measure, citing industry’s “terrible” attitude toward merchants.

“They do things that are just totally indefensible. They really have done everything they can to suppress any competition between the two giants,” averred Durbin.

Futile exercise
In a missive sent to the senators on May 12, the Independent Community Bankers of America and the Credit Union National Association said that the amendment would serve no real purpose.

“Nothing would stop Visa and MasterCard from simply applying the artificially lowered interchange rates across the board to all issuers, regardless of size, forcing many credit unions and community banks to re- evaluate their ability to offer debit cards,” read the letter.

If the data of the Nilson Report, an industry newsletter based in Carpinteria, California, is anything to go by, Visa and MasterCard commanded a 91 percent share of the credit-and debit-card purchase transactions globally last year.

Merchants had to dole out $19.7 billion in fees tied to debit transactions processed by these two networks.

MasterCard and Visa expressed their dissatisfaction over the proposed legislation and alleged that it would do good to retailers at the cost of consumers.

“We’re hopeful that when the issue is fully reviewed by members of Congress during the next phase of negotiations, they will conclude the amendment harms consumers, credit unions and community banks and should be eliminated from the bill,” Visa said in a statement.