Visa and MasterCard Shares Plunged: What You Need to Know

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of credit card giants Visa (NYSE: V  ) and MasterCard (NYSE: MA  ) both dropped more than 10% today on concerns over regulation of debit card fees.

So what: As part of the Dodd-Frank financial reform bill, regulators are looking into placing a cap of $0.12 on debit card interchange fees. The interchange fees are the fees that banks (the card issuers) charge the acquirers (the folks that connect merchants to the network) when a transaction is processed. Visa and MasterCard don't actually get any of the interchange fees, so it's the major card issuers like Bank of America (NYSE: BAC  ) , Capital One (NYSE: COF  ) , and Citigroup (NYSE: C  ) that will be hit in the pockets if this cap goes through. However, this is still a concern for Visa and MasterCard since they depend on the attractiveness -- to all parties involved -- of using cards as a payment form. If government regulation suddenly makes it less attractive for banks to issue debit cards, then volume on the Visa and MasterCard networks could be affected.

Now what: It's always an adventure when Uncle Sam gets involved. Some banks have released estimates on what this could cost them. Bank of America, for instance, said it could run between $1.8 billion and $2.3 billion in annual revenue. The cost to Visa and MasterCard is far less clear, and, if banks make up for the lost interchange fees by boosting fees elsewhere, the impact could be fairly minimal. But the broader risk here is that once the government gets involved it will dig in further and cause larger disruptions in the card markets.

Want to keep up to date on Visa and MasterCard? Add Visa to your watchlist or add MasterCard to your watchlist.

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Read/Post Comments (6) | Recommend This Article (10)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 16, 2010, at 5:21 PM, siri22 wrote:

    we all have options to choose, why should fed get into telling a bank what it can charge?

  • Report this Comment On December 16, 2010, at 9:07 PM, ibuildthings wrote:

    I wouldn't trust Dodd and Frank as far as I could throw them. They were in charge of Fannie Mae and Freddie Mac.

    Anyone remember President George W. Deregulation Bush? Bush accused Fannie and Freddie of cooking their books (later admitted and proven) in 2003. He asked congress to legislate a new oversight agency for Fannie and Freddie. NY Times story linked here:

    http://www.nytimes.com/2003/09/11/business/new-agency-propos...

    Dodd and Frank, they blocked it. Every year since 2003 Bush continued to warn of the malfeasance at Fannie and Freddie, and every year, no matter who was running congress, Dodd, Frank and Maxine Waters defended Fannie and Freddie. Waters even accused Bush of racism because the CEO of Fannie was a minority. (See that on youtube).

    The republicans shouldn't have repealed Glass-Stegall in 1999, but that was only an enabler. It wasn't the cause.

    The criminal actions of the Fannie and Freddie management, and Frank and Dodd for looking the other way while getting fat money campaign contributions were a key reason for the economic collapse. Banks were promised by Fannie and Freddie that they would buy up loans from the banks at face value if the homeowner even made 2 payments. So the banks wrote loans with big fees to anyone with a heartbeat, and even advanced the 2 months of payments, then sold the loans at face value to Fannie and Freddie.

    This was criminal. But power protects power.

  • Report this Comment On December 16, 2010, at 10:36 PM, rfaramir wrote:

    "It's always an adventure when Uncle Sam gets involved."

    No, it's nearly always *wrong* when the state intervenes in the market. They have no business dictating pricing of any product or service offered by anyone. Are we their slaves?

    I have no love for V, MA, or any bank mentioned above (nor any position), but neither do they need to suffer this imposition. Let the market decide what fees are too high for customers to bear or too low for business to be able to offer.

  • Report this Comment On December 17, 2010, at 9:56 AM, DivingDan wrote:

    Needless regulation. Too bad the markets are adjusting the stock price of a company on a bill in congress that may not even pass or even have an affect on the business. The banks will continue to issue debit cards and make up for it somewhere else... business as usual. May be a good time to get in on these stocks while they are down.

  • Report this Comment On December 18, 2010, at 10:28 AM, FutureMonkey wrote:

    What % of merchant purchases are with debit cards vs credit cards?

    If Banks dropped their VISA/MC debit cards and return to only issuing ATM cards won't most habitial card users simply revert to credit card use?

    More than likely if debit cards are wildly popular with consumers, any void left by a BAC be filled by a competitor bank like Wells Fargo or Chase that will use it as a carrot to attract switching customers annoyed by BAC dropping their Visa Debit card. I just don't see any bank making the choice to drop Debit cards and risk losing customers.

    I'm already long MA (15-20 year horizon) maybe time to add V to the basket and increase MA holdings. Hmmm.

  • Report this Comment On December 20, 2010, at 9:12 PM, bossmanhoss wrote:

    It is rather simple. The Dodd/Frank people are closer to the Communmist way of thinking then most of us are. We believe in the Captilist System. It works so much better. I just lost a lot of money on Mastercard. Thanks to the Democrat Communist Party.

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