Wal-Mart's Battle With Visa Can't Hold Back the Dow

Wal-Mart is suing Visa for as much as $15 billion, but the court battle will be long and investors shouldn't worry.

Mar 28, 2014 at 3:30PM
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Stock markets are slightly higher today after the Commerce Department reported that personal income and spending both rose 0.3% in February. Considering the weather the country dealt with last month, any growth from consumers should be seen as a positive.  

At 3:30 p.m. EDT, the Dow Jones Industrial Average (DJINDICES:^DJI) had risen 0.22%; 22 of 30 components were trading higher on the day.

Wal-Mart and Visa go to court
The big news within the Dow today was that Wal-Mart (NYSE:WMT) is suing Visa (NYSE:V) over the card-swiping fees on each transaction. Wal-Mart says that it has lost at least $5 billion in damages due to price fixing by the payment processor and the banks it works with. As this is an antitrust case, the company is seeking $15 billion in damages.  

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Retailers are complaining that cards like this cost too much per swipe.

It's not surprising to see Wal-Mart sue given that it opted out of a $7.25 billion settlement between retailers, Visa, MasterCard, and major banks. The world's largest retailer has the clout to go it alone and demand more changes in fee structures than the settlement could. Target and Amazon.com also opted out, so Visa and MasterCard could have additional eye-popping lawsuits coming.

It's extremely tough to prove price fixing; this battle has dragged out for nearly a decade, so it certainly isn't an open and shut case. The bottom line is that Visa and MasterCard have very powerful networks, and even a company like Wal-Mart doesn't have a lot of power to negotiate rates with them.

While the lawsuit looks bad today, and Visa's shares are down 2%, I wouldn't get too worried because the long-term business is still intact -- and that's where the earnings power will come from for credit card companies. Strategically, the company is in a great place: short of retailers coming up with another payment processing service, there's really no alternative to Visa and MasterCard long term. 

2 stocks changing the retail world
No matter what happens with Visa, Wal-Mart is under a lot of pressure. To learn about two retailers with especially good prospects, take a look at The Motley Fool's special free report: "The Death of Wal-Mart: The Real Cash Kings Changing the Face of Retail." In it, you'll see how these two cash kings are able to consistently outperform and how they're planning to ride the waves of retail's changing tide. You can access it by clicking here.

Travis Hoium manages an account that owns shares of MasterCard, Target, and Visa. Travis Hoium is short shares of Amazon.com. The Motley Fool recommends Amazon.com, MasterCard, and Visa. The Motley Fool owns shares of Amazon.com, MasterCard, and Visa. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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