How Worried Should Visa Inc and MasterCard Inc’s Shareholders Be Right Now?

Visa and MasterCard are facing dozens of lawsuits by large and powerful retailers. How will this affect the companies' bottom lines?

Jul 23, 2014 at 6:00AM

Recently, a federal judge decided not to dismiss antitrust lawsuits against Visa (NYSE:V) and MasterCard (NYSE:MA) by retailers who claim the two companies fixed credit card fees and discouraged the use of lower-priced competition.

Visa Logo

source: company

This could end up costing the company billions of dollars over the next several years. Just what are the companies facing and how badly could it affect the bottom line?

Mastercard Logo

source: company

What are all the lawsuits about?
Basically, there has been an ongoing legal battle alleging that Visa and MasterCard implemented price-fixing schemes in regards to the swipe fees charged to merchants.

In December of last year, the companies agreed to pay $5.7 billion to settle a class action antitrust suit covering about seven million U.S. retailers alleging improper price-fixing, estimated to be the largest antitrust settlement in U.S. history. However, many retailers opted out of the settlement, with many claiming the amount was inadequate to cover the damages.

The companies currently face about 30 additional lawsuits, including some from giants like Target and Macy's. Separately, the largest U.S. retailer, Wal-Mart, is suing just Visa, seeking at least $5 billion in damages.

How much could Visa and MasterCard be on the hook for?
It's tough to estimate the potential liability, or even if any of the lawsuits will be successful, at this point. However, the list of companies suing includes some retail power-players.

In addition to Target and Macy's, other plaintiffs include Kohl's, J.C. Penney, Office Depot, Abercrombie & Fitch, and L Brands, just to name a few. And, if the Wal-Mart lawsuit is any indication, we could see billions in settlements tacked on to the $5.7 billion the companies already have to pay.

As a rough estimate, the damages sought by Wal-Mart represent about 1% of the company's annual sales. Using this as a guide, the companies suing could be seeking about $2 billion, and the actual amount may easily be higher, since they are all suing Visa and MasterCard, while Wal-Mart is choosing to only go after Visa.

Should shareholders be worried?
Well, sort of, but it's not likely to have a major impact on either company. The companies are expected to earn a profit of about $9.3 billion this year combined ($5.7 billion for Visa, $3.6 billion for MasterCard), so any further settlements could indeed take a big bite out of the companies' bottom lines.

However, the suits will likely be drug out for several years, and will probably be settled for substantially less than the amounts the companies want, so it's probably not going to have a tremendous impact. Plus, as we've seen in all of the banking industry's legal settlements lately, big companies like Visa and MasterCard are very good at anticipating the impact of legal settlements and will set aside money accordingly.

While the uncertainty of the situation might make shareholders a little uneasy, and rightfully so, don't worry too much. Know that both companies are well aware of the potential impact of the pending lawsuits and the market experts are too. Any legal risk is already factored into the share price of Visa and MasterCard.

So rest easy...Visa and MasterCard's commanding market share isn't going anywhere, and all of these additional settlements will seem like a speeding ticket in the long run. If anything, any dips in the share prices caused by legal headlines could create nice buying opportunities.

Your Visa or MasterCard credit card may soon be completely worthless
The plastic in your wallet is about to go the way of the typewriter, the VCR, and the 8-track tape player. When it does, a handful of investors could stand to get very rich. You can join them -- but you must act now. An eye-opening new presentation reveals the full story on why your credit card is about to be worthless -- and highlights one little-known company sitting at the epicenter of an earth-shaking movement that could hand early investors the kind of profits we haven't seen since the dot-com days. Click here to watch this stunning video.

Matthew Frankel has no position in any stocks mentioned. The Motley Fool recommends MasterCard and Visa. The Motley Fool owns shares of 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.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers