Visa and Mastercard continue to demonstrate resilience in the face of economic concerns, with their latest earnings reports highlighting the card companies’ ability to capitalize on consumers’ determination to travel, even amid rising prices and broader inflation. Visa reported a 17% year-over-year increase in cross-border transactions, while Mastercard saw a 24% surge over the same period, with transaction volume reaching 154% of pre-pandemic levels.
Despite experiencing a slight decline of a little over 1% in their stock prices on Thursday, both companies have performed admirably this year, as investors remain confident in continued consumer spending. Mastercard shares have gained an impressive 14% thus far in 2023, while Visa has rallied 13%. In comparison, the Financial Select Sector SPDR exchange-traded fund (XLF) has only recorded a modest 3.6% increase.
Potential Headwinds in Congress
However, the stocks’ steady growth may face potential obstacles from a new bill introduced in Congress. The Credit Card Competition Act, proposed by Senator Dick Durbin of Illinois, seeks to modify the processing of credit card transactions.
Currently, Visa transactions are primarily processed through the Visa network, while Mastercard follows a similar arrangement. This structure grants the companies significant control over the fees they can collect.
If passed, the proposed bill would enable merchants to route payments through alternative networks, fostering increased competition. This change has the potential to lower merchants’ swipe fees, which can currently range between 2% to 3% per transaction.
Despite the introduction of this bill, it has yet to raise significant concern among investors. Both Visa and Mastercard have demonstrated their ability to adapt and overcome challenges in the past, leaving them well-positioned to navigate any potential headwinds arising from congressional scrutiny.
By leveraging their strong brand presence and continuing to meet consumer demands, Visa and Mastercard remain poised for further success in the ever-evolving payment card industry.
The Potential Consequences of Proposed Swipe Fee Changes
The proposed changes to swipe fees by Senator Durbin could have significant implications for credit card rewards programs. These fees are crucial in funding the rewards points that shoppers can earn through their card purchases. Should the change be implemented, it is likely that these perks would gradually be phased out. Consequently, individuals would lose a valuable means of obtaining discounts or cash back from their credit card spending.
While it is true that consumers do not pay the swipe fees directly, they may indirectly feel the impact through increased prices. In some instances, businesses in New York City often have a minimum transaction size for card payments or may offer lower prices for cash purchases.
The introduction of this legislation has caused minor fluctuations in stock prices throughout the summer. However, many investors on Wall Street are skeptical about its potential impact. The bill requires Congress to make a decision between supporting either merchants or financial services companies, both of which are important constituencies. Critics argue that if the system becomes completely open, card companies may have less incentive to invest in continuously protecting cardholders, despite their claims of robust security networks.
Isaac Boltansky, Managing Director at BTIG, expressed doubt about the bill’s prospects, citing its complex politics and potential security risks. In June, he wrote that the likelihood of the bill passing was no higher than 20%.
Currently, this slim chance of success poses the only obstacle to Visa and Mastercard’s trajectory.