Despite troubles in the economy and the financial sector generally shares of Visa are up forty-six percent (46%) since going public just two months ago. Quarterly profits for Visa came in at $314 million, or 52 cents a share. Not bad results. The position of Visa and Mastercard is different from Discover and American Express in that the two former companies do not lend money to consumers. Visa and Mastercard only process charges made by companies that use their systems. Since they don’t lend, Visa and Mastercard don’t assume the risk of consumer default during harsh economic times. Instead, that risk is taken by the banks that issue the cards. It would seem that these companies should experience business success so long as people continue to use their credit and debit cards with the Visa and Mastercard label.For my part, I often find little cash in my wallet. No worries. I know that I will be using the ‘ole debit card to pay for gas, groceries and the like. About half of Visa’s profits come from debit card purchases (a quarter for Mastercard). As payments become increasingly dependent on electronic systems, Mastercard and Visa should continue to do well. Of course, there is that nagging issue of the staggering consumer debt that could dull the continued success of the system operators. The primary issue that comes to my mind, though, is that of the per transactions fees Visa and Mastercard set for merchants and banks that use their systems. Will Visa and Mastercard begin to turn profits that resemble the big oil companies? Should the government regulate the fees set by the system operators?
Although more than twenty countries, including the EU and Australia, have taken up the interchange fee issue in terms of anti-competitive behavior, the issue is not resolved here in the United States. About $30 billion of interchange revenue is at stake according to a recent report by the Kansas City branch of the Federal Reserve Bank. The many lawsuits over the fees have been consolidated before the U.S. District Court of the Eastern District of New York for trial later this year. Moreover, the “Credit Card Fair Fee Act of 2008” is currently pending in Congress. This seems to set up the classic conflict between market forces and regulation. With a recent National Retail Federation report that the interchange fees cost families about $400 per year, I find myself surprisingly drawn to the idea of regulation. Hidden fees always get my ire going. Just something else for me to think over as I pull out my debit card to fill up the gas tank again.
