Visa And MasterCard Plunge 10% On Debit Card Fee Cap

Late afternoon yesterday, both Visa and Mastercard, two of the world’s largest payment networks, plunged more than 10% on the proposed debit card interchange fee cap. Visa, which was trading at over $79.16, fell to $67.19 and MasterCard fell to $223.49 from a high of $253.35.
visa and mastercard shares drop on debit card interchange fees

So what is an Interchange fee?

Say you shop at Target and pay for your purchase using a signature based debit card issued by your bank, say Chase, that carries either a Visa or a MasterCard logo.

When Target swipes your card, Visa/MasterCard charges Target’s bank 1% of your purchase as interchange fees. Whether you shop for $10 or $3000, it’s a flat 1% which is quite significant. This charge of course, is borne by you, the consumer as this is factored into the price of the merchandise.

Now you have to remember, this is not a credit card transaction, but a debit card transaction – your money leaves your account pretty quickly! And for you, the consumer, it is equivalent of paying cash. Yet, Visa/MasterCard will charge Target’s bank 1% for the privilege of using their logo and their network.

What is the proposed cap?

The Dodd-Frank bill proposal is to cap this fee at 12 cents. This news sent the shares of both Visa and MasterCard plunging down. Debit card fees total more than $20 billion annually.

Why this might be a buying opportunity for investors?

Buy Visa and Mastercard now?

Here’s the kicker. Visa or MasterCard is not the recipient of this fee. This fee is passed on to the card issuing bank, Chase in our example, as an incentive for carrying the V/MC logo.

This actually affects revenue stream of the three largest card issuing banks – Chase, BofA and Wells Fargo. Neither of the banks saw a significant drop in their share prices.

Of course, this makes it less attractive for Banks to push Debit cards to consumers and that’s an opportunity loss for Visa and MasterCard. But is it worth a 10% drop in its share price?

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10 thoughts on “Visa And MasterCard Plunge 10% On Debit Card Fee Cap

  1. Visa And MasterCard Plunge 10% On Debit Card Fee Cap http://bit.ly/ekMIhr

  2. I just saw this on MSNBC, and I was shocked that there wasn’t any bounceback in trading today.

  3. Visa And MasterCard Plunge 10% On Debit Card Fee Cap http://bte.tc/fJar #RTW

  4. That’s one heck of a drop. There’s legislation in Canada pending that would make like worse for the credit card companies, as it would prohibit them from forbidding companies to offer discounts for purchasing items with cash instead of a CC.

  5. 12 cents is a huge drop from 1%. I’ll have to keep an eye on visa next week.

  6. @LifeAndMyFinance, @rb40: Visa is holding at 66.90. Hasn’t fallen further. Next week should be interesting.

    @InvestItWisely: I believe the Dodd-Frank bill had a similar provision here.

  7. Thanks for the info! I’ll be watching both more closely next week or the new year!

  8. I’m curious as well!

  9. This is exactly why I am hesitant to invest in individual stocks these days and prefer index funds. The market is incredibly irrational.

  10. I agree that the plunge was unnecessary. I love the long term prospects of both companies.

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