Senate Rejects Delay on Swipe-Fee Cap
Shares of Visa (NYSE:V) and MasterCard (NYSE:MA) dipped last week after the Senate rejected a six month delay proposed by Visa and MasterCard on a Federal Reserve rule to cap debit card swipe-fee at 12 cents per transaction. The proposed delay for the fee cap in the Dodd-Frank Act was turned back in a 54-45 vote, six short of 60 votes needed for approval. [1] The cap would reduce revenues for the industry by around $12 billion a year, which will impact card companies as well as U.S. banks like Bank of America (NYSE:BAC), JPMorgan Chase (NYSE:JPM) and Wells Fargo (NYSE:WFC)
We maintain our price estimate of $86 on Visa and $287 on MasterCard which include the impact of the swipe-fee cap.
The cap on swipe-fee will put pressure on assessment fee that Visa charges card issuing banks. We estimate that the assessment fee will drop to 0.078% from its current value of 0.093% once the cap on swipe fee is implemented. Earlier Visa has said that it will implement a two tier system to allow small and large banks to charge different processing fees if the Fed puts a cap on the swipe-fees. [2]
The assessment fee is charged by Visa to its customers (banks) based on the total payment volume of business generated for customers through Visa branded products. The assessment fee as a percent of gross dollar value of business generated from Visa card has been historically stable at 0.09% during the last five year from 2006 to 2010 but is expected to decline gradually based on the Fed’s proposal.
See our full analysis of Visa here
See our full analysis of MasterCard here
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