Wednesday, June 29, 2011

Visa (V), Mastercard (MA) Soar on Debit Card Rule

Visa (V) and Mastercard (MA) have taken off like fireworks here in the last hour on news of a long awaited debit card ruling.*  The outcome (21 cents) was better then the initially floated fee of 12 cents [Dec 16, 2010: Fed Proposes 12 Cent Cap on Debit Card Transactions - Mastercard & Visa Deep Dive], and the stocks are up 10%-15% each.  Visa has the bigger debit card business so is reacting stronger of the two.  Now it would be interesting to see which firms bought calls ahead of this ruling in the past few days ;)

*Don't believe the rumors that Visa and Mastercard announced a launch of a social network.  If they did, the stocks would be up by 50%+, not just 10-15%.

Via Reuters:

  • The U.S. financial industry won a massive lobbying fight (what? I'm shocked) in getting the Federal Reserve staff to recommend almost doubling a proposed cap on the amount banks can charge retailers when a debit card is used.
  • Under the staff proposal to be voted on by the Fed board later on Wednesday, banks would be allowed to charge 22 cents per debit card transaction.  That is 10 cents more than the cap that was proposed in December, (Mark's note - the final ruling was 21 cents, while the recommendation was 22) and includes a one cent allowance for meeting certain fraud prevention standards.
  • In addition, banks would be allowed to charge 5 basis points per transaction to accommodate for fraud losses. 
  • Before the rule was released, some bank analysts were expecting a 20-cent cap to be the best-case scenario for the industry.  The Fed has said the average amount of fees charged by banks to retailers per transaction was 44 cents in 2009. 
  • The previously proposed 12-cent cap would have cost banks about $14 billion annually, according to card comparison website
[May 2, 2009: WSJ - Debit Card Use Overtakes Credit]

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