The Great MasterCard - Visa Debates 27 comments
an article to
-
Font Size:
-
Print
- TweetThis
Perhaps you have noticed the temporary slowdown and recent minor pullbacks in both MasterCard (MA) and Visa (V) stocks.
In checking the popular blogs and wallowing through the assorted financial internet commentary, it has become apparent that many people still believe that MasterCard and Visa are tied to the often mentioned credit crisis. Discover (DFS) and American Express (AXP) have these problems as bill collectors. Mastercard and Visa do not. Remember, MA and V are simply toll-takers in the credit economy.
What all credit card companies do have are assorted fee structures, teaser rates, and different “merchant processing percentages”; these can be dependent on many factors and will not be discussed here in great detail.
The outcome of the Capitol Hill hearings will be as follows.
We are currently heading toward an election. The continued bloviations on credit card practices can be equated with the oil company monopoly hearings that commence every time gas goes over $3 per gallon. (The lack of exploration and refinery construction won’t be debated here.) Nothing has changed in oil for the most part, has it? Not too much will change in the credit card industry, either.
The do-nothing politicians will get some quotations in the record and little will change in the credit card industry, with the exception of the following areas:
- Credit card companies will reduce or eliminate many teaser introductory rates.
- Bank issued credit card qualifications will become stricter as some defaults may increase.
- Credit interest rate percentage increases will require customer notification and payment or payoff options to allow the customer a chance to prevent the implementation of these penalty rates.
- Terms and credit card policies will be re-written in more layman friendly language.
- Secured credit card options may be used more frequently when credit worthiness is questioned.
And now, of most importance to MasterCard and Visa shareholders:
The numerous bank and merchant associations will square off on Capitol Hill, complaining or justifying the “processing fees” of 1 to 4 percent that are paid directly to MasterCard and Visa. Those fee structures will remain in place, with some attempts at downward renegotiation for some of the largest merchants. The little merchants won’t have much bargaining power. Sorry, but that’s the law of large numbers. These processing fees will simply be passed on to the consumer if necessary. Don’t forget there is always the cash price versus the credit price if you are feeling really squeezed.
However, with the increasing cashless nature of society in the United States, and the international consumer markets skyrocketing, the credit card business is becoming fully entrenched in the world of financial transactions, large and small. As the emerging markets begin to trust the credit services of their respective banking systems, the issuance and accounting practices will become trusted and fully implemented. Paying by credit also provides fraud protection and faulty product redress in many cases.
Cash will soon become simply the path of last resort for emergencies, illegal businesses, persons “living off the grid” and tips for people employed in the service industries.
Bottom line: MasterCard and Visa are perfectly positioned for the continued growth of the credit card industry and will provide rich rewards for those who invest early in both these stellar companies.
Disclosure: Author is Long MA, V, XOM
Related Articles
|
-
The Seeking Alpha 100
See allThe top 100 stock
market authors
selected for publication in the last week
Seeking Alpha 100 » -
Fastest Climbers
Those with the largestSee all
increase in followers
in the last week
Fastest Climbers » -
Top Commenters
Top commenters,See all
as ranked by their peers
Top Commenters » -
Top Instabloggers
The 100 most activeSee all
Instabloggers.
Top Instabloggers » -
Top StockTalkers
TopSee all
StockTalkers.
Top StockTalkers »
www.marketguru.com/opi...
“The numerous bank and merchant associations will square off on Capitol Hill, complaining or justifying the “processing fees” of 1 to 4 percent that are paid directly to MasterCard and Visa.”
You have confused merchant bank processing fees (about .5%) and issuing bank interchange fees (about 1-3%) charged in connection with the retail transaction with the transaction processing and services fees paid by the merchant banks and issuing banks to the operators of electronic payment networks such as V and MA.
Transaction processing and services fees are fractions of a cent per transaction but are levied on billions of transactions and are lifeblood of the retail payment networks. For example in 2006 V processed over 44 billion electronic payment transactions representing over $3.2 trillion in cash and payments volume. For the 12 months ended September 30, 2007 V earned fees of just over $3.9 billion which represent an average cost of around .1% per dollar of transaction volume.
For an excellent description of the retail electronic payments business and how it operates see the V form S-4 filed with the SEC, page 144. www.sec.gov/Archives/e...
Reads like the column was "phoned in" ...Of no particular importance or enlightenment ..Mundane, at best ...
Golly, the cashless society will continue to grow ? What a revelation, Duh !!
Visa of course - More shares for your dollar and more profit per share
Everybody out there knows that the more shares you own the more profit that you will make in dividens and the forward price increase
I own Visa and am glad I do
TKTK53
Now that they are demutualizing, the banks which held them in check will slowly be replaced as a constituency in the decision making.
I would not worry about Government intervention in any country. The government, especially the Chinese government, wants to encourage people to migrate from cash so they can monitor the underground economy
V/MC will both be monster winners for a long time. Once PAY can find a way to fix their internal financial problems, they will be a winner too.
Visa and MasterCard earn their income on processing transactions and the volume that passes through their systems. Yes, a recession lowers their volume, for a time. In the long run we always come out of a recession and cardholders resume purchasing and cards are becoming the norm for making payments. The people that lose if Governments continue to regulate will be the Banks that Issue MasterCard and Visa cards. Not MasterCard and Visa.
They may have to play by new rules but their role remains the same and frankly what they can offer as services in their new for profit mode can only increase their bottom lines.
Long term these two compnanies are good buys for long term investors. Pick your time and hold is my recommendation.
Baised on a 91 day quarter, they pulled 83,943 transactions per minute.
I don't care what the processing fees are, Visa is making money hand over fist at that rate.
I thought Amazon had a great holiday season with 62 transactions per second, but Visa had 1,400 per second at the above rate.
On May 19 01:20 PM jmho wrote:
> "the processing fees of 1 to 4 percent that are paid directly to
> MasterCard and Visa" ... You are so far off base here. These fees
> are paid to the banks by the merchants, not Visa or Mastercard. The
> banks have an agreement between them on how a fee collected by a
> Merchant's bank is "shared" with the Cardholder's Bank. Beyond the
> obvious profit motive, these fees are reduce the risk to the banks
> for credit card fraud (or did you think they were really just assuming
> that libility).