markb

A Reason To Be Cautious on Visa, Mastercard

OK...here's one more thing for you V/MC lovers to chew on. Something a bit more strategic.

Shane and chauncey above correctly point out that V/MC have large market shares. Not surprising since the DOJ found them to be an illegal monopoly for years.

V settled to AXP for about $1B and MC will do the same. But that's just the appitizer.

Remember how AXP charges merchants a discount rate of about 250bp and V/MC charge an interchange rate of maybe 180bp?

And remember that the DOJ ruling was not really about a cash settlement...that was gravy...the DOJ said the banks could start issuing AXP cards.

Well the banks have plenty of customers who don't revolve. If you are Citi and you have a high end non-revolver, would you rather have him earning 180bp or 200bp? 200bp of course. With a Citi/AXP cobrand card. And AXP will be happy to cobrand and take the 50bp off the top because Citi is bringing the customer.

This is one of AXPs fastest growing business lines...its called GNS.

Remember that V/MC are processors so they make money off transaction volume. But they don't control the customers...the banks do. And the banks have a nice financial incentive to send their best customers to AXP on a cobrand.

So I agree with James...V/MC have a weakness and AXP will exploit.