Credit might not be where credit’s due.
Visa and Mastercard unsurprisingly took a chunky whack on Thursday following the Fed’s card interchange rate proposals. Both, however, were moving sideways on Friday:
Visa:
Mastercard:
So, is the flip-side of this a victory for consumers? Not necessarily.
Until more competition is fostered in the market (for example through ending exclusivity on signature systems) consumers will likely not receive most of the gains from charge changes.
The Government Accounting Office has exhaustively opined on the uncertainty of gains to consumers (H/T MarketWatch):
If interchange fees for merchants were lowered, consumers could benefit from lower prices for goods and services, but proving such an effect is difficult, and consumers may face higher costs for using their cards. With lower card acceptance costs, merchants may pass on their interchange fee savings through lower prices to consumers; however, the extent to which they would do so is unclear.
And of course banks could also adjust charges and reward schemes to redeem losses from the proposed regulatory change.
This is certainly what Credit Suisse analysts expected on Friday:
This [proposed change] represents a 6% negative impact to the large cap banks, on a median basis, before offsets from reduced rewards and other repricing efforts. The regional bank EPS impact is estimated to be higher at approx. 9%. Reward programs could provide some offset, particularly on signature debit products. Over time, we think that banks will reprice these accounts, to recoup more or all of this revenue.
The real short-term pain – as Credit Suisse imply – will be felt by the small and medium sized banks that have relatively high revenue streams from card transactions. Card-issuing giants such as Bank of America and JP Morgan will suffer a bit, but by less.
The firing line is well assembled by (cough) JP Morgan analysts in a research note out Friday (click to expand):
At the top of the heap is TCF Financial.
That’ll be the same TCF that filed a lawsuit in October questioning whether the original amendment to Dodd-Frank, inserted by Senator Dick Durbin, is constitutional. Wonder why.
Related links:
Visa / Mastercard – Lex
Card fee cut hits Visa and Mastercard - FT