Visa and Mastercard Take a Dive as Congress Eyes New Bill to Increase Credit Card Competition
Jun 08, 2023
Legislation that could boost competition for credit-card networks is expected to be re-submitted for consideration in Congress, resulting in the stocks of Visa and Mastercard slipping despite investors being doubtful about its chances.
When payments are made with credit or debit cards, merchants must comply with the card issuer’s network requirements. This means that if a customer pays using a Visa card, said payment must be handled through the Visa network. The same goes for Mastercard transactions. As a result, card issuers have more control over the fees they charge.
However, a new law, the Credit Card Competition Act, is anticipated to be presented in the Senate shortly, as Wall Street Journal reports. The proposed legislation would allow merchants to utilize alternative payment methods, boosting competition and perhaps decreasing fees they pay to card providers.
Last year, Sen. Dick Durbin proposed a bill similar to the one recently introduced. To garner more support for the current measure, he has secured two additional co-sponsors: Sen. Peter Welch of Vermont and Sen. J.D Vance of Ohio have both signed on in agreement.
Following the news, Mastercard’s stock dropped 2.3%, while Visa decreased 1.3%. No comments were given from either firm on the matter.
Still, not many investors believe the laws will be passed, as there is some hesitation among legislators to approve it, and there is a possibility of negative repercussions.
Darrin Peller, managing director at Wolfe Research, commented in a note Wednesday that it is unlikely for the bill to garner enough support throughout Congress. He noted that such legislation will put lawmakers in a difficult situation of choosing between merchants, banks, and other financial institutions, which he believes is “tricky politically.”
Many on Wall Street have expressed similar opinions despite the Senate bill gaining multiple sponsors.
Isaac Boltansky, managing director at BTIG, has expressed his bearish outlook on the bill’s prospects due to its complicated politics, potential security risks, and the negative impact on credit card rewards programs. According to Boltansky, if payments are forced to be spread across networks, card networks may have less incentive to invest in security and authentication on their networks.
Boltansky does not anticipate the proposal being passed into law this year, estimating its chance of success at no more than 20%. Despite that, investors are still nervous.