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All the right moves? Looks like they are about to get broadsided by the US Government!!!


Card fee cut hits Visa and MasterCard
http://www.ft.com/cms/s/0/c724613a-0979-11e0-8c68-00144feabdc0.html#ixzz18L2NKtjv

By Suzanne Kapner in New York

Published: December 17 2010 01:25 | Last updated: December 17 2010 01:25

Visa and MasterCard shares plunged after the Federal Reserve proposed rules to eliminate billions of dollars in debit card fees.

The new rules, which could still change before they are finalised early next year, are a huge win for large retailers like Walmart and Target, but represent a significant setback for card-issuing banks such as JPMorgan and Bank of America, as well as for Visa and MasterCard, which operate the debit card networks.

The fees are fixed by Visa and MasterCard and paid by merchants to card-issuing banks to cover the cost of processing transactions.

Under the first of two proposals, card issuers would be required to charge merchants no more than their actual costs, which the Fed estimates at 7 cents a transaction. The second proposal would cap the fees at 12 cents a transaction.

That is far less than the 63 cents a transaction that issuers currently charge retailers and represents a reduction in debt-card fees of roughly $10bn, or more than 80 per cent, according to the Merchants Payment Coalition.

“Today’s draft rule from the Federal Reserve makes it clear that big bank interchange rules overcharge businesses and consumers,” said Senator Dick Durbin, who authored an amendment to the Dodd-Frank Wall Street reform act that required the Fed to write new rules capping the fees.

“The changes we had to enforce by law in the US are being voluntarily implemented by mega-banks and card giants in Europe and other countries,” Mr Durbin added.

The European Commission has reached deals with MasterCard and Visa Europe to reduce interchange fees to 0.2 per cent on cross-border debit card transactions in Europe.

The Fed proposal may also loosen the grip of Visa and MasterCard on the debit market by requiring that all cards use at least two networks.

Visa and MasterCard on Thursday fell 12.7 per cent and 10.3 per cent, respectively, “due to interchange being lowered more than expected,” Adam Frisch, of Morgan Stanley, wrote in a note to clients.

Mr Frisch estimated that the fee restrictions will reduce 2012 earnings for Bank of America by 4 cents a share and JPMorgan by 6 cents a share.

Banks said any attempt to set rates would lead to higher costs for consumers. Analysts expect banks to react to the new rules by eliminating other services such as reward programmes.

“The rules proposed by the Federal Reserve today will have a dramatic impact on the cost of banking services for consumers nationwide,” said Edward Yingling, chief executive of the American Bankers Association.

Visa said, “Visa also has concerns that the Federal Reserve’s proposal includes artificial caps on debit interchange that do not realistically reflect the value of card acceptance and do not reflect the actual costs of running a secure, reliable and efficient debit network.”

Copyright The Financial Times Limited 2010.