The past 2 years have been hard for the credit card industry as a whole. Consumers stopped spending and default rates climbed eating into profits at a time when new federal regulations placed heavy restrictions on credit card lending.
While both MasterCard and Visa have seen large improvements now that consumers have started spending again after the recession, MasterCard looks set to come out on top when debit card swipe fees are capped later this year.
MasterCard has diversified a great deal and they have greatly reduced their dependence on the debit card side of the industry. This separates them from their major competitor Visa and also from the seemingly recession resistant American Express.
Both MasterCard and Visa spent most of the past 12 months making corporate changes in response to the regulations set out by the Credit Card Accountability, Responsibility and Disclosure Act (CARD Act), Although financial experts say that the CARD Act does not greatly affect the credit card processing companies.
Analyst Ellen Cannon said,
The CARD Act has no impact on Visa and MasterCard, because they are just the payment transaction system. Neither of them sets APRs or fees – the issuing banks do that.
However, the Durbin amendment to Dodd-Frank reforms which will cap debit card interchange, or “swipe” fees that are charged to merchants looks set to severely impact credit cards companies’ revenue. Interchange fees currently bring in around $13 billion a year.
The Federal Reserve are in the process of finalizing interchange fee rules which could drastically slash the fees which merchants pay to card companies for processing transactions by putting a cap on the fees.
MasterCard and Visa have been using similar marketing strategies to expand their payment networks and introduce innovative new card products and payment methods. However MasterCard’s diversification and reduced dependence on debit cards means that when interchange fees are capped, MasterCard’s revenue will not suffer as much as their rivals Visa.
Current predictions from financial analysts expect MasterCard to increase revenue by 11% and Visa to increase revenue by 14%. However, these predictions do not take into account the effects of the Durbin amendment which looks set to have a large impact on Visa who rely on debit cards for 58% of the revenue collected from payment transactions.
Debit cards only account for 38% of MasterCard’s payment transaction revenue meaning they will not be hit as hard as Visa.
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