Visa and Mastercard Shares Take a Hit as Fed Weighs Fee Reduction

Shares in Visa and Mastercard took a hit on Wednesday (Oct. 18) as news broke that the Federal Reserve is expected to propose a reduction in the fees banks can charge retailers for processing debit card transactions.

This development has sparked concerns among investors and industry players, leading to a 1% dip in the early trading of Visa and Mastercard shares, according to a Reuters report Wednesday.

The Federal Reserve announced Tuesday (Oct. 17) that it would hold a meeting next Wednesday to discuss potential changes to the debit interchange fee cap, although specific details were not provided. However, according to The Wall Street Journal, the Fed plans to propose a decrease in the cap, Reuters said. This move has long been a contentious issue, with credit card providers and banks on one side and retailers on the other.

Retailers have been critical of the “swipe fees” imposed by credit card providers and banks, arguing that they are excessively high and ultimately burden consumers. The expected reduction in fees has been met with praise from retailers, who believe that this change will benefit both their businesses and their customers.

Stephanie Martz, the general counsel for the National Retail Federation, expressed satisfaction with the Fed’s readiness to take action, stating: “These fees have been too high for too long and we’re glad to see the Fed is finally ready to act.”

The current fee cap was established in accordance with the 2010 Dodd-Frank financial reform law, which mandated that the fees be set at a “reasonable and proportional” cost. In 2011, the Federal Reserve capped the fees at 21 cents per transaction, plus 0.05% of the transaction cost. Banks were also permitted to charge an additional cent per transaction if they met specific fraud prevention standards. However, retailers have consistently argued that the fees are still not proportional to the actual cost of processing a transaction.

The Supreme Court recently agreed to hear a case brought by North Dakota retailers, who contend that the fees remain disproportionate. This legal challenge has added pressure on the Federal Reserve to address the issue.

Visa and Mastercard, as providers of cards and processing infrastructure to banks and retailers, would lose revenue if debit processing fees were to drop. The proposed fee cap reduction is likely to trigger a fierce lobbying battle between the credit card industry and retailers, according to Reuters. 

Visa declined to comment on the matter, and a Mastercard spokesperson refrained from providing any immediate comment, Reuters reported. Similarly, a Federal Reserve spokesperson also declined to comment on the issue.