Shares of major payment processors, including Visa (NYSE:V), Mastercard (NYSE:MA), and American Express (NYSE:AXP) moved lower in the wake of a report from the Wall Street Journal that the Federal Reserve is working on a proposal to reduce the fees that merchants pay to banks when consumers use debit cards for purchases.
If such a proposal by the Federal Reserve were to be implemented, it could have far-reaching implications for these payment companies and their revenue streams, which are heavily reliant on transaction fees.
“We have no feel for the structure or level of the Fed’s forthcoming debit interchange cap proposal, and it will be the subject of fierce debate through the comment period, but there is a firm belief that it will be moving lower given that the statutory requirements and recent market trends,” analysts at BTIG said.
Visa and American Express shares fell about 0.5% while Mastercard lost 0.2%.
However, analysts at Bank of America don’t believe that such changes would pose a material impact to Visa and Mastercard.
“In theory, if the debit interchange cap is lowered, the large issuers could seek to pass along some of that pain to V and MA in the form of lower network fees when those contracts renew,” they wrote in a report.
“However, these large issuers already enjoy very low unit economics on debit as part of their deals with V and MA, and even when the Durbin Amendment was first enacted over a decade ago (which cut debit interchange by roughly 50%), there was no discernible impact on the P&L’s of V or MA.”
Similarly, analysts at Citi argue that the debit interchange does not directly affect Visa and Mastercard economics, however, the ecosystem pricing can affect near-term sentiment.