Visa (NYSE: V) and MasterCard (NYSE: MA) took a beating Thursday as a Senate motion to delay the controversial provisions of the Durbin Amendment affecting debit card fees failed to get enough votes.
The amendment would limit swipe fees to $0.12 per transaction, compared to the $0.44 that banks charge now. Banks that issue debit cards with the Visa and MasterCard logos — not Visa and MasterCard themselves — are expected to take the biggest revenue hit.
The fear with respect to the card companies is that banks will force Visa and MasterCard to share the pain or that they will simply de-emphasize debit cards. Worse, they could start to charge their customers fees to compensate. Such a move would likely cut into Visa and MasterCard’s growth rates.
Interestingly, despite the fiery rhetoric, investors appear to be at peace with the amendment and are betting that it will have only a modest impact on the credit card companies’ bottom line. While Visa’s share price initially plunged on the news, it regained more than half of its losses for the day and ended Thursday trading at levels seen late last month.
This hardly suggests panic.
The Sizemore Investment Letter remains bullish on Visa. While I consider the Durbin Amendment a heavy-handed — and ill-advised — populist attack on the banking industry, I agree that its effect on Visa should be minimal.
Remember, the rules affect only debit cards, not credit cards, and only apply in the United States. As I’ve repeated in past articles, Visa is an “Emerging Market Lite” investment. It already getting 40% of its revenues from overseas, most of which are from the fast-growth markets of Asia and Latin America. Visa has a stated objective of having more than half of its revenue from overseas by 2015, and all indications are that the company will reach this goal.
Furthermore, it remains to be seen to what extent to banks will scale back their issuance of debit cards. The long-term, secular trend is toward electronic payments, and it is hard to imagine Americans abandoning their cards and returning to paper checks or cash any time soon. While the rate of growth might slow, in the end most Americans would acquiesce to paying a nominal fee before they abandoned their cards.
Bottom line: While political and regulatory risks remain a nuisance, Visa stands at the crossroads of powerful macro trends that are not easily broken. Visa remains a “Buy.”