The ability to pay with a credit card for seemingly every transaction, without a surcharge, has been established as close to a right in America, but that may soon change. In a move that they say would defray the transaction cost attached to processing credit card transactions, merchants are pushing for the authority to charge customers an extra fee to use credit cards at their establishments.
Among other industry leaders, both Visa (V) and MasterCard (MA) have rules preventing business from chargingcustomer transaction fees. All retailers must abide by these guidelines if they are to be permitted to accept these companies’ credit cards. These regulations exist despite credit card distributors charging businesses each time they execute a transaction with their cards, known as an interchange fee.
A number of large retailers, among them the grocers Kroger Co. (KR) and Safeway Inc. (SWY), have filed a lawsuit in U.S. District Court in Brooklyn which contends that Visa and MasterCard’s practice amounts to collusion. The Dodd-Frank Act of 2010 significantly reduced the interchange fee attached to debit cards but left that of credit cards untouched.
According to analysts, the most likely outcome of the lawsuit will involve a deduction in the interchange fee that merchants are required to pay to credit card companies. This will likely be granted in exchange for an elimination of the provision in contracts that ban customer surcharge fees. While competitors like American Express (AXP) and Discover (DFS) do not currently prevent surcharge fees for their transactions, they are only permitted at retailers that do not currently accept Visa and MasterCard. Despite the changes that are likely to be put into place in the near future, the outcome of this civil lawsuit will not change the laws preventing credit card surcharges in eight states, among them New York and California.
Business Section: Investment Ideas
How will the likely outcome of this lawsuit change the way credit card companies do business? All of the major companies in the field are likely to be affected, and it remains to be seen whether or not these new fees will make consumers more averse to using plastic. Listed below are the major parties in the pending lawsuit and the several credit card providers whose stocks are worth watching.
1. Visa, Inc. (V, Earnings, Analysts, Financials): Operates retail electronic payments network worldwide. Market cap at $100.65B, most recent closing price at $123.65.
2. MasterCard Incorporated (MA, Earnings, Analysts, Financials): Provides transaction processing and related services to customers principally in support of their credit, deposit access, electronic cash and automated teller machine payment card programs, and travelers’ cheque programs. Market cap at $54.51B, most recent closing price at $431.27.
3. The Kroger Co. (KR, Earnings, Analysts, Financials): Operates as a retailer in the United States. Market cap at $12.23B, most recent closing price at $22.45.
4. Safeway Inc. (SWY, Earnings, Analysts, Financials): Operates as a food and drug retailer in North America. Market cap at $4.18B, most recent closing price at $17.40.
5. American Express Company (AXP, Earnings, Analysts, Financials): Provides charge and credit payment card products, and travel-related services worldwide. Market cap at $67.22B, most recent closing price at $58.41.
6. Discover Financial Services (DFS, Earnings, Analysts, Financials): Operates as a credit card issuer and electronic payment services company primarily in the United States. Market cap at $18.03B, most recent closing price at $35.01.
Written by Dan Connelly
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- American Express Company (AXP, Chart, Download SEC Filings)
- Discover Financial Services (DFS, Chart, Download SEC Filings)
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