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Any drop in debit card volume will be offset by other forms of electronic payments, either credit or prepaid. For this bill to hurt Visa or MasterCard, Moody's is assuming that consumers shift back to cash. Not likely.
July 28
Visa Inc. and MasterCard Inc. are not immune to effects from pending debit-interchange regulation contained within the financial reform bill President Obama signed into law last week, Moody’s Investors Service said in a July 26 report.
Among other provisions, the legislation requires the Federal Reserve Bank for the first time to set “reasonable and proportional” debit interchange rates (
The Fed has nine months to establish new interchange rates, which will go into effect 12 months after the law’s enactment.
While the law’s interchange-regulation provisions do not directly affect Visa and MasterCard, the legislation will likely reduce debit card interchange fees banks collect, Moody’s contends. That, in turn, could cause banks to pass the interchange rate-cut on to debit cardholders in the form of higher fees.
“These actions could make Visa and MasterCard programs less attractive, thus reducing debit transaction volumes for the card processors,” Moody’s says.
Such a scenario could set the stage for overall debit card usage to decline at the same time that banks may seek pricing concessions from the card networks to offset lower interchange fees, according to Moody’s.
Banks “could seek to renegotiate their contracts with Visa and MasterCard to share the economic pain associated with lower interchange fees, which could potentially threaten a major revenue stream” for the card networks, Moody’s says.
It is too early to estimate the card networks’ potential exposure to the new law, Moody’s said, noting that any risk to Visa and MasterCard will likely “be mitigated by consumers’ continuing shift worldwide to electronic payments from cash and checks.”
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