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Mastercard, Visa slip after decision to cut controversial fees in EU

Every year, retail merchants witness a sharp increase in the number of electronic transactions during holiday shopping, a trend that often keeps the credit card companies as busy as the shops. With the large transaction volumes and profits comes stringent scrutiny, and the European Union is in the process of tightening the regulatory norms pertaining to card transactions in the region.

Hours after Visa (V) and Mastercard (MA) agreed to reduce the fees payable by merchants on card payments made by tourists visiting the EU, their stock prices dropped in the New York Stock Exchange Friday. Coincidently, the companies announced the decision on one of the busiest days for retailers – in response to a long-pending antitrust lawsuit on the allegedly ‘hidden’ costs included in card transactions in Europe.

The companies announced the decision on one of the busiest days for retailers, in response to a long-pending anti-trust lawsuit 

The fee cut is expected to save the companies from penalties running into several million dollars. However, considering the high fees charged on cards in the EU, the retailers will still be paying relatively higher amounts to the card companies. If the litigation is settled through negotiations, it would end a decade-long battle between the European authorities and the companies over the collection of what is called ‘interchange fees’, which is being questioned by regulators in the US also.

According to sources, Mastercard is currently facing fines of about $1 billion from the EU authorities for breaching the antitrust rules. It seems the company is looking to have the penalty waived or reduced by taking steps to streamline the fee structure in the region.

Mastercard thrives on consumer spending; reports record Q3 results

On Friday, Mastercard shares reversed a part of their recovery from the sharp loss suffered mid-week. The stock dropped about 3% and traded at $182.60 in the afternoon, after gaining about 15% since January. Visa shares followed a similar pattern and traded at $132.87, down 1.2%. The stock has lost about 12% after reaching the peak last month.

Mastercard and Visa are the latest American corporates to face the wrath of the EU. Earlier, tech giants Google (GOOG) and Facebook (FB) were investigated for violating the unusually strict European laws. Meanwhile, the decline in credit card income, combined with possible penalties, might impact the banks’ profitability in the current quarter and beyond.

 

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