Spending Benefits Visa But Its Profit Drops 1.8%

Quote: Morgan ChaseCitigroup Inc., to process card payments on the plastic these banks issue. These financial institutions are among the top issuers of Visa- and MasterCard-branded cards. The more consumers charge on their Visa and MasterCard plastic, the more these two companies earn by way of fees. Visa also benefits from its larger market share in debit cards, which are used more frequently than credit cards for nondiscretionary expenses such as groceries or gasoline. Visa and MasterCard scored a victory in the sweeping financial overhaul because the definition in the new rules of what comprises an "interchange transaction fee" left network fees earned by the two untouched. The new rules are aimed at curbing debit-card transaction fees earned by card-issuing banks. Visa and MasterCard have traditionally set these interchange rates for banks. The two don't receive interchange fees but earn a fee for routing information from a merchant to the card-issuing bank. However, the new rules could dent the exclusivity relationships carefully cultivated by Visa within the U.S. by requiring merchants to have at least two networks to choose from for every debit-card swipe. "While it is too early to fully and accurately gauge the impact of the legislation, Visa has demonstrated an ability to manage our business through periods of change," said Mr. Saunders in the statement. MasterCard reports fiscal second-quarter results Tuesday. American Express Co., which processes transactions in addition to issuing cards, last week said cardholders increased spending by 16% in its fiscal second quarter, nearly tripling its quarterly net income as losses from souring card loans recede. Write to Aparajita.Saha-Bubna@dowjones.commatthew.jarzemsky@dowjones.com...
Open whole article (external link)