Dick Durbin Image via Wikipedia(AP) — PHILADELPHIA - Shares of Visa Inc. and Mastercard Inc. fell Friday after the Senate voted to impose curbs on debit card fees paid by businesses to card issuers.
Late Thursday, the Senate passed an amendment proposed by Democratic Whip Dick Durbin that would lower so-called "swipe fees" paid by business when a customer uses a debit card. The amendment is part of a broader Wall Street reform bill, which still needs to get final approval. Businesses pay similar fees for credit card transactions.
"High swipe fees are yet another way that banks and credit card companies hurt small businesses by charging fees that cut into already tight profit margins," Durbin, who represents Illinois, said in a statement.
If the amendment becomes law, it will hurt Visa and Mastercard because its lessens their ability to set prices, regulates debit card interchange fees for the first time and makes negotiations with customers more complicated, Janney Capital Markets analyst Thomas McCrohan said in a note to clients.
Visa shares tumbled $7.42, or 8.7 percent, to $78.31 in premarket trading. Competitor Mastercard slid $22.31, or 9.6 percent, to $210.
While Durbin's legislation only affects debit cards issued by financial institutions with more than $10 billion in assets, there's concern that credit card fees would attract more regulatory oversight.
"The amendment also opens the door for additional scrutiny of credit card interchange fees down the road," McCrohan said.
The Durbin amendment could have unintended consequences as well, he said in a research note, as card issuers raise other fees to make up for lower debit card fees.
Credit Suisse analyst Moshe Orenbuch estimates that a 20 percent reduction of these fees could result in a 2 percent to 4 percent drop in revenue for Visa and Mastercard. He added that his estimate isn't a forecast necessarily, since both companies can act to offset the fee drop.
FBR Capital Markets analyst Scott Valentin said any share weakness should be viewed as a buying opportunity because of the long-term trend of consumers moving from paper forms of payment to electronic.
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