BofA doesn’t see material impact to Visa, Mastercard from any debit cap change

BofA noted that the Federal Reserve announced it is convening an open Board meeting on October 25 to discuss proposed revisions to the Fed’s current cap on U.S. debit interchange for debit card issuers with greater than $10B in assets. Interchange is revenue for the issuers, so “they would take a direct hit if the cap is lowered” and Visa (V) and Mastercard (MA) could see “modest downstream impacts,” the analyst tells investors. BofA estimates that in 2023, Visa and Mastercard will generate about 26% and 16%, respectively, of total payment volumes from U.S. debit, though not all of that comes from cards issued by banks subject to the debit interchange cap. However, these large issuers already enjoy very low unit economics on debit as part of their deals with Visa and Mastercard and even when the Durbin Amendment was first enacted over a decade ago, which cut debit interchange by roughly 50%, there was no discernible impact on the P&L’s of two, says the firm, which doesn’t expect a material impact to Visa or Mastercard from any Fed cap change.