Payment giants Visa (NYSE:V) and Mastercard (NYSE:MA) are planning to hike the fees that merchants are charged when they accept customers’ credit cards, the Wall Street Journal reported. The new charges are expected to be effective from October. Merchants have already been complaining about the high fees that they need to pay for credit card transactions.
Visa, Mastercard Seek Higher Fees
Citing data from consulting firm CMSPI, the Wall Street Journal noted that the increased credit card fee indicates an additional $502 million annual burden for the merchants. The CMSPI estimates that a rise in network fees will constitute over half of this additional amount, while the remaining will come from interchange or swipe fees.
As per Bloomberg, Visa will implement the additional charges from October for online transactions. The company will then charge the new fees for commercial credit, debit, and prepaid cards from April 2024. Coming to Mastercard, a new pre-authorization fee for credit card purchases is scheduled to commence in October.
The interchange fee has been a matter of dispute between the card networks and merchants in recent years. According to industry publication Nilson Report, the credit card fees paid by U.S. merchants to Visa and Mastercard surged to an estimated $93 billion in 2022 from $33 billion in 2012. While card networks like Visa and Mastercard set interchange fees, the amount goes to the banks issuing the cards. The card networks earn the network fees.
It is noteworthy that credit cards carry a higher interchange fee than debit cards. Generally, merchants pass some of the fees to the customers in the form of higher prices. Meanwhile, small businesses offer discounts to shoppers who pay through cash, check, or debit cards, thus avoiding the higher fees on credit cards.
Overall, given a rising fee backdrop, merchants and small businesses might encourage customers to use non-credit card options, adversely impacting card networks and issuing banks.
Analysts’ Ratings for Visa and Mastercard
Wall Street has a Strong Buy consensus rating on both Visa and Mastercard. In particular, 19 analysts have a Buy rating on Visa stock while two have a Hold rating. Interestingly, Mastercard stock boasts 17 unanimous Buys.
The average price target for Visa indicates an upside of 16%, while that for Mastercard suggests an upside of 12.4%. Shares of Visa and Mastercard have risen 18.5% and 19%, respectively, year-to-date.
On August 29, Mizuho analyst Dan Dolev reiterated a Hold rating on Visa stock with a price target of $255 and a Buy rating on Mastercard stock with a price target of $435.
In a research note to investors, Dolev said that his firm’s assessment indicates that Visa and Mastercard’s U.S. volume growth as a percentage of incremental U.S. personal consumption expenditures (PCE) improved in Q2 2023 compared to the first quarter.
However, he noted that Visa is still capturing a smaller share of changes in consumer spending than it did prior to the pandemic. In comparison, Mastercard is capturing share at levels modestly above its own historical levels.
