The card payment titans have long shrugged off political pressure or potential rivals, the $95 bln in fees they collect and share cementing a cozy duopoly. Yet swipes are becoming less lucrative, as crypto upstart Circle’s soaring valuation implies better odds for new disruption.
FOTO DE ARCHIVO. Imagen de ilustración de tarjetas de crédito MasterCard y Visa. 9 de junio de 2016. REUTERS/Maxim Zmeyev NEW YORK, July 31 - Cryptocurrency hype is making the outlook for the U.S. credit card duopoly more unstable than it has been in years.
Visaexecutives, speaking on earnings calls this — the first since the passage of legislation that could speed stablecoin adoption — largely dismissed the threat from dollar-pegged digital coins, which could let retailers or banks bypass their ubiquitous payment networks. Steady profit and strong valuations throughout years of potential disruptions offer some reassurance. But the soaring share price of stablecoin operator Circle Internet Group History suggests that the card companies will be resilient. Both beat analysts’ expectations this quarter, according to LSEG data, with Visa’s earnings up 8% to $5.3 billion and Mastercard’s up 14% to $3.7 billion. Their networks’ ubiquity and reliability, especially in the United States — where they process about 70% of all purchases, according to industry researcher Nilson Report — shielded them from past threats like Venmo-style payment apps. Meanwhile, political pressure to lower fees has waxed and waned, easing under the Trump administration. Visa and Mastercard shares are up 31% and 24% in the past year, trading at 28 times and 32 times expected earnings over the next 12 months, respectively.It’s a lucrative business across the board. The duo collected from merchants a total of about $95 billion in their most recent fiscal years in swipe fees, which they split with banks and partners. The problem is that their cut is shrinking. Visa gleaned 6.6 cents of processing fees per transaction last quarter, down from nearly 9 cents a decade ago. Mastercard’s similar swipe fees rose this quarter, partly due to currency shifts, but averaged 7.3 cents over the past year, down from nearly 8 cents the year before. Stablecoins aren’t yet to blame. Both companies note that usage remains tiny compared to the roughly $15 trillion processed annually over Visa’s network alone. They also argue that digital coins are most useful in countries with unstable fiat currencies. Still, the decline in per-transaction fees — driven by pricing pressure and business mix — exposes their vulnerability, while major merchants like Walmart So far, Visa and Mastercard have held steady, offsetting any lost revenue with consulting and other services. But Circle’s valuation, up sharply since its June listing, implies wildly optimistic hopes for stablecoin adoption, while others are crowding into the space. If that happens, the credit card giants’ once-impenetrable repose may finally be shaken. Stephen Gandel is an award-winning journalist who has covered banking and financial markets for more than two decades. Prior to joining Reuters Breakingviews, Gandel had been the U.S. banking correspondent at the Financial Times for the past two years. He previously worked at The New York Times as the U.S.-based news editor of DealBook, the Times’ daily business newsletter, and was on a team of reporters who won an Emmy for live interviews. He was also a senior reporter for CBS News and a markets columnist for Bloomberg. Gandel spent 14 years at Time, working for Money, Time and Fortune magazines, where he was the only reporter to ever win the company’s Luce award four years in a row. His work was also recognized with a SABEW Best in Business award, and an Excellence in Journalism award from the NYSCPA. He is a graduate of Washington University in St. Louis, and lives in Brooklyn with his wife and two children.
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