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The legislation is expected to be introduced as soon as this week.
Dreamstime
A bill to improve competition among credit-card networks is set to be reintroduced in Congress, causing shares of
Visa
and Mastercard to tumble even though Wall Street is doubtful about the legislation’s prospects.
Under the current standard, merchants generally have to process payments through the same network as the card issuer. Payments made using a Visa (ticker: V) card must be handled through the Visa network, for example. That gives the company tighter control over the fees it can collect, while the same is true for
Mastercard
(MA).
But a new bill, the Credit Card Competition Act, which is very similar to a bill introduced by Sen. Dick Durbin (D-IL) last year, is expected to be introduced in the Senate as soon as this week, The Wall Street Journal reported. Under the proposed bill, merchants could route payments through other networks, thereby increasing competition in the space and potentially reducing the fees they pay.
Since last year’s attempt to push a similar bill forward, Durbin has recruited two additional co-sponsors, Sen. Peter Welch (D-VT), and Sen. J.D. Vance (R-OH). Similar legislation in the House is also expected to be reintroduced this week.
News of the renewed effort sent shares of Mastercard down 2.3% on Wednesday, while Visa stock lost 1.3%. Representatives from the companies didn’t immediately respond to requests to comment.
But few on Wall Street expect that the legislation will pass, citing reluctance in Congress to move forward and the potential for unintended consequences.
“While headlines may persist, we see little risk of the legislation seeing enough support throughout Congress,” Darrin Peller, managing director at Wolfe Research, wrote in a note Wednesday. Peller said the bill would force Congressional members to choose between merchants and banks and other financial institutions, which he described as “tricky politically.”
Others on Wall Street echoed similar views even though the Senate bill has gained sponsors.
“We remain bearish on this bill’s prospects given the combination of complicated politics, potential security risks, and its negative impact on credit card rewards programs,” Isaac Boltansky, managing director at BTIG, wrote. Card networks are incentivized to invest in security and authentication on their networks, but if payments are forced to be spread across networks, they may have less reason to make those investments, Boltansky wrote, referencing arguments made by parties opposing the bill.
Boltansky puts the odds of the proposal becoming law this year at “no higher than 20%.” Investors had the jitters nonetheless.
Write to Carleton English at [email protected]
Source: https://www.barrons.com/articles/durbin-credit-card-bill-senate-5d2f2e8d?siteid=yhoof2&yptr=yahoo