Ahead of the Bell: Visa, MasterCard gain on deal

Ahead of the Bell: Visa, MasterCard shares rise premarket on settlement in swipe-fee lawsuit

Associated Press

NEW YORK (AP) -- The settlement that Visa Inc. and MasterCard Inc. reached over a long-running lawsuit on the credit card fees they collect from retailers should finally alleviate investor concerns about the case's impact, analysts said Monday.

Last week, the two payment processors and major banks agreed to pay at least $6 billion to settle a suit that alleged they conspired to fix the fees that retailers must pay them whenever customers pay with credit cards. These "interchange" or "swipe" fees are typically a portion of the amount that customers charge to their cards, thus reducing the amount that retailers ultimately pocket.

As part of the settlement, stores such as Kroger and Rite Aid for the first time will also be able to charge customers a fee for paying with a credit card.

The idea is to discourage customers from paying with credit cards, and instead pay with cash, so that retailers wouldn't have to fork over any fees to the card-issuing banks.

On Monday, the National Association of Convenience Stores said it would fight the settlement because the group doesn't think the settlement adequately addresses the issue of how much control Visa, MasterCard and banks have over merchants. "This proposed settlement does not come close to providing even a minimal level of the competition and transparency that merchants, their customers and the U.S. economy need," said the group's chairman, Tom Robinson, in a statement.

Baird analyst David Koning said in a note to clients that the settlement should be a cause for a "small relief rally," as the case had caused ongoing uncertainty since it was introduced by retailers in 2005. He said the ability of retailers to charge a surcharge for credit card purchases should have a fairly limited impact in the United States.

William Blair analyst Robert Napoli also noted that $6.6 billion settlement is "easily manageable," given the reserves already set aside by Visa and MasterCard.

Wedbush analyst Gil Luria said that the settlement amount was close to what Wall Street expected. However, Luria noted that Visa and MasterCard will likely see revenue growth slow, in part because the settlement comes on top of the ongoing impact of last year's law that caps similar fees they collect from merchants when consumers swipe their debit cards.

Luria also noted that revenue could take a hit if enough retailers opt to charge for credit card purchases, or offer discounts to customers who pay with cash.

Shares of Visa gained $3.06, or 2.5 percent, to $127.15 in pre-market trading. MasterCard shares added $9.45, or 2.2 percent, to $439.05.

View Comments (0)