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Visa (V), Mastercard to Settle U.S. Merchant Litigation

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Will Visa (V) Q4 Earnings Reflect Higher Payments' Volumes?

Visa (V) Q4 earnings should reflect higher payments volumes across all its geographical regions.

Visa Inc. V, Mastercard Incorporated MA, along with banks including JPMorgan Chase & Co. JPM, Citigroup Inc. C and Bank of America Corp. would pay merchants about $6.5 billion on account of Payment Card Interchange Fee and Merchant Discount Antitrust Litigation.

The said litigation is a U.S. class-action lawsuit filed in 2005 by merchants and trade associations against Visa, MasterCard, and numerous financial institutions that issue payment cards. The suit was filed due to price fixing and other allegedly anti-competitive trade practices in the credit card industry.

The settlement is an amendment to the financial terms of the 2012 Class Settlement Agreement and will be filed with the court seeking approval.
A similar settlement was reached in 2016, which included charges of $5.7 billion. But the same was rejected by a federal appeals court.

The lawsuit was filed by  more than 12 million merchants, who alleged that Visa, MasterCard, and major credit card issuers were engaged in a conspiracy to fix interchange fees, also known as swipe fees. These fees were charged to merchants for the privilege of accepting payment cards, at artificially high levels. The merchants also claimed that the card companies unfairly interfered with them from encouraging customers to use less-expensive forms of payment such as lower-cost cards, cash and checks.

However, the payment of this settlement money will not be enough for the merchants. There’s a separate class of merchants fighting for changes to Visa and Mastercard, as well as other card companies’ business practices.

Visa and Mastercard have prepared themselves well by building reserves to pay for this charge. Therefore, these companies should not feel much of a strain on their capital.

Visa and Mastercard have gained 40% and 54%, respectively, in a year’s time compared with the industry’s growth of 36%.  

 

 

Currently, Visa and Mastercard both carry a Zacks Rank #3 (Hold).

You can seethe complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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