It's not every day that an announcement from a regulatory body causes the stock of 10% in the stock of MasterCard and 13% in the stock of Visa. But that's just what happened today after the Federal Reserve proposed a cap on the amount of money debit card issuers can charge merchants for purchases at 12 cents for swipe fees, a major source of income for the issuers.
"Nobody expected it to be this draconian," said David Robertson, publisher of credit-card industry newsletter the Nilson Report. One bank executive said the cut was larger than the company's worst-case scenario. Banks, he said, will "push back."
A 12 cent cap is considered draconian because it is a hard cap rather than a set of more flexible standards, and the size of any cap was expected to be more like 60 cents. The new rules would also loosen card issuers' control over the fees and allow merchants to choose rival payment networks, creating more competition for Visa and Mastercard. Banks' debit card business models are equally hit, but larger banks' shares fell less after the announcement because they are more diversified.
