BOSTON (TheStreet) -- MasterCard (MA) - Get Mastercard Incorporated Report and Visa (V) - Get Visa Inc. Report are still slugging away at each other amid a recession, but cautious consumers and a shrinking cut from small businesses have forced a near stalemate between the credit titans.
The credit card industry has taken a beating during the past two years. Spending shrunk, consumers paid down debt or went into default, profits disappeared and new credit rules crushed the industry's ability to crank up fees and change the terms of card agreements. Meanwhile, the Commerce Department showed a consumer-spending slump during the past few months, while the Consumer Confidence Index headed south for the summer -- with the
economic survey forecasting only 3% growth through 2011 and consumers saving at rates unseen since 1998.
This has been especially painful for Visa and MasterCard, which are on the receiving end of a vicious combination from the Credit Card Accountability, Responsibility and Disclosure Act passed in February and the debit card elements of financial regulation that go into effect next year. The CARD Act ordered the companies to freeze interest rates on accounts until a year after they're opened, reducing consumer contributions, while coming regulation caps debit-card "swipe fees" charged to merchants. The latter could knock the wind right out of business transactions, whose estimated value is just under $10 billion.
"Visa and MasterCard don't have a great deal of influence over whether or how their member banks market business cards, but earn enhanced transaction revenue from the use of such products as they involve higher merchant interchange," says Ben Woolsey, an analyst with
The government's manhandling of Visa, MasterCard and other credit providers worked out great for consumers and businesses.
Questions about potential debit card regulations continue to loom. The Federal Reserve is finalizing rules that could crimp fees businesses pay to card companies for processing transactions. The amendment, which seeks to limit the "swipe fees" merchants pay, is part of the sweeping financial reform bill signed into law last month.
With each company using nearly identical market strategies to expand their networks (MasterCard through Cirrus, Maestro and PayPass; Visa through VisaNet, Plus, Interlink and PayWave), innovating their products (through text-message transaction updates and RFID-chip touch-sensor wands), it's not surprising they're hitting the canvas together like Rocky Balboa and Apollo Creed at the climax of
The Fed's decision on swipe fees could have a potentially bigger impact on Visa, which counts on debit cards for 58% of revenue collected from payment transactions. In contrast, debit cards deliver 38% of MasterCard's payment transaction revenue.
"It goes without saying, the United States debit market will undergo changes following implementation of the Wall Street Reform and Consumer Protection Act next year," said Visa Chief Executive Joseph Saunders in a statement. "While it is too early to fully and accurately gauge the impact of the legislation, Visa has demonstrated an ability to manage our business through periods of change."
Since their IPOs -- MasterCard in 2006 and Visa in 2008 -- Visa has been the king of market capitalization, with $64 billion to MasterCard's $27 billion. MasterCard, however, has come up bigger for shareholders, increasing its share price to five times its IPO in four years, compared with Visa's 61% increase. It still looks like the better bet.
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Jason Notte is a reporter for TheStreet.com. His writing has appeared in The New York Times, The Huffington Post, Esquire.com, Time Out New York, the Boston Herald, The Boston Phoenix, Metro newspaper and the Colorado Springs Independent.