July 29, 2009
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News: Visa and MC Expect Increased Profits
Some companies in the credit card industry are making money and showing profits in spite of a weak economy and high unemployment. The two largest credit card networks, will be posting increased profits later today. Visa, the world's largest card network, is expected to release an increase in third quarter earnings by 10%. MasterCard, the world's second largest network, expect to top Visa's earnings with an increase of 15%. Increased earnings for both card networks are contributed to consumers' increased dependency on credit cards, increased fees, and effective reduction in marketing costs.
A Nilson Report indicated that last year Visa was responsible for processing more than 33 billion debit and credit card transactions in the U.S. alone. On the other hand, MasterCard processed over 14 billion transactions. Multiply these enormous numbers with a mere penny and you have generated hundreds of millions of dollars. A recent increase in fees sparked a heated battle between retailers, banks, and credit card networks pertaining to the negotiation process of setting the interchange fees. Interchange fees are set by Visa and MasterCard. Earlier this month, Visa raised its interchange fee nearly 2 cents which is expected to generate nearly $500 million a year in revenue. Last quarter MasterCard increased their transaction fee nearly 1.35 cents which is expected to generate over $160 million annually in revenue.
Visa and MasterCard are not faced with the same risks as their competitor American Express. Both companies generate revenue from interchange fees and other transaction fees. Neither companies extend credit and therefore are protected from the losses of credit card defaults. On the other hand, American Express extends credit and acts as a processor as well. Like other lenders, American Express has been hit with increasing numbers of defaults. Despite the losses, the lender has fared better than most and tagged as this year's top performer. Visa is traded on the New York Stock Exchange (NYSE) under the symbol "V" and MasterCard is also traded on the NYSE under the symbol "MA."