Judge Rejects Visa and Mastercard Settlement. Should Investors in the Stocks Worry?

Core Viewpoint - A federal judge's rejection of the antitrust settlement between Visa and Mastercard and merchants regarding interchange fees could have implications for the long-term stock performance of these companies [1]. Settlement Rejection - Visa and Mastercard had previously agreed to a settlement with retailers over allegations of collusion to inflate interchange fees, which are fees charged for processing credit card transactions [2][3]. - The average swipe fee for credit cards is reported at 2.24%, with some premium cards reaching up to 4% [3]. - The settlement included a minor fee reduction of 4 basis points for three years and an average reduction of 7 basis points over five years, while allowing merchants to direct customers to cheaper options [3][4]. Impact on Visa and Mastercard - The rejection of the settlement is not expected to significantly impact the long-term prospects of Visa and Mastercard, as banks collect the interchange fees, not the credit card processors [5]. - Any potential fee reductions would likely affect bank-issuing card companies more than Visa and Mastercard, which have the scale to manage expenses effectively [5]. - Visa and Mastercard maintain a near duopoly in the credit card processing market and benefit from the global shift towards electronic payments [6]. Valuation and Growth - Visa has a forward price-to-earnings (P/E) ratio of 27, while Mastercard's is nearly 32, both at the lower end of their historical averages [6]. - Both companies are considered strong growth stocks with similar recent revenue growth rates of about 10% and adjusted net income growth rates of 17% for Visa and 16% for Mastercard [6]. Investment Perspective - Current levels of both stocks are viewed positively, with a preference for Visa due to its cheaper valuation [7].