By Aparajita Saha-Bubna, Of DOW JONES NEWSWIRESVisa Inc. (V) and MasterCard Inc. (MA) shares rose Wednesday on hopes that a delay in finalizing new rules on debit card fees signified a softening stance by the Federal Reserve.
Visa shares recently traded at $75.10, up 4%, while MasterCard stock, at $ 258.65, is up 2.7%.
The rally comes as Fed Chairman Ben Bernanke on Tuesday warned lawmakers that the Fed won't be able to meet an April 21 deadline for issuing new rules that would cap the debit card transaction fees banks charge merchants. The Fed will look to have the final rules in place by July 21 when they are implemented.
The market is interpreting Bernanke's comments "as a sign that the Fed is changing its proposal in a way that is beneficial to the issuers and networks," Brian Gardner, an analyst at Keefe, Bruyette & Woods, said in a research note.
In December, the Fed proposed, as part of an overhaul mandated by the Dodd- Frank law, capping debt-transaction fees for large banks at 12 cents, down from an average of 44 cents. While the new rules left untouched the so-called network fees Visa and MasterCard charge banks on debit cards, they have the potential to erase billions of dollars in revenue banks earn. The proposed limit on debit fees would drain $15.2 billion a year in revenue from the industry, according to Robert Hammer, who runs R.K. Hammer, a credit-card consulting firm in Thousand Oaks, Calif.
Investors have been concerned that banks may try to offset this in ways that affect Visa and MasterCard.
Unlike traditional credit-card issuers, Visa and MasterCard don't lend to consumers. Visa and MasterCard make money from the fees they charge banks, including J.P. Morgan Chase & Co. (JPM) and Citigroup Inc. (C), to process card payments on the plastic these banks issue. These financial institutions are among the top issuers of Visa- and MasterCard-branded cards.
The new rules may impact Visa more than MasterCard because it has a larger market share in debit cards. They could also dent the exclusivity relationships carefully cultivated by Visa within the U.S. by requiring merchants to have at least two networks to choose from for every debit-card swipe.
Bernanke noted in a letter Tuesday to Financial Services Committee Chairman Spencer Bachus (R., Ala.) and the panel's top Democrat, Rep. Barney Frank (D., Mass.) that more than 11,000 commenters weighed in on the Fed's controversial proposal to rein in debit card transaction fees and he said the information provided in those comments is important for assessing the effects of the rule.
-By Aparajita Saha-Bubna, Dow Jones Newswires; 617-654-6729; aparajita.saha- firstname.lastname@example.org
--Maya Jackson Randall contributed to this article.