Several possible threats to the Visa and Mastercard credit card networks

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Antitrust investigation

Visa (ticker: V) and Master (ticker: MA), two major credit card online companies, are subject to antitrust investigations by various countries almost every year around the world, but they always escape safely.

Merchant’s complaint

It is very similar to the situation above. The two major credit card online companies are sued by major merchants in various courts around the world almost every year, demanding that the handling fees be reduced. But the outcome is almost always the victory of the two major credit card network companies. So far, the situation remains unchanged and the merchants have no choice but to do anything.


In June 2017, Bank of America (ticker: BAC), Truist (ticker: TFC), Capital One (ticker: COF), JPMorgan Chase (ticker: JPM), PNC Bank (ticker: PNC), U.S. Bancorp (ticker: USB) and Wells Fargo (ticker: WFC) formed a consortium to develop Zelle. The predecessor of Zelle is the clearXchange payment system launched by these banks in April 2011.

Zelle allows customers to easily transfer money from their bank accounts to other accounts using mobile phones and tablets, and is intended to compete with emerging payment methods such as PayPal (ticker: PYPL). Zelle is a major milestone for the U.S. banking and payment industries. The U.S. banking industry has entered the first stage of building a major payment architecture this century.

The United States has lagged behind in infrastructure for many years, but now it is catching up with its nationwide infrastructure. This system in the United States operates 24 hours a day, seven days a week, allowing consumers and businesses to transfer funds between bank accounts in real time, and the accompanying information is richer than other payment systems, including transactions. Confirmation and other messages.

Zelle is available to 86 million mobile banking customers in the United States. Unlike the lengthy waiting times of existing general digital payment platforms, Zelle can transfer funds within minutes. Although banks have already provided instant transfer services, they still require users to have an account and the remittance routing number of the remittance account. In contrast, Zelle users only need the other party’s email address and phone number to send money.

In its first year of launch in 2017, it processed more transactions than PayPal’s Venmo. Zelle is expanding quickly, and by 2022, 80% of Americans can connect to Zelle through its banking app, with support from more than 1,600 financial institutions. In the first half of 2022, Zelle transacted more than $1.6 billion per day. Emerging payment methods such as Venmo charge service fees, while Zelle-affiliated banks charge no fees.


The U.S. Federal Reserve has launched the “Fed Now” instant payment service that has been anticipated for many years in July 2023, which will finally allow Americans to send and receive funds at any time in seconds to modernize the U.S. payment system. . Fed Now is launched in cooperation with 41 banks and 15 certified service providers, including some community banks and JPMorgan Chase, Bank of New York Mellon (ticker: BK) and US Bancorp, etc. Large bankers, but the Federal Reserve plans to add more banks and credit unions this year.

Compared to end-to-end payment systems such as Block, Venmo or PayPal, which act as intermediaries between banks, payments made through Fed Now will be settled directly in the central bank account. Fed Now will not charge consumers, but it is unclear whether or how participating bankers will pass on the fees associated with the service.

UnionPay cards

China’s UnionPay card is currently the only other global credit card network company that has enough weight and has essentially formed a foothold with the two major credit card network companies in the world. Especially in China, and in countries where Chinese people consume more, the two major credit card network companies have a virtual monopoly and have no way to compete with it.

Merchant self-promoted deduction system

Large merchants, unable to control the monopoly of these two major credit card online companies, simply launch their own automatic deduction or payment systems.

Both Visa and Mastercard make money by charging fees when checking out using one of the billions of cards they have in circulation. This has proven to be a very profitable business model. However, merchants bemoan these so-called interchange fees they have to pay. Most transactions go to banks that issue cards to consumers, not Visa and MasterCard. Still, if retailers (who often already have razor-thin margins) can find ways to reduce the fees associated with paying them, they’re likely to try.

Target (ticker: TGT) is one of them. The company’s RedCard financial debit card allows shoppers to save 5% every day on purchases in-store or online. What’s unique about this service is that it debits funds directly from customers’ checking accounts, eliminating the need to use Visa or Visa’s network when using the card.

In fiscal 2022, which ended Jan. 28, Target generated 20% of its $108 billion in total revenue from the RedCard program, which also includes credit card products. The company doesn’t report the debit card amount, but it’s not a small amount. If 2% of RedCard sales avoid paying interchange fees, Target could save $432 million by 2022, a figure that should flow mostly into profits.

What if other companies, especially those that rely on repeat purchases, followed a similar path to Target and established direct payment mechanisms? For example, streaming services from companies such as Netflix (US: NFLX) or Disney (US: DIS). Or even other big-box retailers like Costco (US: COST ) or Home Depot (US: HD ). Popular restaurant chains like Chipotle Mexican Grill (US:CMG) or Starbucks (US:SBUX) could follow suit.

Of course, consumers need to be incentivized not to use common credit cards but to change their payment preferences. To do this, the company may have to offer a one-time or ongoing discount. If not enough people sign up, it could eventually fail.


Even if there are several possible threats mentioned above, investors in the Visa or Mastercard credit card network should not be unreasonably worried, because these are only “possible” threats, and they have been repeatedly proposed to subvert the Visa or Mastercard credit card network. The moat of the Internet.

The fact is that the Visa or Mastercard credit card network is safe and sound so far.

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