The Fed Fights for Visa Inc (V) and Mastercard Inc (MA)

If the Fed goes back to the drawing board and decides on a lower fee, Visa Inc (NYSE:V) and Mastercard Inc (NYSE:MA) are the obvious losers. However, it’s doubtful the Fed would assign a lower cap that cripples profitability, and Visa has shown an ability to maintain tremendous operating margins in a reduced debit-card fee environment.

The beneficiaries from a lower cap (Judge Leon suggested $0.12) are also obvious: all of retail. Retailers ranging from Ross Stores, to Wal-Mart, to Safeway, would be more profitable with lower debit-card expenses.

Since the Durbin Amendment was enacted, card issuers have done everything in their power to make paying with credit cards more attractive relative to a debit card. Considering the strength in credit card volumes from Visa Inc (NYSE:V) and Mastercard Inc (NYSE:MA), it seems fairly safe to assume that some spending formerly on debit cards has shifted to credit cards. Therefore, the marginal increase in profitability at the retailers could surface from a lower cap, which would likely be immaterial to the intrinsic value of participants over the long haul.

What does this all mean?

Ultimately, an appeals process can take a considerable amount of time, and there isn’t a guarantee that the debate will end there. The evidence underlying the argument that posits consumers benefit from lower debit card fees simply isn’t there, but that did not prevent Congress from enacting the legislation in the first place.

Nevertheless, Visa and Mastercard Inc (NYSE:MA) remain wonderful long-term growth stories with tremendous long-term return potential. Thus far, legal headwinds have proven to be great buying opportunities.

The article The Fed Fights for Visa and MasterCard originally appeared on Fool.com and is written by RJ Towner.

RJ Towner owns shares of Visa. The Motley Fool recommends and owns shares of Bank of America, MasterCard, and Visa.

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