Last week, a U.S. judge rejected Visa (V) and Mastercard’s (MA) proposed antitrust settlement worth $30 billion. The two credit card companies agreed to limit the fees they charged merchants that accept their card products.
Merchants still view the settled rates are too high. Furthermore, Visa and Mastercard would still have firm control over credit card transactions.
The settlement rejection has two possible outcomes. First, it may require the two firms to offer a bigger settlement. If that fails, the case will go to trial.
Litigation against the two credit card firms began in 2005. Back then, swipe fees (or interchange fees) cost merchants between 1.5% to 3.5% per transaction. Banks and other card issuers profited from those fees. Still, issuers used those fees to fund rewards programs. But that only encouraged consumers to spend more, adding to their debt.
To introduce more competition, Visa and Mastercard need to let merchants offer less expensive credit card products. Additionally, merchants need more room to offer discounts if they advise their customers to use cards that have lower transactional fees.
Visa and Mastercard stock peaked in March. The downtrend will continue as worries about the antitrust suit mount. Long-term investors should take advantage of the weak share price to consider adding to the position. They have a strong global network. This is more attractive than fintech firms like PayPal (PYPL) or Block (SQ).