BANGALORE (Reuters) – The revised Federal Reserve rules governing how much banks charge retailers to process debit card purchases was given a big thumbs-up by some analysts, who expect the rules to be a huge boost to card networks Visa (V.N) and MasterCard (MA.N).
"We believe the most significant threat to Visa and MasterCard profitability has been dramatically reduced," Chris Brendler of Stifel Nicolaus said.
Banks pay card networks like Visa and MasterCard for processing debit transactions, and the softened rule is a victory for big banks like Bank of America (BAC.N) and JPMorgan Chase (JPM.N), and card networks like Visa and MasterCard.
Under the new rule, banks would be allowed to charge as much as 22 cents per debit card transaction, which includes a one-cent allowance for meeting certain fraud prevention standards.
"The final rules are a clear positive as a higher interchange cap could lessen pricing pressure from large bank issuers," Robert W. Baird analyst David Koning said.
"We believe Visa and MasterCard become more investable again, as the regulatory cloud lifts.
The market capitalization of four largest U.S. card networks -- Visa (V.N), MasterCard (MA.N), American Express (AXP.N) and Discover (DFS.N) -- gained about $14 billion on Wednesday after the Fed's vote.
Citigroup said while it was "incrementally more positive on the networks, given the sharp rise in Visa and Mastercard's share prices, it would look for "a better entry point," and would instead be buyers of American Express and Capital One (COF.N).
However, banks still stand to lose billions of dollars in revenue despite the increased cap. Swipe fees in 2009 were $16.2 billion, according to the Fed.
"Banks are still taking a significant 46 percent hit to their debit interchange revenues, which will have an impact on debit programs and drive mitigation efforts such as new customer fees," Citigroup analyst Ashwin Shirvaikar said.
Banks have said they will have to find ways to offset the losses through other fees and have raised doubts that merchants will pass along any savings to consumers.
"Bank and merchant lobbies are sure to push for further changes more to their liking. We view these potential actions as important to monitor, but unlikely to have a truly meaningful impact for the foreseeable future," FBR Capital's Scott Valentin said.
(Reporting by Brenton Cordeiro; Editing by Gopakumar Warrier)