Visa settles lower

Visa is now our third most widely held stock in the US portfolio behind Apple and GE. So when big news concerning the company is released it is important to cover it. The biggest risk facing Visa comes from regulation and lobbying from merchants. Remember that they are not a financial institution and they take no credit risk. They process payments and take a small percentage.


Yesterday a pending deal with plaintiff's valued at $7.25bn was announced but is not yet final. This is from cases opened as far back as 2005 that claimed that Visa, Mastercard and some of the banks colluded over fees known as interchange which retailers pay each time a consumer swipes a card. Anti competitive agreements meant that retailers were paying inflated fees and now want pay back.


The announcement yesterday came up with a figure of $6.6bn of which Visa are responsible for 67% or $4.4bn. This amount has been more then covered for by the company hence the stock was actually up 1.8% yesterday. In fact $12bn was a potential figure for the combined settlement so $6.6bn looks a lot better.


What does this mean for investors? The companies have admitted guilt by provisioning for the fine but it has been factored into the share price a long time ago. These kinds of things do happen and they are potential risks. I have written about this before but I will mention it again. Yes, if there is collusion and fees are unnaturally inflated then there should be repercussions. But retailers should realise what these companies have done for their industry. By making it a lot easier to purchase goods without having to have cash can only be good for the retailers. They should not shoot themselves in the foot by lobbying these guys out of business.


The margins are huge so this will of course not happen but you do not want things heading in that direction. And what about regulation? Well it looks like more transparency will be the crux of it all. Disclose the surcharge at the point of sale so that customers know where their money is going. From there, I do not think clients will care. It is a lot better than queuing at the bank every pay day to get cash. Now that we are starting to see some clarity and once the overhang is gone, the Visa share price will carry on growing as more and more people embrace electronic payments.