Visa to suffer the greatest losses as new debit-card rules appear

New guidelines approved by the Federal Reserve (Fed) on debit card transactions could have a negative impact on the financial performance of companies that operate payment systems. However, the updated rules aren't as harsh as expected, analysts note.

With the Fed’s reporting, debit card issuers are required to connect at least two payment networks for their processing, including online transactions and other "card-non present" operations. The approved routing procedure is similar to last year's Fed initiative.

The regulator notes the deadline for implementing new rules to be July 1, 2023. 

Ten years earlier, "there were no market solutions to support multiple networks for debit card transactions," the Fed reports. However, "technology has now reached a new level allowing these barriers to be overcome.” 

Despite the requirements being no surprise to market players, given their close resemblance to a draft, Visa is likely to "suffer more" than other enterprises. According to Barclays analyst Ramsey El-Assal, Visa has a significant share of the U.S. debit card market. 

While the analyst isn't sure how large that share is, with preliminary estimates, the company would lose anywhere from 1% to 3% of net income as a result of new routing rules.

In case of Visa giving up its market share, that fraction would be distributed among Mastercard Inc. and other payment systems. 

Jefferies analyst Trevor Williams estimates that debit card routing is likely to affect Visa's profits. Thus, the company would shed about 3%. Mastercard could also lose 2% of its profits. 

Williams considers the new requirements to be "less stringent than expected." As a consequence, there is a chance of Visa and Mastercard to suffer less.