Why both Visa and Mastercard stocks fell today

What happened

Actions of credit card giant Visa (NYSE: V) the stock tumbled today, falling 5% until 12:40 p.m. EDT following news that the US Department of Justice is investigating the company for engaging in potentially anti-competitive practices in the market. debit cards, The Wall Street Journal reports this morning.

Actions of MasterCard (NYSE: MA) suffer in the same way, but less – down 3% – because shareholders fear the investigation will extend to the company. With curiosity, American Express and Discover Financial stocks are mostly unaffected so far, down a fraction of a percent each.

Image source: Getty Images.

So what

So what exactly does the Justice Department think Visa did wrong? According to “people familiar with the subject,” said WSJ, he believes Visa may have “the limited ability of merchants to route debit card transactions over card networks that are often cheaper” than his own, increasing Visa’s share of the “lucrative” network fees on the network. use of debit cards.

Admittedly, this sounds like a simple smart business practice on Visa’s part, but like the Newspaper points out, part of the Dodd-Frank Act of 2010 requires “merchants to be able to choose from at least two unaffiliated debit card networks to route transactions.” If Visa made an effort to prevent this, then it could be guilty of breaking the law.

Now what

As to why this Visa investigation is dragging the stock of Mastercard – but not AmEx or Discover – it should be noted that the Newspaper Specifically identifies Mastercard as a subject of similar DoJ concerns, but does not name AmEx or Discover.

it could change as the investigation progresses, however, if, for example, DoJ investigators find out that Visa is in fact doing what it thinks it is doing, and other credit card companies may be doing it, too. At the moment, however, it is only Visa that is the subject of this investigation – and that is why its stock is down much more than others today.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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