Credit Card Lowdown: Stormy weather ahead for credit card companies

Comments

Stormy weather ahead for credit card companies

Card issuers and their partner banks are not in such good humor these days. Rather it would be more correct to say that they are in a state of panic. And why so? The reason is not apparent on the surface at least. I mean, at present, credit cards are having the run of the market. Consumers are indiscriminately using cards for all kinds of purchases and card companies, especially Visa and MasterCard have a steady flow of revenue thanks to the $800 bn credit card debt that Americans owe them. And MasterCard is especially on a roll as it gets ready to go public. So, what’s bothering them?

To know the answers, you need to scratch under the surface. Visa and MasterCard are today facing problems from all fronts. These range from the ongoing merchant lawsuit against hidden interchange fees, to competition from new card issuers. In case you didn’t know about the interchange fee fracas, well here’s the lowdown. Retailers and merchant have filed a lawsuit against Visa and MasterCard wherein they allege that they have been losing profits from sales in order to process card transactions. The main reason for these losses is the high rates for the fees, which are set by the card companies and issuing banks.

And here’s the biggest worry of them all – increasing numbers of consumers are actually getting rid of their cards! And guess what, people are no longer flocking in droves to get new credit cards. So there are not many new customers for these companies. Then there is the problem of increasing interest rates. All these problems seem to have come together, or they were probably brewing on the horizon for quite some time and have now decided to create a much-delayed storm.

--
Did you enjoy this post?

May 9, 2006 in Mastercard, Visa | Permalink