Visa and Mastercard

I love to read Matt Stoller. His articles tend to be a bit depressing, but they draw attention to some egregiously concentrated markets. He has just written about the credit card industry. I am in the extremely fortunate position of never having used any of my credit cards for actual borrowing. I am not alone, but a lot of people find they have no simple alternative to putting something on their card and not paying off the full balance at the end of the month. The borrowing rates on cards which are aimed at ‘credit impaired’ users is very high indeed, but for any regular user the fees are very high. I am old enough that in the old days I paid off the credit card balance with a cheque. If that cheque was sent back late, the pain would be real.

The flip side of this extremely expensive form of credit is a very profitable industry, thanks. One that, in the USA at least, has the resources to protect itself from from investigation.

There’s very little competition in the payments system. VISA and Mastercard control 70% of this highly concentrated market. To give you a sense of the market power at work here, last year credit card networks raised their swipe fee prices to merchants by 24% and swipe fees are now the second highest cost for most businesses, after labor.

Stoller writes about the huge bunce delivered to Visa and Mastercard by the Fed, and how very few of the gains of falling interest rates since 2008 have translated into reduced borrowing costs for consumers (the Cantillon Effect).

I don’t think this is actionable. The margins are built into the share price, and there is a small but non-zero chance that the cosy cartel will be broken up.

Wrap

Oil fell 5% to $92.5/barrel. Iran may be able to re-establish its nuclear deal, and re-start exports to the USA. Iraq is suffering from some civil unrest, but the administration advised that this has not impacted its ability to produce oil. Equities fell, in sympathy. Forex was quiet, although some commodity exporters saw their currencies fall (Brazilian Real down 1.7%). Most equity indexes were down, although Japan, Germany, India and Australia were up, possibly linked to better news out of China (just guessing!).

Bonds were pretty flat. Some slight steepening of short term rates.