JP Morgan Still Prefers MasterCard Over Visa as Fed Debit Rules Prove to be Much Better Than Feared

The “highly anticipated and debated Fed rules on debit surprised on the upside yesterday and should be viewed as a victory for Visa V and MasterCard MA shares,” JP Morgan wrote in a report today. “Consensus was finally right to be optimistic the fourth time around as the Fed (1) increased the interchange cap from $0.12 to “$0.21 plus 5bps” (consensus was at $0.20), including reimbursement for network fees, and (2) more importantly chose Alternative A on routing (will not require multiple signature networks on debit cards). “We believe the former point weakens the case for a dramatic reduction in card issuer network fees (pound of flesh), a concern that has plagued V/MA shares for more than a year. V and MA shares rallied 15% and 11% today (S&P500 up 0.8%), and we believe there is more upside potential in the medium term as shares still trade at a discount to growth—we still prefer MA.” MasterCard closed Wednesday at $309.70; Visa closed at $86.57.