The credit card wars have been going on for quite some time between MasterCard and Visa. Due to the recession, this has slowed down as the two giants are now haggling with other issues. Both the stocks have taken a beating as a result of the global economic crisis. But deciding which stock to buy can always be a tricky task in such a situation.
During the past two years or so the entire credit card industry as a whole has taken a serious beating. Spending is at an all time low, and consumers are not in the mood to borrow in such a downturn. Many consumers have had to default on loans or let their securities to be seized. Profits are almost non-existent in the financial market, and new credit rules were enforced by the government to turn the tide in their favor. These new credit rules now prevent the industry from reacting in ways such as increasing fees or changing the terms and conditions of an agreement.
Recently, the commerce department reported a new consumer spending slump during the last couple of months. The consumer confidence index, which is published by the conference board, also headed downriver during the summer. The growth forecast for 2011 is only 3%, and this is from the associated press’s economic survey, which is widely respected for its pre-eminence. The rate of saving has increased beyond those seen since the late 90’s. These factors have been very painful for both MasterCard and Visa, which rely on heavily customer borrowing and spending for their profits. To add to their worries, they also have to deal with the credit card accountability, responsibility and disclosure Act, which go into effect sometime next year.
But whichever credit card maker you decide to go invest with, you need to realize that the financial industry is not as stable as it used to be. Everything is on a downturn, and lots of big investors are pulling out of otherwise good investments. MasterCard and Visa cannot influence how their bank members market their credit cards, but they earn a lot of transaction revenue from the usage of these products. There are still numerous questions about possible debit card regulations that could go into affect and ruin the plans of these giants. The Federal Reserve is in fact finalizing rules that might crimp the fees that businesses are paying to credit card companies for the processing of transactions. At the beginning of this year, MasterCard shares had fallen by 21% and those of Visa had fallen by 17%. This downward trend will continue for quite some time until the global economic crisis is over, and a new upward trend comes into play.