Amex shares see drop as credit card fees is being targeted

Tuesday, January 11th, 2011

The stock of American Express Co., dropped the most on the Industrial Average of the Dow Jones after an announcement about cuts in debit card fees would be followed with cuts in credit card fees as well. The shares dropped 3.4%, by 1.51 dollars, which is the biggest drop over the last couple of months. This year, overall AmEx shares have gained 4.9%.

There were proposals last week from the Federal Reserve over swipe fee cuts, also known as interchange fees that are paid by merchants in order to accept debit cards. The cut was a whopping 84% which gives merchants a better opportunity to steer their customers away from paying the higher fees levied by AmEx cards. The proposals of the Fed were on the back of the Dodd Frank legislation for regulatory overhaul that was signed by the President. It calls for a reasonable adjustment of the interchange fees to keep the cost of debit transaction processing proportional.

Interchange on credit cards until now has escaped attention with an average of 2% on every transaction. This fee was supposed to be a compensation for banks that take the risk of credit lending. However, the same argument wasn`t valid for debit cards as the fee is deducted from the funds available in the checking accounts of the customers.

There was a drop in stock for Visa Inc. by 17% last week. Second placed MasterCard, in terms of payment network volume also saw a decline by 13% with new proposals on debit interchange, from the Fed.

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