New credit card regulation won’t prevent Visa and MasterCard to earn profits

According to analysts at Keefe, Bruyette and Woods, even after the adoption of the new US legislation on credit card practices the market will continue provide one of the most lucrative returns of the asset classes within banks' portfolios.

As Congress seeks to establish the regulation on interchange rates to allow merchants and retailers to negotiate interchange fees with banks, analysts Sanjay Sakhrani and Steven Kwok note, that they expect the industry to be "somewhat smaller" and "less profitable" after the new card laws. Still they add that lack of growth opportunities in the industry post cycle could drive M&A once banks are better capitalized.

As Visa and MasterCard do not charge interchange fees, they are least directly exposed to the regulations followed by American Express Co and Discover Financial Services, note the experts. Capital One Financial Corp is relatively more exposed in view of its reliance on fee income. However it will adjust and may even be able to find growth opportunities in the prime segment.