Visa-Mastercard payments duopoly has staying power

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Fears of Visa and Mastercard’s decline are exaggerated. The $770 billion payments duo’s shares have fallen 5% in 2021, compared with a 25% rise for the S&P 500 Index. Investors worry that Amazon.com and banks are exerting downward pressure on fees, and that new financial technologies may consign plastic to the trash. Yet the duopoly is stronger than it appears.

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In theory, the pay-later players could nudge their customers towards cheaper bank transfers rather than card payments. But the fear of irritating customers by restricting their payment methods should discourage Klarna and Affirm from doing so. In any case, Visa and Mastercard have built their own instalment-payment services as a hedge.

Since plastic is already ubiquitous in America and Europe, it’s easier for tech groups to go with the flow. PayPal used to encourage users to input their bank account details rather than credit or debit cards, but changed course and signed deals with Visa and Mastercard in 2016 in a bid to get more users. Another problem with bank transfers, particularly in America, is that users miss out on credit-card rewards.

 

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