Visa Inc and MasterCard Inc, the world's largest payment networks, could face lower revenue and pressure on their stock prices amid a push for increased U.S. regulation of credit cards.

Specifically, Congress is mulling regulations on interchange rates -- fees retailers and merchants have to pay to banks that issue credit cards.

Most immediately, that would affect the banks that collect those fees. But some investors and analysts are concerned the banks -- already battered by credit losses and toxic assets -- could try to share the haircut with Visa and MasterCard.

Longer term, I think it is a real risk for the model, but this could impact their stocks right now, said Donald Fandetti, an analyst at Citigroup.

Visa and MasterCard said the companies would not be impacted by the legislation because they do not charge interchange fees.

But concern about the legislation has contributed to a 10 percent drop in Visa's shares in the last month and a 5 percent decline for MasterCard, and the shares could fall further, analysts and investors say.

It's an overhang on these stocks, at least until we have some clarity, said Moshe Katri, an analyst at Cowen & Co, who said the legislation could impact the profitability of 20 percent of MasterCard's revenues and 10 percent of Visa's revenues.

Before the financial crisis, Visa's shares traded at 25 times future earnings and MasterCard stock was at 20 times. Now Visa's shares are trading closer to 20 times 2010 earnings and MasterCard stock is around 15 times.

These price-to-earnings multiples -- still high compared with many financials -- could become the new norm.

This is heightened regulatory risk and we think investors will reflect that in a lower multiple, Fandetti said.

Visa's shares ended down 0.21 percent at $61.24, while MasterCard stock fell 2.83 percent to $156.78.


The interchange fees laws currently under discussion would be in addition to recent legislation already approved limiting credit card fees and interest rates.

The legislation would give merchants and retailers more power to negotiate interchange fees with banks. It follows longtime complaints from store owners that banks have colluded to set fee structures and block them from negotiating with Visa and MasterCard.

Last year, interchange fees rose 14 percent to about $48 billion, averaging about 1.75 percent of total purchases.

Visa and MasterCard are partially insulated from the impact of the legislation because they make the bulk of their money every time a person swipes a card and do not collect interchange fees, but they could be affected by a retrenchment in the credit card industry.

In addition, analysts estimate the companies receive around 10 cents per $100 transaction from the card issuers and, if banks were forced to cut interchange rates, the financial institutions could ask Visa and MasterCard to share the pain.

Analysts also said the world's biggest payment networks could be near a renegotiation of their contracts with some big U.S. banks, which could ask for lower prices.

It is adding some pricing pressure, said Walter Todd, portfolio manager at Greenwood Capital Associates.

Visa and MasterCard have said merchants already are able to negotiate lower fees.

We don't see Congress legislating interchange fees or setting prices, William Sheedy, president of Visa for North America, told Reuters in an interview.

The real question is whether the government is going to jump in and get into the game of price control in the free market. At the end of the day, this is price control and this just doesn't smell right, said Chris McWilton, MasterCard's president of U.S. markets, at an investor's conference earlier this month.

Sheedy and MasterCard's spokeswoman Sharon Gamsin said the pending legislation would not affect their companies revenue. Both added that, when Australia cut interchange fees, neither Visa nor MasterCard were hurt by the action.