The S&P 500 fell 0.6% today and Toronto fell 1.1%.
Notably we had Toll Brothers down 2.5% to $32.20. I have consistently indicated that Toll Brothers is a speculative pick because it has a very high P/E which mostly reflects that it is still climbing back from the impacts of the housing crisis. I think the stock tends to get pushed around because it’s hard to know what it is really worth and because of various speculations about where housing prices are headed. I am not much bothered by this decline and I will buy more if it continues to fall. Since I already own a lot of it I put my Buy order at $30.10 though I don’t particularly expect it to fall that far, although it certainly could.
Visa got some bad news today as a judge ruled that the maximum fee on debit transactions should be 12 cents and not 21 cents. Although apparently this make not take affect for quite some months and could be appealed. Before 21 cents was adopted as their cap, I believe Visa was charging more like 28 cents on debit purchases. Also they had some crazy system where they (strongly) encouraged the use of a signature rather than a PIN on debit transactions and then charged the retailer something closer to 100 basis points when the signature was used. I believe retailers sued VISA over that.
Meanwhile in Canada I believe debt transactions have basically always been under about 12 cents and I recently heard they were 8 cents. And that is for the purchase of any amount on a debit card. The retailer pays about 8 to 12 cents per transaction plus I understand the debit machines cost a fixed rate of about $40 per month per machine.
Visa has been trying to expand from its credit cards roots and is now heavily involved in debit cards. Basically Visa would probably like to collect a significant toll on every debit transactions.
But it’s interesting to think about this. It seems to me that the variable cost of a giant electronic network to process payments should be close to zero. And I suspect the fixed costs could be covered if they charged something like one basis point on every transaction (1 cent per hundred dollars). Basically Visa and other payment networks would like to take electronic money transfers that should cost very little and charge very fat margins on them.
Now I am all for making a profit. But I am not in favor of very large profits when the service seems to be a monopoly. And it does look like a natural monopoly situation. One central open network could allow the transfer in either direction from any bank account to any other. We should not need multiple networks. But if its one network then the profit has to be regulated.
It seems to me that until recent years paper cheques were centrally processed for a very low costs. Banks and central banks did this (and still do) in some kind of cooperative fashion. Electronic money transfers should costs a lot less to process than paper cheques and yet the likes of VISA want to charge a lot for it. And they really want to set up as near-monopolies all the while claiming to be subject to intense competition.
In Canada Interac has operated as a non-profit entity owned by the banks. Its costs and charges are very low and it was partly as a result of that that Canada has been at least 15 years ahead of the U.S. in adopting the wide-spread use of debit cards. Visa would like to change that in Canada as well.
Regardless of whether VISA is a good investment at this time (which is not entirely clear), it is not a company whose ethics I respect. The same applies to MasterCard.
Think about it. COSTCO operates on a net profit margin of just under 2%. That is the net compensation to Costco share owners for providing the stores and all that goes with it. Meanwhile VISA and MasterCard seem to think they should earn 2% from retailers for an electronic transaction. Something is wrong here. Visa and MasterCard already charge interest to those who pay late so why do they need this fat 2% from retailers? I suspect they charge it because having established dominant positions as quasi monopolies, they can. With the advent of electronic transactions why did merchant fees not decline? Something is really quite wrong.
Maybe I am just griping because I sold my VISA too early. But really something is wrong here.