The major card networks are losing value along with the rest of the stock market in the wake of Britain's historic vote to leave the European Union, but Visa and MasterCard may not face the type of doom and gloom that others endure in the current shaky political and financial situation in the U.K.
The current attention on Brexit is "so overwhelmingly on us all" that it is making many investors, industry analysts and consumers lose focus of the basics that a payments network has to deliver, said Enrico Camerinelli, a senior analyst in wholesale banking and payments for Aite Group based in Milan, Italy. "People will still need to make payments, regardless of U.K.’s position in Europe," Camerinelli said. "The hiccups we are experiencing these [first] days are the natural consequence of Brexit."
In that regard, Brexit represents "another of those 'new normals' we are living with since 2007," Camerinelli added, referring to the global recession. "Let’s give it a few months to make the dust settle down."
One possible effect might be that the card networks and payment processors will rethink whether to keep their operations in the U.K., or consider moving to another continent, Camerinelli said.
"Overall, I don’t think that the use of credit card networks will be affected by Brexit," he added. "Perhaps the British payments centers will."
MasterCard's initial response reflects that notion, that it simply has to continue to concentrate on what it does well in the global payments scheme.
"At this point, I’d simply note that it’s business as usual for us," said MasterCard spokesman Seth Eisen. "There is no operational impact on our payments network in the U.K. or around the world."
MasterCard has to continue to "deliver an efficient way to pay and be paid" regardless of political or market changes, Eisen said. "Our network continues to operate safely and securely in over 210 countries around the world."
The card networks may actually enjoy a bump in transactions during the Brexit feeling out period, mainly because card networks can offer good foreign exchange rates, making them a better choice than some banks or exchange kiosks for visitors to the U.K. to make payments. One fallout from the British vote is that the pound's value has fallen sharply, giving the major card networks of American Express, Visa and MasterCard the opportunity to set favorable exchange rates for their issuers so that U.S. travelers make more card transactions.
But it's far from a rosy picture for card networks trying to determine the implications of the U.K. leaving the European Union.
As smaller fintech and payments startups likely have to determine whether
In the meantime, the major brands will endure slower consumer spending, less cross-border activity, foreign exchange headwinds on earnings in those regions, and a slower migration of cash and checks to digital technologies, according to industry researchers Sandler, O'Neill & Partners.
Most certainly, the Brexit vote will result in reduced travel and commerce between European Union countries and the U.K., meaning far less cross-border revenue for Visa and MasterCard, Sandler said in statement issued last week.
"We expect the rollout of products like digital wallets to be slower in both Europe and the U.K. without the attractiveness of a large single market," Sandler said. Similarly, the researchers see a potential for e-commerce development to slow down because of potential inefficiencies in cross-border payments.
Those are areas that would be of significant concern to both MasterCard and its MasterPass wallet and
But it's not a given that Brexit will have any effect on consumer adoption of new payment technology.
"I'm not sure I see an obvious reason why it would slow the pace of digital or mobile adoption," said Marianne Berry, managing director of New York- and London-based Auriemma Consulting Group. "It may slow the pace of investments in technology and it may mean products coming to market slower, but consumer interest should not wane."
The more serious threat is the notion that the Brexit fallout will result in a trend of lower transaction volume and, ultimately, a recession in the U.K. that would affect overall spending, Berry said.
"In that regard, the silver lining to all of this is that the Bank of England is not likely to raise interest rates in the immediate future, and that has been a concern in the U.K. because there is a lot of debt there," Berry added. "And credit cards are tied to market rates."
Visa did not comment about the impact of Brexit on its recently completed acquisition of Visa Europe, saying it is premature.
Analysts and investors are awaiting Visa's take on that facet of the European Union fallout, though many say there is no escaping the short-term exposure – that Visa's revenue expectations may not come in at predicted levels.
Still, the overriding analysis is that Visa will surely benefit long-term with a single global company.
"We believe that the deal still makes a whole lot of sense and there are a number of different levers the company has available to make the financial implications minimal," Keefe, Bruyette & Woods, a financial services company, stated in a June 26 report.
And as far as the economic health of the major card networks, KBW says it will continue to recommend shares of Visa and MasterCard. It also remains optimistic for PayPal and American Express, with any potential changes in UK interchange or other European countries standing as an unknown at this time.
