After the market close on December 15th, shares of Visa began selling off with a ferocity not seen since the recession. In two days, the payment-processing giant’s stock tumbled more than 17%. Shares of MasterCard weakened 13% during the same time period.
Driving the credit card stock crash was the Federal Reserve Board’s proposal to include the Durbin Amendment to the Dodd-Frank Financial Reform and Consumer Protection Act. The Amendment would cap fees payment processor's charge merchants for debit card transactions at 12 cents.
Relatively unscathed by the sharp sell-off was eBay. At first blush, investors may not think eBay would warrant any weakness on proposed financial reforms. If anything, the online retailer would seem to benefit from a reduction in credit card processing fees charged to sellers on its namesake auction site.
But, eBay is not just auctions. Much of the company’s revenue growth over the past several years has stemmed from the popularity of its PayPal online payment company. PayPal now makes up 40% of eBay’s revenues. That percentage is growing thanks to a 23% year-over-year growth rate in the last quarter. EBay’s e-commerce marketplace business grew at just 8% in the past quarter, for comparison.
So, will eBay suffer from the Durbin Amendment? That was the question at least one analyst has on May 5. In a report this morning to clients, FBR Capital Markets analyst Edward Mills said that the Durbin Amendment could negatively impact the company. In a worst-case scenario, Mills said that the $0.12 transaction cap could reduce revenues for PayPal 96%.
“The definition of debit card is very broad in the Durbin Amendment and draft rules by the Fed,” wrote Mills in his May 5 note. “If the final rules are as broad as the draft rules, PayPal accounts could easily end up being defined as debit cards.”
In a letter to the Fed, PayPal takes the position that – not only is it not a debit card or payment network – it is a large merchant of sorts. Like merchants, PayPal pays credit card companies a fee whenever it processes a transaction where the PayPal account is tied to an underlying debit or credit card. PayPal also pays banks fees for processing credit card transactions, said a spokesperson.
“The networks consider us a large merchant,” said Sara Gorman, a spokesperson with PayPal. “We pay the same fees that merchants do.”
However, like a payment processor, PayPal makes money by charging merchants fees on each transaction. Fees very from 1.9% to 2.9% of the entire transaction, depending on the volume of business a merchant does with PayPal, and a $0.30 flat fee per transaction.
Investors may have to wait until July 21, when the Amendment is scheduled to take effect, to see whether the Fed accepts eBay’s definition.
* with reporting by Erica Berman, CNBC Fast Money Producer
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Trader disclosure: On May 5, 2011, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Terranova owns (XOM); Terranova owns (BAX); Terranova owns (SLV); Terranova owns (TCK); Terranova owns (APA); Terranova owns (HOC); Terranova owns (OXY); Terranova owns (UPL); Terranova owns (FCX); Terranova owns (BX); Terranova owns (V); Terranova owns (VRTS); Terranova owns (JPM); Terranova is short (NFLX); Terranova is short S&P Futures; Adami owns (AGU); Adami owns (C); Adami owns (GS); Adami owns (INTC); Adami owns (MSFT); Adami owns (NUE); Adami owns (BTU); Finerman and Finerman's firm own (AAPL); Finerman and Finerman's firm own (BP); Finerman owns (C); Finreman and Finerman's firm own (CVS); Finerman's firm owns (IBM); Finerman's firm owns (JPM) and is long (JPM) leaps; Finerman owns (JPM); Finerman and Finerman's firm own (MSFT); Finerman's firm owns (TGT); Finerman owns (UNG); Finerman owns (USO); Finerman's firm is short (IWM), (SPY), (MDY); Finerman's firm owns s&p puts; Finerman's firm owns Russel 200 puts; Seymour owns (AA); Seymour owns (AAPL); Seymour owns (F); Seymour owns (POT); Seymour owns (SLW)
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