In the business world having a lawyer or access to lawyers is a normal part of operations. There are many contracts to be negotiated and signed and firms are sued on a regular basis. Sometimes the suits are good, sometimes there are less than advantageous to the company, and sometimes the suits last for decades. Often times the ones that last for decades are when companies have near monopolies, and they can charge a fee for their services. Companies using the service will try to negotiate for a lower fee, but when is a fee too high?

In an article by Ken Sweet and Mae Anderson of the Associated Press, Vias and Mastercard announced a settlement that ended decades of litigation over fees. While many people own a credit card with either VISA or Mastercard, the real business of the companies is owning the wires every time a debit or credit card is swiped or tapped to the chip to connect.

The lawsuit means the fees will be reduced to 2030 then they will either go up again or be negotiated. The issue for the National Federation of Independent Businesses is Visa and Mastercard sets the interchange rates but small businesses have to pay the highest fees.

The interchange rate are calculated as a fixed fee plus a percentage of the sales total, typically from 1 to 3%.

After 2030, companies must negotiate the fees with merchant-buying groups. The law firm that announced the settlement put the value of the savings close to $30 billion. This particular lawsuit started in 2005.

Linking to dividend paying stocks, both Visa and Mastercard pay dividends and over the years have been a good investment to own. The bulk of the revenues come from owning the wires or connections for consumers to use a debit or credit card. Another source of revenue is from the interest on the credit card. Companies have started small but the heart of the business is the volume needed to generate revenues minus loan losses, if losses are low, it is a healthy business to be in. When you examine the companies you invest in, it is important to know where the majority of the revenues come from to generate profits. The easier it is to generate on going revenues the easier it is to invest in the company.

There are more questions than answers, till the next time – to raising questions.