AJ Fabino, Senior Editor, Stock Trader Network

Visa (V) and Mastercard (MA) fell after The Wall Street Journal reported late Monday that Fiserv (FISV) is exploring a sale of its debit-card network to large U.S. banks, something that investors took as a potential new competitive risk for the payments duopoly.

Visa shares were down about 2.09% since the report. Mastercard was lower by about 0.45% while Fiserv rose about 2.09% after climbing as much as 6.24% in after-hours trading when the report first hit.

On STN’s PreMarket Prep, Dennis Dick said the reaction unfolded more gradually than many headline-driven moves because investors had to think through what ownership of that network could mean in the hands of a major bank.

“The funny thing is it took a while. This was not algorithmic. This was like humans and institutional money figuring it out,” Dick said.

The concern, he said, is the idea that Fiserv’s debit business could become more competitive if it were folded into a bank with the scale, customer base and funding capacity of a JPMorgan or another large lender.

“Because imagine that Fiserv account all of a sudden has a JP Morgan label attached to it. That’s why,” Dick said.

He said the market treated the report as more relevant for Visa and Mastercard than for American Express or Capital One because Visa and Mastercard make money from processing payments, while American Express and Capital One are structured differently and keep more credit exposure on their own books.

“Visa and Mastercard are basically just payment processors. That’s where they make all their money,” Dick said.

Dick also pointed to valuation. He said Fiserv trades around six times earnings, while Visa trades near 24 times earnings and Mastercard around 27 times. In that setup, a competitive threat can matter quickly.

“Any type of disruption in this thing gets hammered because it is priced to perfection,” Dick said.