Trump's Credit Card War: A Policy Overhang or a Real Threat to Visa & Mastercard?

The market just got a reality check. President Trump's latest salvo directly targets the heart of Visa and Mastercard's business: their 84% U.S. credit card volume duopoly. By publicly backing the Credit Card Competition Act, he's reigniting a proposal that would force banks to route transactions over at least two unaffiliated networks. This isn't just talk. The stocks reacted violently, posting their worst weekly declines since the April 2025 tariff sell-off.

The immediate threat is clear. These networks earn massive fees from every swipe. The legislation aims to reduce swipe fees paid by merchants, which stood at 2.35% last year. That fee engine is the core of their high-margin, recurring revenue model. Goldman Sachs quantifies the risk starkly: a 5% drop in credit card volumes routed through Visa and Mastercard could trim Visa's earnings by about 3% and Mastercard's by 1%. That's a justified reaction to a credible threat.

Yet the long-term duopoly remains intact. Goldman's analysis stops short of calling it a "seismic shift." The real asymmetric risk isn't just a volume shift, but a political push to bring U.S. interchange fees down to global norms. That would ripple across the entire ecosystem, shrinking rewards and pressuring bank revenues. For now, the investment thesis is one of a policy overhang-real, measurable, and priced in-but not yet a structural collapse.

The Mechanics: How the Competition Act Could Work (and Hurt)

The bill's mechanism is surgical. It would force large banks to route transactions over at least two unaffiliated networks. That's a direct attack on Visa and Mastercard's 84% U.S. credit card volume duopoly. By breaking their near-monopoly on routing, it aims to introduce real competition and, ultimately, lower the fees merchants pay.

The target is the ~2.35% interchange fee per transaction. That fee is the core of their high-margin, recurring revenue engine. Goldman Sachs quantifies the immediate financial risk: a 5% shift in payment volume away from their rails could trim Visa's earnings by about 3% and Mastercard's by 1%. That's not a minor blip-it's a direct hit to earnings growth in their dominant U.S. and cross-border segments.

The asymmetric risk, however, goes far beyond a simple volume shift. The real threat is political pressure to bring U.S. interchange fees down to global norms. As Goldman notes, the U.S. is one of the only major countries with unregulated interchange fees, sitting around 200 basis points. Bringing that down would have broad consequences across the entire ecosystem, shrinking card rewards, pressuring bank revenues, and potentially reshaping consumer spending behavior.

This isn't just about Visa and Mastercard losing a few transactions. It's about the entire fee structure that underpins the modern credit card economy facing a fundamental reset.

The Bigger Picture: Economic Strength vs. Political Risk

The market is sending two conflicting signals. On one hand, the economic engine is roaring. The U.S. economy is projected to grow at a stunning 5.3% annualized rate in the final quarter of 2025. That kind of reacceleration is fresh fuel for earnings, especially for small and mid-caps. The proof is in the price action: last week, the Russell 2000 hit fresh record highs and posted its longest streak of consecutive outperformance versus the S&P 500 since 2008.

On the other hand, a new political overhang is casting a shadow. The same week the small-cap rally broadened, the financial sector got hit by a policy shock. President Trump's plan to cap credit-card interest rates at 10% triggered the worst weekly decline for Visa and Mastercard since the April 2025 tariff sell-off. This tension is the core investment story: strong economic growth supports financials, but aggressive policy could cap their profitability.

The outlook for financials and small caps is now a battle between these two forces. Optimists point to tailwinds like potential Fed rate cuts and lower tariffs. As Fundstrat's Tom Lee notes, sectors like financials and small caps are poised to lead market growth in 2026. Yet the recent market reaction shows that political risk can quickly override macro momentum. The setup is clear: the economic backdrop is bullish, but the policy overhang adds a layer of uncertainty that could limit the upside for the very financial giants that benefit most from a strong economy.

Catalysts & Watchlist: What to Watch Next

The policy overhang is now a live wire. The near-term catalysts are clear, and they'll determine if this is a temporary market scare or the start of a structural reset. Watch these three fronts.

First, monitor the House Financial Services Committee's investigation into Trump's 10% interest rate cap. This is the immediate political battleground. The committee's probe, announced by Speaker Mike Johnson, is a formal step to assess the proposal's "negative secondary effects." If the investigation leads to hearings or a markup, it signals legislative traction. The pushback from within the GOP is telling-leaders like Rep. Rich McCormick warn that government price controls typically result in "unintended consequences." Watch for this internal Republican friction to intensify. A committee report or vote is the first real test of whether the cap gains momentum or fizzles.

Second, track the Credit Card Competition Act itself. Its passage would be the definitive negative catalyst for Visa and Mastercard. The bill's mechanism is direct: force banks to route transactions over at least two unaffiliated networks, breaking the 84% U.S. credit card volume duopoly. While Goldman Sachs sees a 5% volume shift as a manageable earnings hit, the real asymmetric risk is political pressure to bring U.S. interchange fees down to global norms. That would have broad consequences across the entire ecosystem, shrinking rewards and pressuring bank revenues. Watch for any movement on the bill in Congress-committee hearings, floor votes, or amendments.

Third, watch Visa and Mastercard's Q4 earnings reports. This is where the market will get concrete commentary on regulatory risks and fee pressure. Management will likely address the political overhang head-on. Any hint of banks demanding lower network fees or merchants gaining more bargaining power on swipe costs would confirm the threat is moving from theory to practice. The earnings call is the next scheduled data point to gauge the real-world impact of this policy storm.

The bottom line: the setup is a classic tension between political overhang and economic strength. For now, the economic engine is strong, but the policy threats are tangible and advancing. The watchlist is your early-warning system.