Priceless

It's Everywhere 

Welcome to 2025, a new beginning. I believe that the citizens of this planet will see the most significant shift in perception in the history of our existence. What do I mean by this statement? Most importantly, you will have access to information that our existing cultural and governmental systems are not failing but, in fact, have failed. Is this a cataclysmic statement? No, all things have a beginning and an end. We are literally witnessing the history of our own making.

Firstly, let's look at our December credit card statements. Unless you pay off your balance each month, the credit card issuer charges you a rate of interest for the money you borrow. As I look at my statement today, my annual percentage rate of interest, or APR, is 18.48% for a Visa credit card. Concerning the national average, I'm on the low side. Consequently, the average APR is 28.75%.

As a result, both APRs sounded high to me, so I investigated what a loan shark would offer on the street. The answer I received from Google was between 20% and 1000% per month. Okay, now we have some perspective on the matter.

Why is the average credit card interest rate so high, and why has it doubled from just four years ago?

Park Place 

To get to the deeper truth of big finance, we have to start with Missouri Senator Josh Hawley, who questioned Visa and Mastercard (MC) executives during a Senate Judiciary Committee hearing on November 19, 2024.

During this session, he scrutinized their market dominance and fee structures, labeling their behavior "classic monopolistic." Consequently, the hearing focused on the proposed Credit Card Competition Act, aiming to introduce more competition and reduce fees consumers pay in the credit card system.

Fair Isaac

Let's look at the details to understand the term monopoly better. A monopoly is a market structure characterized by exclusive product or service control by a single company or entity, with no competition. This dominance enables the monopoly to dictate prices, production, and market terms without being constrained by competitors or consumer alternatives. However, monopolies are generally illegal in the United States. 

So, are Visa and Mastercard playing fair? For example, Visa & MC have about 726 million cardholders between them, or two cards per person. In other words, these two companies own 80% of the market and make over 50% profit margin. What is the average profit margin of a company, you might ask. Research shows a standard benchmark for the average net profit margin is typically  7% to 10%. So, on average, Visa and MC make up five times the national average. 

Meanwhile, the immense profit margin (profit after expenses) is because the total credit card debt owed to these two companies in 2024 is $1.17 trillion. Moreover, the extremely high rates these companies charge is, on average, 28.75%. Further, this amount has doubled in the last four years. 

Laundry time 

Consequently, these numbers can be overwhelming, so I wanted to see what the debt of $1.17 trillion would cost per month at an interest rate of 28.75%. The result was a monthly interest payment due to both Visa and MC of $28.23 billion, or around $14 billion to each. However, what if we paid the minimum of 3% on $1.17T? The two card companies would receive payments of around $841B. Most importantly, that is a monthly payment, and most never pay down their debt entirely. So, I was curious how Visa and MC reported their yearly revenue for 2024. Here is what I found:

Visa Inc. reported a net income of $19.7 billion for the fiscal year 2024, representing a 14% increase over the prior year's results. As a result, this growth was driven by a 10% increase in net revenue, reaching $35.9 billion, and a 6% rise in operating expenses, totaling $12.3 billion. The company's diluted earnings per share for Class A common stock were $9.73, up 17% from the previous year. These figures reflect Visa's strong performance in the payments industry during the fiscal year.

Meanwhile, as of September 30, 2024, Mastercard's net income for the trailing twelve months was approximately $12.32 billion, reflecting a 12.76% increase year-over-year. In the third quarter of 2024, Mastercard reported a net income of $3.3 billion, with diluted earnings per share (EPS) of $3.53. Consequently, these figures highlight Mastercard's continued growth and strong performance in the payments industry during 2024.

Top 25

To grasp the level of income these two companies report, you'd need to see who ranks with them. For example, Apple reported a net income of $14.74 billion, and Google's parent company, Alphabet, reported a net income of over $26.3 billion. Finally, Walmart's net income for 2024 was approximately $16.3 billion.

Not all of us are financial analysts; the information above is for experts and not the average consumer. For instance, the term diluted earning refers to a worst-case scenario regarding the impact of securities that could dilute the value of existing shares. Financial speak for Stock Options and Warrants: Rights to purchase shares at a fixed (lower) price. Similarly, Convertible Preferred Stock: Preferred shares (fixed dividends) that can turn into common stock (more risk on dividends). In other words, the company can change its mind about where the money goes after reported income.

So, a 50% profit margin means a lot of money, billions of dollars a month in profit. Where does that money go? Shareholders benefit the most. Who are the largest shareholders of Visa? Vanguard Group, BlackRock, and State Street Corporation hold significant positions in Visa and MC. 

Charity? 

In addition, MC has an interesting twist on their biggest shareholder. It is the Mastercard Foundation. The Mastercard Foundation is an independent, private foundation with its own distinct mission and operations. It is an international non-governmental organization established by Mastercard in 2006. Further, it is the wealthiest charitable foundation in Canada and one of the richest in the world, with 2024 assets of $47 billion.

Based in Toronto, Ontario, the organization has supported work in 49 countries but shifted to a specific focus on Africa through its Young Africa Works strategy. The foundation develops programs primarily focused on reducing gender and economic inequality, expanding access to quality education, increasing the opportunities for decent work, and supporting overall economic growth. Consequently, Africa has 1.4 billion people compared to North America, which has approximately 600 million people. That is to say, more than double that of North America.

Californ-I-A

Capitalism is not bad or good; it just is. However, don't we, as the public, have the choice to choose from a legitimate, open market? Do two companies get to charge high interest rates without any repercussions? I looked to California and examined their laws for lenders. Here is what I found: 

In California, absent an exception, the maximum allowable interest rate for consumer loans is 10% per year. For non-consumer loans, the interest rate can bear the maximum of whichever is greater between either i) 10% per annum {year} or ii) the "federal discount rate" plus 5%. Consequently, the majority of California or federally licensed lending institutions involved in the business of making loans (e.g., banks, credit unions, California Finance Lenders, etc.) are exempt from California's Usury Laws.

Follow the Money

To be clear, our laws are simply ideas to help people and are subject to change as we receive new information. We, the people, have the final say about what a fair business practice is. It is one-sided to say we can merely pay off our debt and have no interest penalties or charges. Likewise, credit is helpful and, in many cases, necessary. We just don't want to be mistreated for the request. Ultimately, it is up to us how we choose to engage with credit card companies. However, it would be nice to receive some governmental support, as many corporations do. See my blog on corporations that do business with the Department of Defense.

The Red Door 

In closing, I will leave you with this quote: 'Permit me to issue and control the money of a nation, and I care not who makes its laws.' The excerpt is from Meyer Amschel Rothschild, who founded the great international banking house of Rothschild, which, through its affiliation with the European Central Banks, still dominates the financial policies of practically every country in the world, including the United States of America. 


Tags

finance, past, power


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