PagSeguro Digital ( NYSE: PAGS ) stock has slumped 11% in Monday afternoon trading after the Brazilian Central Bank imposed a cap on interchange fees of prepaid and debit cards and require the same settlement period for both types of transactions.
Bank of America Securities analyst Mario Pierry commented in a note that the central bank's move negatively affects card issuers, as the 0.7% cap on prepaid transactions is less than the 1.5% fees that card issuers currently charge.
Also acquirers, which currently reap financial gain on float, as prepaid cards operate with settlement period of 28 days, will also be negatively affected. However, at the same time, acquirers will also benefit due to the lower transaction costs.
Pierry estimated that interchange fees on prepaid card transaction represent 60%-70% of PagBank revenue, or 5%-6% of PagSeguro's ( PAGS ) consolidated revenue. The company, though, should be able to mitigate some of the impact with lower costs on acquiring operations, the analyst said. He maintains a Buy rating on PAGS.
Overall, the Banco do Brasil announcement was positive as the 0.7% prepaid transaction fee rate was higher than the 0.5% rate that was suggested at a public hearing in 2021.
For Nu Holdings ( NYSE: NU ), which operates Nu Bank, the prepaid transactions cap of 0.7% would have hurt its trailing 12-month revenue by 2.9% , it said in a filing. Pierry maintained a Neutral rating on NU. He describes the negative impact on the company's profitability as "manageable." Nu Holdings shares, meanwhile, are down 2.5% .
SA contributor Caterer Goodman Partners suggest buying PagSeguro ( PAGS ) before interest rates peak in Brazil
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PagSeguro shares slide after Brazil announcese prepaid, debit card fee caps