President Donald Trump just lobbed another grenade into the payments industry, and this time Visa Inc. (V) and Mastercard Inc. (MA) are squarely in the blast radius.

Late Tuesday, Trump signaled his backing for the Credit Card Competition Act, a piece of legislation that's been kicking around Washington for years. The proposal would require large banks to allow credit card transactions to route through at least two unaffiliated networks. Translation? It could crack open the near-monopoly that Visa and Mastercard have spent decades building.

The market's reaction was swift and brutal. Visa dropped 4.5% and Mastercard fell 3.8% on Tuesday, marking their worst daily performance in more than six months. Together, the two giants control 84% of U.S. credit card volume and anchor a payments ecosystem that generates roughly $223 billion in annual revenue, according to Goldman Sachs.

The legislation targets swipe fees—those transaction costs merchants pay every time you tap your card. In 2024, those fees averaged 2.35% per credit card transaction, according to Nilson data. That adds up fast, especially for retailers operating on thin margins.

This isn't Trump's first swing at credit card economics. Back on January 10, he posted on Truth Social calling for a one-year cap on credit card interest rates at 10%, framing it as a consumer protection issue. Now he's taking aim at the infrastructure itself.

Goldman Assesses the Damage

"We believe the potential for significant market structure changes in the U.S. credit card market will be a continued overhang in the near term," said Goldman Sachs analyst Will Nance.

Goldman ran the numbers on what a volume shift might mean. If 5% of credit card transactions currently flowing through Visa and Mastercard got rerouted to competing networks, Visa's earnings would drop by approximately 3%, while Mastercard's would decline by about 1%.

That estimate assumes a 20-basis-point take rate, which Goldman acknowledges might actually overstate the impact. The most profitable transactions—cross-border payments—aren't even in scope for this legislation. So while the headlines look scary, the actual earnings hit might be more manageable than the stock moves suggest.

A Seismic Shift or Just Tremors?

Goldman isn't predicting an earthquake just yet.

"While we see the potential earnings hit to the card networks as manageable, and are not expecting a seismic shift, we do see risk of share shifts to competing networks," Nance added.

Those competing networks include American Express Co. (AXP) and Discover Financial Services, though Goldman thinks competitive incentives will probably keep interchange rates hovering near where they are today.

The real risk, according to Goldman, is if political pressure ultimately forces U.S. interchange fees down to international levels. That's where things get interesting—and potentially painful.

"The U.S. is one of the only major countries with unregulated interchange fees, sitting around 200 basis points," Nance said. "Bringing that down to global norms would have broad consequences across rewards, bank revenues, and consumer spending behavior."

In other words, say goodbye to your 2% cash back and premium travel rewards if fees get slashed European-style. That kind of outcome would ripple across the entire ecosystem, squeezing bank profits and potentially changing how Americans spend.

Who Else Gets Caught in the Crossfire?

Buy-now-pay-later companies are sitting in the hot seat too. Goldman highlighted Affirm Holdings Inc. (AFRM), Klarna Group Plc (KLAR), and PayPal Holdings Inc. (PYPL) as vulnerable, since their merchant pricing typically anchors to credit card interchange rates.

That said, Affirm looks relatively insulated because most of its revenue comes from interest-bearing loans rather than merchant fees.

Traditional payment processors aren't off the hook either. Goldman warns that Fiserv Inc. (FISV) and Fidelity National Information Services (FIS) could see slower growth if credit card usage weakens or consumers shift more spending to debit cards.

Winners and Losers

Large merchants would be the obvious winners if swipe fees fall, though Goldman cautions that savings might not fully trickle down to consumers. Small merchants are in a murkier position—it depends on whether payment processors actually pass along the lower costs.

"Merchant acquirers for small businesses would have the option of not passing on the full benefit of lower interchange fees to the merchant, resulting in an increase in their net take rates," Nance said.

In other words, the middlemen might just pocket the difference.

For now, Goldman isn't abandoning its bullish thesis on Visa and Mastercard. The firm maintains Buy ratings on both stocks, viewing their long-term fundamentals as intact.

But make no mistake—Trump's aggressive push into credit card policy has introduced a new uncertainty that investors can't afford to ignore. The payments duopoly has looked unshakeable for years. That assumption is now being tested.