Global credit card giants, Visa International Service Association and MasterCard International, are facing new, significant risks, warns a new report from Standard & Poor’s Ratings Services.

The rating agency cites numerous, high-profile litigations against the firms, “which have had and could continue to have, a substantial effect on the companies’ future business profile and financial flexibility.” S&P adds that these suits aimed have been at “fundamental aspects of their respective business practices that often are historically reasons for their success as a franchise”.

“The associations’ membership rules that govern the activities of their members world-wide are now increasingly under pressure, turning into contingent liabilities with a highly unpredictable and unquantifiable probability of occurrence and outcome,” says S&P credit analyst Daniel Koelsch.

S&P says the highly competitive environment has further intensified, “with a clear impact on the brand development, market positioning, business margins, and financial position of Visa and MasterCard.”

“Regulators, peers, merchants, cardholders, and issuers – all have their own interests and question various aspects of the rules and business practices established by the associations,” it notes.

“The emergence of super-retailers (primarily the discounters) and the intense price competition created by the Internet and the rise of the discounters have meant that merchants have both the heft and motivation to challenge the associations and their ability to set interchange fees,” the rating agency says. “This consolidation process has shifted and concentrated pricing power away from the associations into the hands of those that pay those prices, namely the merchants and the card issuers.”

In response to the S&P report, MasterCard notes that it has detailed these sorts of challenges in its financial filings since it converted to a stock company in 2002. “MasterCard is competing successfully in this changing industry landscape, and has maintained a strong financial position,” the credit card firm said in a statement.

In reporting its financial results for the first quarter of 2005, Chris McWilton, MasterCard’s chief financial officer, noted that it achieved double-digit revenue growth for the fifth consecutive quarter, “despite pricing pressure in an increasingly competitive payments marketplace”.

“MasterCard’s continued growth demonstrates the vitality of our brand, our unsurpassed worldwide merchant acceptance, our expanding portfolio of payment products, and the success of our customer-centric strategy,” added the firm’s president and CEO, Robert Selander.