In a dramatic move in the Wal-Mart antitrust case in the US, MasterCard and Visa settled with 4 million retailers just as the trial was to begin. First, MasterCard threw in the towel for terms which included $1bn in cash over 10 years, abolition of the “honor all cards” rule, and an immediate 30% reduction in interchange fees for MasterCard-branded debit cards. A few days later, Visa succumbed for $2bn and similar terms.
The outcome of this case will be debated for many a moon. But it does not mean the end of litigation on this and related issues in juristictions around the world. For example, Visa/MasterCard are appealing adverse decisions in Australia and California, the EU has temporised with a mandated decline in cross-border Visa interchange fees to 0.7% . Canada is investigating the associations, and the UK’s Office of Fair Trade is to rule on MasterCard’s interchange fees before summer begins. And MBNA and TCF Bank have already disputed the Wal-Mart settlement. There’s more to come.
Both sides and their many lawyers are able to claim victory in this nearly decade old case, where the consumers who ultimately pay the bills have been blissfully unaware of the problem. For example, although the $3bn represents the largest private antitrust settlement ever, it is far less than the tens of billions generally discussed. And, although the 30% reduction in off-line interchange is substantial, MasterCard and Visa have managed to raise their fees for their on-line debit programmes in a way which offsets much of the losses.
Above and beyond all this, there are two issues of primary importance. First, the principle of interchange remains intact although it seems certain to draw more litigation. It is a legal issue because it does involve a form of price-fixing and sharing among competitors. In the US credit card market, interchange accounted for 88% of pre-tax earnings in 2002.
The second issue goes to the role of card branding, especially debit or deposit access cards. Visa/MasterCard have accomplished the remarkable feat of global acceptance through powerful branding and billions in advertising expenditures. But this has had the unfortunate consequence of destroying any perceived difference between the two, and – more importantly – makes issuer differentiation increasingly difficult.
This may have been tolerable in credit cards, but is a serious threat to bank/customer relationships in debit or deposit access cards. These cards represent that relationship, and are an important means of differentiation. So, would banks around the world be better off with a common debit acceptance mark which does not interfere with primary bank-branding? It could be compared to the ISO “H” for hospital or “P” for parking. Do banks really need powerful common brands in dealing with their own customers?
