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Retailers win $3 billion total settlement as Visa caves in

01 May 2003  |  5282 views  |  0 NewYork3

Lawyers representing five million US merchants announced a major victory last night as Visa joined MasterCard in agreeing to an out-of-court settlement in the pending antitrust case.

A trial was scheduled to begin this week in US District Court in Brooklyn, New York before Judge John Gleeson. The lawsuit, filed in October 1996, by Wal-Mart, The Limited, Sears Roebuck, Safeway, Circuit City, and three trade associations charged Visa and MasterCard with violating US antitrust law by monopolistic and anticompetitive business practices concerning debit cards.

Debit cards verified with a signature incur fees of $1.50 per $100 transaction compared with about 10 cents for purchases using PIN systems. Retailers were looking for $39 billion in damages claims through the courts.

It is understood that Visa - which has control of 80% of the signature-based debit card market - has agreed to pay $2 billion in sttlement of the case, adding to the $1 billion payout agreed between lawyers and MasterCard earlier in the week. Payments will be staggered over a ten-year period. Both card schemes additionally agreed to a lowering of total debit card fees by an additional $1 billion later in the year.

Also by the end of the year, Visa and MasterCard will no longer be able to require retailers who accept their credit cards to accept their debit cards as well, paving the way for enhanced competition from PIN-based networks.

Lloyd Constantine of the New York firm Constantine & Partners, says: "Five million merchants will now get relief from excess fees that were forced down their throats by MasterCard and Visa. Competition will be restored to the debit card market and off-line signature debit transaction fees will drop. Consumers will continue to have the choice to use debit cards that are competitively priced. Billions of dollars in excess costs to merchants will be eliminated during the coming years and that should mean lower prices for consumers."

Community banking association ICBA says the settlements will only serve to devalue and potentially Balkanise the United States' payment processing systems.

Kenneth Guenther, president and CEO of ICBA says: "What is being postured as a reduction in merchant cost could result in reduced consumer choice of how consumers can pay, and possibly new direct fees to consumers. Whenever choice is narrowed, the result usually becomes more expensive."

ICBA reserves most venom for lead litigant Wal-Mart and its "ceaseless expansionist appetitite", as the retail behemoth continues to try to acquire its own banking charter.

The Association states: "The very fabric of our diversified financial system is being threatened as the world's largest retailers threaten to undermine the nation's banking system and our incredibly pro-consumer payments system."

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