Retailers Declare War on Visa (V) and Mastercard (MA)
Payment processing giants Visa (V) and Mastercard (MA) recently found itself at odds with a group of major retailers across the United States, that claimed that the card companies' swipe (transaction) fee practices were illegal. This battle has raged on for eight years, with retailers claiming that Visa and Mastercard, which have interlocking boards of directors, colluded to fix swipe fees for their mutual benefits.
Visa and Mastercard had appeared victorious earlier, when a settlement with retailers was apparently reached, in which the companies would pay a $7.25 billion settlement to participating retailers. Daily Chart
Visa and Mastercard's proposed settlement states that major banks can back out of the agreement if non-participating retailers comprise over 25% of their total credit card payment volume. This includes the top 100 retailers in the United States. Therefore, the cooperation of these top retailers is critical for Visa and Mastercard's settlement to succeed. 15 of those retailers have already reached individual settlements with Visa and Mastercard over the past year. Yet some major retailers weren't happy about that settlement at all, and 19 major U.S. retailers, including Wal-Mart (WMT
), Starbucks (SBUX
), Macy's (M
) and Target (TGT
) have refused to accept the settlement, tipping the scales heavily back in the retailers' favor. Instead, these combined companies intend to pursue further legal action against Visa and Mastercard to reduce swipe fees. These companies claim that they already pay over $1 billion in annual swipe fees to Visa and Mastercard, and that the settlement is hardly sufficient to cover those costs. This open revolt caused Visa and Mastercard to sue these companies, stating that it was "necessary to prevent the continuation of endless, wasteful litigation." Visa and Mastercard are also seeking to block trade groups and retailers from continuing to pursue antitrust damages for its swipe fees. This means that for Visa and Mastercard, the battle that looked as if it was ending is just beginning. Trish Wexler, a spokeswoman for the payment card industry, stated, "After years of negotiation, the same retailer trade groups that willingly agreed to a multi-billion dollar settlement are now turning around and demanding even more. Enough is enough - these tired old arguments and this battle needs to be put to bed." However, staying focused on these retailers could benefit alternative payment systems, such as eBay's (EBAY
) PayPal and Google (GOOG
) Wallet, which have been steadily gaining traction over the past several years. PayPal and Google both issue physical cards, which are connected to electronic accounts, that can be used at brick-and-mortar retailers - an obvious attempt to woo retailers that are increasingly fed up with swipe fees from Visa and Mastercard. In addition, next-generation smartphones are being installed with NFC chips, which allow contactless payments. While Visa and Mastercard offer NFC-based apps already, other competitors are quickly rising with other payment alternatives. If that big group of 19 retailers simultaneously decide to cut ties with Visa and Mastercard and promote other forms of payment, such as American Express, Discover (DFS
), Google or PayPal, then things could get ugly real fast for the two credit card giants. Other News About V Retailers Unhappy With Credit Card Fees Settlement
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Published on May 31, 2013
By Leo Sun