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 Major retailers revolt against Visa and Mastercard's proposed settlement. Visa, MasterCard Sue Interchange-Fee Settlement Drop Outs Visa and Mastercard go after the retailers in an attempt to finish the fight once and for all. Other Stocks in the News Can This Packaged Foods Giant Keep Growing? Will Campbell's outperform its industry peers? Will This Retailer Outgrow its Competition? Which is a better buy - Nordstrom or Macy's? Copyright 2013 by, Inc. InvestorGuide has no control over the sites we link to, is not affiliated with these sites, and cannot take responsibility for their quality or suitability. The news, analysis, commentary and profile information is not meant to be comprehensive, and the data provided is not guaranteed to be accurate. WebFinance Inc., the publisher of this newsletter, is not a registered investment advisor or a broker/dealer. This is not a stock recommendation newsletter but rather a source for investment ideas, and we encourage you to fully research any company before considering investing. The opinions expressed herein are those of the author and do not necessarily represent the views of nor are they endorsed by WebFinance Inc. No employee of WebFinance has owned or currently owns any shares in the company described above. The above is neither an offer nor solicitation to buy or sell any securities. The trading of securities may not be suitable for all potential readers of this newsletter, and the purchase of stocks mentioned in this newsletter may result in the loss of some or all of any investment made. We recommend that you consult a stockbroker or financial advisor before buying or selling securities or making investment decisions. We are not responsible for claims made by advertisers and sponsors. Anyone who makes decisions based on what they read here does so at their own risk and cannot hold WebFinance Inc. (DBA, Inc.) or its employees responsible.

Published on May 31, 2013
By Leo Sun
Leo Sun
Leo Sun is a freelance finance writer and position trader. He focuses on a combination of value and momentum investing, with a strong interest in the trading philosophies of Warren Buffett and Peter Lynch. Leo also has experience writing articles to help small business owners acquire loans and manage their finances. He regularly contributes to the Stock of the Day analysis.

Copyrighted 2016. Content published with author's permission.

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