Visa USA Inc and MasterCard International Inc, the world's biggest credit card issuers, face a tougher challenge to defend a lawsuit brought by Wal-Mart Stores Inc and other retailers over debit cards after a recent court ruling, lawyers said.
In the case, slated to go to trial today, an estimated five million merchants seek US$39 billion in damages from Visa and MasterCard for forcing them to accept debit cards that require signatures as well as credit cards. Accepting debit cards that require a signature costs retailers as much as 15 times more than other debit cards.
The presiding judge recently made it easier for retailers to make their case. He ruled earlier this month that they don't have to prove that credit and debit cards are separate products, a key requirement to establish their antitrust claim. He also said Visa's credit-card market share was so large that one could infer it could force merchants to take an unwanted product.
"Visa has a daunting task ahead of it," said David Balto, an expert in antitrust law who is a former director of policy at the US Federal Trade Commission. "MasterCard's task is about the same. We could have a vastly different payment system."
Should retailers show that linking acceptance of credit and debit cards violates US antitrust laws, they could refuse to accept debit transactions that require a signature, instead encouraging customers to use those validated with personal identification numbers, or PINs, that carry lower fees. That would mean a drop in revenue for Visa and MasterCard member banks.
The case, filed in 1996, targets the two companies' "honor all cards" rule. It requires merchants that take Visa or MasterCard to accept all cards with the companies' logos.
Consumers used Visa and MasterCard debit cards to make US$317.8 billion of purchases last year, yielding US$4.8 billion in fees for banks that issued the cards, according to the Nilson Report, an industry publication.
"We're watching it very closely because it impacts our business," said James Hance Jr., chief financial officer of Bank of America Corp, the No. 1 issuer of Visa debit cards in the US, of the suit.
"It impacts the interactions we have with retailers and it impacts the price of a credit card and a debit card to the retailer," Hance continued.
The jury will be asked to determine whether Visa and MasterCard conspired to use their credit-card market power to dominate the debit-card market, which has regional competitors and whether the honor-all-cards rule damaged competition.
"We're going to have to show a jury that forcing merchants to take something that they don't want to take, at five to 10 times the price of the competition, is bad for merchants and is ultimately bad for consumers as well," said the merchants' lawyer, Lloyd Constantine.
A victory for retailers, which include Sears, Roebuck and Co, Circuit City Stores Inc and Safeway Inc, may force Visa and MasterCard to cut the fees they charge merchants for signature-based debit-card transactions should they wish to continue offering customers all card-payment choices, lawyers said.
"They're trying to take away consumer choice," said MasterCard chief executive officer Robert Selander, referring to Wal-Mart and the other merchants.
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