Visa USA Inc's US$2 billion settlement of an antitrust lawsuit by Wal-Mart Stores Inc and other US merchants over debit cards will change the way banks and retailers profit from payments, analysts said.
The settlement, along with a US$1 billion agreement merchants reached Monday with MasterCard International Inc, the No. 2 credit-card company, will permit retailers who accept Visa and MasterCard credit cards to reject higher-fee debit cards, which cost them US$4.8 billion last year. Banks that had charged those fees to process debit transactions, such as Bank of America Corp, will have to make up for lost revenue, analysts said.
The merchants had claimed that Visa and MasterCard illegally tied acceptance of their credit cards to debit cards that use customer signatures. Signature debit transactions cost merchants between five and 10 times more in fees than those using personal identification numbers, or PINs, merchants claimed.
"You're going to see lower prices for consumers and safer debit cards," said David Balto, a former policy director at the US Federal Trade Commission. "People will stop using pens and start using PINS."
The US$3 billion payment represents the biggest antitrust settlement in history, Balto said. Merchants, which also include Circuit City Stores Inc and Safeway Inc, claim the money will not be a windfall for them. They predict fee savings will end up in the pockets of their customers.
"Five million merchants will now get relief from excess fees that were forced down their throats by MasterCard and Visa," said the merchants' lawyer, Lloyd Constantine in a statement announcing the settlement. "Billions of dollars in excess costs to merchants will be eliminated during the coming years and that should mean lower prices for consumers."
Few merchants may actually reject signature-debit transactions in the future, thereby inconveniencing customers, said Paul Rothstein, a professor at Georgetown University law school. The merchants' real goal in suing was to reduce fee costs, he said.
Visa agreed late Wednesday to pay US$2 billion over time to end the antitrust suit, with an additional US$25 million to be paid immediately, a person close to the merchants said.
The Visa settlement is structured nearly identically to the one between some 5 million merchants and MasterCard announced on Monday, said MasterCard general counsel Noah Hanft in an interview.
MasterCard will pay US$100 million in each of the next ten years, with a US$125 million payment this year, he said. The company will lower transaction fees on debit cards by one-third of the single blended rate MasterCard charged for debit and credit transactions. Merchants will be given the choice to accept or reject the lower-priced debit transactions.
"I think Visa has had a very large lead, and this is going to really shake up the situation," Hanft said, referring to the two settlements. "The shake-up should serve us well in the marketplace."
The merchants' suit targeted Visa and MasterCard's "honor all cards" rule that required merchants that take Visa or MasterCard to accept all cards with the companies' logos, including debit cards.
Beginning in January, merchants will no longer have to accept the debit cards.
Consumers used Visa and MasterCard debit cards to make US$317.8 billion in purchases last year, yielding US$4.8 billion in fees for banks that issued the cards, according to the Nilson Report, an industry publication.