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How have retailers benefited from the antitrust dispute over payment cards?
Over the past few years, anti-trust authorities and companies that have accepted cards have waged a gradual battle against cards charges and the map grid regulations that safeguard them. Anti-trust disputes in the payments cards sector are nothing new and date back to cartel actions against Visa's forerunner in the early 1970s.
However, recent trends have begun to give companies that accepted cards (known in the cards community as "merchants") a tool to gradually reduce the impact of these charges on their bottom line. The Second Circuit Court of Appeals in New York overturned the turning point between the payments cards community and retailers in June 2016, which included $7.3 billion in compensation and the disputed approval of VISA and MasterCard awards given the different interests of retailers in this group.
In addition, the Second Constituency had taken into account the reference to the Justice Department ("DOJ") cartel win over American Express, and many analysts felt that the verbal arguments disclosed a significant appeals psychosis against the government's case. This is therefore a good moment to briefly check the state of affairs and find out where companies currently are with regard to the acceptability of credit cards.
There is a difficult tension between the payments cards industries, retailers who are accepting payments cards (i.e. credit cards and debit cards ), and users of them. Every market place gambler profits from the presence of cards, although their incentive is different. Companies loathe the handling charges for credit cards.
For this reason, some demand a minimal charge for the use of a credit or debit cards (e.g. "no credit cards acceptable for shopping under $10"), and therefore a taxidriver can run your credit or debit cards through a Square scanner on his smart phone and not through the credit or debit station in the cabin.
This is why Costco now only accept Visa credit cards, and why some companies do not accept American Express. For shopkeepers, transaction charges (so-called exchange fees) are often regarded as a levy for which they receive little or nothing in exchange. Companies also loathe the fact that these charges help to finance the'rewards' that issuing companies are offering their cardholders.
However, shopkeepers profit from the acceptability of credit cards. More and more people are using cards, from cup to cardiac operation, and less and less money. If a company does not pay with credit cards, it would probably loose some of its clients who would rather buy with plastics.
In fact, some companies even depend on the instalment function of credit cards to enable their clients to make costly transactions that they would otherwise not be able to make. Research suggests that credit cards will cost the consumer more to pay with a retailer than if they were to pay in real terms. Simultaneously, interbank charges are the heart and soul of the debit cards industy, which is primarily made up of the debit cards companies (Visa, MasterCard, American Express and Discover) and the credit cards companies (generally known as " banking companies ", although not all of them correspond to the conventional definitions of a banking company - and in the case of American Express and Discover, each of them acts both as an issuing company and a network).
Therefore, the cards sector is an incentive to encourage increased consumption of cards and is very efficient in doing so. It offers everything to customers, from air mileage, to travelling aids, to preferential theatre ticketing and cashback - which, from an economics point of view, is just the shared use of part of the interaction fee by companies accepting cards with them.
The consumer profits from the presence of a system of generally acceptable cards as well as from the advantages and advantages these cards offer. However, they also bear the cost of this system, which is mirrored in the price of the goods and service they buy, even for non card transactions.
Different actors at different tiers are competing with each other in the cards payments area. Cardholder associations are competing (to some extent) with each other to raise the number of issuing bank cards and they are competing to persuade retailers to agree to accept them. Bank competitors are competing with each other to provide the most appealing cards for the consumer.
In spite of this complexities, traders have been arguing for centuries that there is a failing market: that interbank charges are too high and that the aim of the regulations enforced by banks' banks is to "manipulate" the match in order to keep these charges high. In addition, the map scheme regulations have hindered dealers from leading customers to alternative products that are either better for them, better for them, or both.
Dealers ( and the DOJ that acts on their behalf) have achieved some successful challenges to these regulations through a number of court cases over many years. The Visa and MasterCard are distinct units, each of which started as a non-profit partnership joined by members from finance institutes, usually banking institutes. Despite being regarded as rivals, the two undertakings have often cooperated and have generally established similar map guidelines and charges.
Initially, they had to "choose one side" and either issued MasterCard or Visa cards. However, the federations relaxed these regulations in the seventies, after the DOJ declined to sanction them under anti-trust law, and since then member unions have been able to use both systems. In the separate 90s, retail traders (including Wal-Mart, which would remain fighting the sector in the coming years) brought collective actions against Visa and MasterCard to challenge their Hon all Cards regulations, which require traders to agree to accept all cards in a card pool if they agree to one of the cards in that pool.
According to the regulations, if a retailer wanted to admit Visa or MasterCard credit cards, for example, he also had to admit the network's debit cards. These cases were negotiated in detail, and in a 2003 comparison Visa and MasterCard decided to change these regulations. These changes have decoupled the acceptability of credit cards from the acceptability of debit cards, so that one retailer could agree to one but not the other.
Ultimately, this amendment would create new value for traders, as a 2010 Act (the Durbin Amendment) restricted the exchange charges that could be levied on credit cards which, in many cases, makes credit cards less expensive than crediting. The amendment also enabled traders to provide discounts to those customers who paid with a direct debit instead of a credit/debit card.
However, the "honor all cards" rule has not disappeared; although it no longer links credit acceptability to debt acceptability, it still applies to all cards within a series. For example, a trader who accepted a Visa credit will have to pay for all Visa credit cards, even those with higher exchange charges (e.g. generously priced reward cards), which some traders may wish to reject.
One of the main issues of interest to anti-trust authorities and individual claimants since the early 2000s is stock exchange charges and related regulations. Interbank charging cases have taken a complicated and distorted approach; a summary of their achievements by the judiciary is presented below. The DOJ sued Visa, MasterCard and American Express in 2010, claiming that DOJ had banned merchant banks from informing their subscribers of less expensive ways to make payments (by supplying information on credit cards charges, rebates and rewards) and that this ban impeded pricing for interbank charges between the three network operators.
It was the hypothesis that if a high fee ticket could be rejected in favour of a lower fee ticket, the emitter would have an incentive to generally charge lower prices. Visas and MasterCard have immediately consulted with DOJ and agree to change their policy so that Merchants can (1) provide rebates or other inducements to customers to use a particular credit or debit card-network within that net; (2) favour or encourage the use of a particular credit or debit card-network within that net or any other method of payments; and (3) provide information to customers about the costs borne by retailers when a customer uses a particular credit or debit or debit or debit or debit or debit or credit or debit or debit or credit or debit or credit or debit card cards within that net.
The American Express decided not to agree, but struggled the costume through a banking process and was losing. However, the CFI found that American Express, despite its relatively small overall audience shares, had adequate degree of merchant authority so that its anti-fiscal rules could hinder pricing competitiveness in the overall merchant environment by denying incentive for lower interbank charges.
While recognising that credit cards are competing in two different but related to each other regulated regimes (the consumer issuing services regime and the vendor accepting services regime), the CFI found that taking into account the trading regime alone was enough to detect anti-competitive damages. Second Circle's treatment of these two questions will be at the centre of its deliberations and will set important benchmarks for future credit cards proceedings (and cartel proceedings in general).
While the DOJ developed its lawsuits against Visa, MasterCard and American Express, a number of traders also filed lawsuits against corporations and their underwriters based on similarories. Since 2006 and since, a number of Visa and MasterCard merchant and many of their underwriters, as well as American Express itself, have taken legal action against Visa and MasterCard because they claim that they illegally charge excessively high interbank charges.
These cases were submitted by individuals trading on their own account and by members of the classes claiming to defend the interests of all traders. Yet other businessmen have "withdrawn" from the collective action in order to assert their rights independently. Supported by the leveraging effect of the DOJ campaigns and after a decades of discoveries with tens of thousands of deposits and million of papers, most commercial claimants achieved comparisons in the Visa/MasterCard and American Express cases.
Comparisons would have enabled high levels of payment in money terms to resident traders and changes to some of the control and other network regulations. American Express's 2013 arrangement was cleared first by the courts, but was denied in August 2015 when it was determined that certain attorneys for the claimants and certain attorneys for MasterCard had exchanged unprofessionally sensitive information relating to American Express.
It was discovered as part of a seperate inquiry by one of MasterCard's attorneys, who is now in jail. Visa and MasterCard proceedings were also resolved and the resolution - the biggest anti-trust collective bargaining resolution of all time - was cleared by the courts in 2013. and ( 2 ) for Regulation 23(b)(2) Inaction Category, dealers who accept the cards after 28 November 2012 would see a transitional regulatory amendment that would allow dealers to levy charges on customers who pay with Visa or MasterCard cards.
Most of the businessmen in the case did not like this arrangement and filed an appeal with the Second District Supreme Administrative Court opposing the Court's consent to the arrangement. Another problem was the dubious value of the injunction, as many classmates reside in states (such as New York) that prohibit surcharges, and because dealers who accepted American Express would be hindered by the American Express networking policy from using the surcharge options.
Various disputes over interbank charges have also been brought outside the United States. Recently, MasterCard was sue for $24.7 billion in compensation for supposedly setting exchange charges under the new UK anti-trust regulations, making it the biggest opt-out lawsuit in the state. In addition, a number of lawsuits were brought by individuals, and on 14 July 2016, the UK Competition Appeal Tribunal announced its first large claim for compensation under anti-trust laws, declaring that MasterCard's interbank charging practice infringed EU and UK anti-trust laws.
MasterCard went listed on the stock exchange in 2006 and Visa did so in 2008, in part to enhance its anti-trust stance. As cards develop and the sector changes, the sector faces new problems outside the area of charging. Recent cases have included disputes over the current switch to chips for consumer use and chips for retail use.
Smart cards are more reliable than conventional swipe cards and are used by putting the smart cards in a socket instead of pulling them through. Either the customer's own personal data or a personal identification number (PIN) must be entered to confirm the identification of the cardholder. In the case of debt purchase, which accounts for the bulk of credit transfer orders for many retailers, a retailer will pay a lower exchange charge if the client inputs a unique identification number ( "PIN") to validate the order, and a higher exchange charge if the client confirms the order with his name.
Claimants - ATM subscribers and providers - brought actions against Visa, MasterCard and various banking institutions on the ground that they claimed that these undertakings had reached agreement among themselves by means of bank card associations to enforce a kind of non-discriminatory or'most-favoured-nation' provision, the 'access charging rules'. "Those regulations provided that an ATM provider may not levy higher fees on those clients whose operations are carried out via Visa or MasterCard systems than on those whose operations are carried out via an alternate system.
In the complaint it was claimed that the member bank members evolved and adopted the rules on charges for accessing Visa and MasterCard when the bank was controlling Visa and MasterCard (decades before the company went public) in order to safeguard Visa and MasterCard from competing with cheaper ATMs. First, it found that the appeals did not sufficiently claim specific harm to the claimants, since lower entry charges would only have been incurred if Visa and MasterCard had actually reduced their charges in response to pricing that was too much gamble.
Secondly, it found that the access fee rules could not infringe Section 1 of the Sherman Act because they did not arise from conspiracy between several players as the Act requires. According to the Tribunal, since the Visa and MasterCard branches were all co-owners, the banking institutions acted as a sole player unable to conspire with themselves under current case law.
When asked whether the banking community could be hold responsible for having conspired among themselves to determine the access fee system, even though they were all proprietors of a singular organisation (one each for Visa and MasterCard), the appellate tribunal found that it was the plaintiffs' specific accusations of agreeing to the contested regulations and not only the fact of being a member of a business organisation that were sufficient to duly justify a plot.
Admittedly, the Board conceded that'mere association memberships are not sufficient to justify participating in a plot with other members of these associations', claims that member bankers have used the bank card federations to'introduce and implement a supercompetitive price structure for ATM entry charges would go far beyond simple association membership'.
" In part, the tribunal based itself on the Supreme Court's ruling in the American Needle v. Nat'l Football League, 560 U.S. 183 (2010), in which it found that the issue of whether the members of a JV act as a sole unit unable to conspire with themselves or, on the other hand, act in their capacity as independents to use the JV to achieve anti-competitive purposes is a matter of fact to be resolved in the tribunal.
The defendants petitioned the Supreme Court to be heard, arguing that none of the elements identified by the D.C. Circuit as a contribution to more than'mere membership' of an organisation actually led to a plot in Section 1. Among these elements were: the former memberships of member institutions in the Visa and MasterCard federations, the shareholdings and former offices of senior banking officers on the supervisory bodies of Visa and MasterCard, and the implementation by banking institutions of the regulations governing automated teller machines.
Concerning the'fully legal' involvement of the banking sector in an associations of undertakings, the respondents submitted that the'fully legal' involvement of the banking sector in no way indicated that the banking sector had been communicating with each other through the access fee system. The applicants also claimed that the D.C. Circuit's ruling was directly in conflict with the Ninth Circuit's ruling in Kendall v. Visa U.S.A., Inc.
Arguing in contrast, the claimants claimed that the accusations were not about belonging to a business federation, but that the core of the plot was that the banking institutions, which act in their own interest to repress rivalry, agree to the former bank card associations' regulations.
What is essentially different between the present case and the rulings of the other associations quoted by the respondents is that an explicit arrangement between the banking institutions on the fixing of charges was claimed, whereas the other cases concerned only affiliation to a business group. This will not become any simpler as the interbank charge cases continue after the rejection of the settlement and the ATM charge case finds its way through the Supreme Courts (and possibly back to Tribunal afterwards).
Does the ultimate parent company expect American Express's less than 30 per cent stake to be enough to give it a degree of dominance? These cartel proceedings allow companies that agree to pay cards to benefit from certain changes in the regulations of which they may not be fully informed. Decide to accept credit cards but not credit cards or debit cards but not debit cards, Visa or MasterCard; set a "minimum purchasing requirement" for Visa or MasterCard credit line operations as long as the purchasing limit does not exceed $10 and the purchasing requirements apply to all credit cards; give priority to the use of a particular credit line or cheap credit line within a line or other means of payments such as money (note that the American Express regulations still forbid such actions); give priority to the use of a particular credit line or cheap credit line within a line or other means of payments such as money; give priority to the use of a particular credit line or credit line or other means of payments such as credit cards (note that the American express regulations still forbid such actions); give priority to the use of a credit line or credit line or other means of payments such as money.
Finally, companies can do so according to the outcome of the various cases underway (including the American Express and Visa/MasterCard refusals): Charge a supplement to customers paying with a credit or debit cards (in the countries that allow it); negotiating with Visa and/or MasterCard for reduced interaction charges as part of a purchasing group.