Friday, November 9, 2007
After a three-year legal battle, Visa Inc. (which is absorbing Visa U.S.A. in its reorganization as a public company) and Visa International agreed on Nov. 8, 2007, to pay American Express Co. $2.1 billion to settle damages relating to an antitrust lawsuit.
What does this mean for the payments industry? Very little, according David H. Press, founder and President of Integrity Bankcard Consultants Inc.
Press said the industry won't see the ripple effects. "I just don't see it having any affect on the acquiring side," he said. If anything, Press suggested the outcome could produce a higher volume of transactions.
In 2004, AmEx and Discover Financial Services sued Visa, MasterCard Worldwide, and several of their members banks – JPMorgan Chase & Co., Capital One Services Inc., U.S. Bancorp, Wells Fargo & Co., and Providian Financial Corp., now owned by Washington Mutual Inc.
The agreement is subject to the approval of Visa's member banks for imposing rules that prohibited financial institutions from issuing credit cards through AmEx. The settlement will drop Visa and the member banks from the suit, leaving MasterCard the sole defendant.
The suit was filed shortly after the U.S. Supreme Court let stand a lower-court ruling that forced the card Associations to allow their member banks to issue credit cards on rival networks.
"The size of this settlement, along with earlier court rulings, underscores the seriousness of the damage done by the illegal boycott," said Kenneth I. Chenault, Chairman and Chief Executive of AmEx.
According to Press, the access AmEx will now have could open the door for an attractive compromise in order to keep up with the card Assocations. "If AmEx wants to gain on the acquiring side of the business, lowering rates that they charge the merchants would be a great start," he said.
In the 1990s, AmEx rates were 4% versus Visa and MasterCards's 1.2%. Currently, AmEx offers a 2.5% rate, while Visa and MasterCard are still slightly lower at 2%, with signature debits at 1.7%.
As yet, MasterCard has made no moves in the lawsuit.
But AmEx hasn't lost momentum. "We plan to move forward with the litigation to hold MasterCard accountable for the illegal actions that blocked banks from working with us for many years and to seek full compensation for the value that would have been generated for our shareholders," Chenault said.
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