Wednesday, October 7, 1998, the United States Department of Justice, Antitrust Division, filed civil Action No.98-civ.7076 in the United States District Court Southern District of New York, in hopes of changing the way Visa and MasterCard do business in the United States. The action was immediately cheered by consumer advocates and, of course, American Express, Discover, and perhaps even Carte Blanche and Diners Club, as they see a future opportunity to compete on an entirely new playing field, a field made level by something called the Sherman Antitrust Act.
In an era of corporate bashing, and one in which most Americans do not have any idea of the cost of suing Microsoft, much less Visa and MasterCard, or the fact that these suits cost tax dollars as well as product dollars, it is hard to determine who will really be the winner, regardless of the outcome. Justiceís primary arguments are:
1. Visa and MasterCard are the two largest general-purpose card networks and together they account for more than 75% of all purchases made with general-purpose cards in the United States.
2. If allowed to continue, the anti-competitive structure and practices of the associations will threaten competition in the development and marketing of new general-purpose card products, such as products that integrate credit, debit, and stored-value functions (so-called Smart Cards).
While I always seem to think that free market pressures are a better way to deal with business issues than through heavy-handed government programs or litigation, it seems obvious from the start of this action that the Justice Department has no idea how much money has already been spent by Visa and MasterCard trying to make Smart Cards appealing to the U.S. consumer. In addition, it must have gone unnoticed that large retailers, such as Wal-Mart, for a couple of years, have had a suit which attempts to protect their own interests and profits due to the bankcard associationsí insistence on their acceptance of branded debit cards wherever credit has been accepted. While some might argue that this type of civil litigation is exactly the reason that America needs an Antitrust action to be brought by the Justice Department, they do not understand that this is about fighting over cost of goods sold, not monopolies.
While Visa and MasterCard are obviously attempting to increase their landholdings by annexing the world of checks with debit, has everyone forgotten that we are a nation of expansionists? While debit is growing, of course, the American "King," the plain old paper check, has been fairing very well, thank you. And now that debit is getting a foothold, something called point-of-sale ECP (or Point-of-Sale Check Acceptance, for the purists) is going to give it some competition. This ECP, or ECA, movement threatens to position yet another roadblock before debit card advocates, by providing the equivalent of a debit transaction, without either an issuer or plastic. Finally, there is much ado about the "associationsí" lack of impetus to fill the Internet payment need while they operate in this "monopoly." The argument is that if there was a "freer" business climate, AMEX or someone else might fill that need, but the truth is, anyone is free to do it right now, if they know how. In fact, isnít that what all those millions that were poured into CyberCash were all about, looking for ideas such as CyberCoins, and other "new" media of exchange? The fact that it hasnít worked yet canít be blamed on Visa and MasterCard.
