Monday, March 31, 2014
On March 25, 2014, Wal-Mart Stores Inc. filed a lawsuit against Visa Inc. in an Arkansas district court. The complaint alleges the card brand colluded with card issuing banks to fix the price of interchange and inflate other network fees merchants must pay to accept Visa-branded cards. The big-box retailer is seeking $5 billion from Visa for damages it allegedly suffered from Jan. 1, 2004, to Nov. 27, 2012, a period in which it paid over $350 billion in interchange fees.
Wal-Mart leveled a host of charges against Visa in its lawsuit. The retailer claims Visa engaged in a conspiracy with big banks to illegally set interchange, and thereby violated the antitrust laws of the Sherman Act. Wal-Mart also said Visa and banks engaged in anti-competitive practices by fixing network fees, such as the Fixed Acquirer Network Fee (FANF), and adopting the Honor All Issuers rule to further the monopoly.
Wal-Mart said, "The banks compete in many aspects of their business, but in these markets they charge merchants exactly the same inflated prices pursuant to the default Interchange Fee rules, and agree to only allow merchants to accept their cards if the merchant also accepts the cards issued by their competitors.
"While Wal-Mart has had limited success in negotiating rates that are lower than the default Interchange Fees, these rates are still far in excess of the amount Wal-Mart would have paid but for the existence of Visa's anti-competitive, collusive practices."
Wal-Mart stated that beyond the massive overcharging it believes it was subject to, Visa's practices undermine free market principles that harm the entire ecosystem. "This has deprived market participants of lower prices as well as innovation, new payment options, and cost-saving approaches (e.g., to reduce fraud) that would have substantially benefited both U.S. merchants and consumers," the retailer said.
In May 2013, many of the largest retailers in the United States, including Wal-Mart, opted out of the proposed $7.25 billion settlement of a class-action claim that the interchange rules of Visa and MasterCard Worldwide violated antitrust law. One stipulation of the settlement, which was approved by a Manhattan federal district court judge in January 2014, was that retailers could not pursue future antitrust litigation against the card brands.
Many of the retailers that balked at this condition and opted out of the settlement filed a class-action suit against the card companies. Wal-Mart decided to go it alone, which resulted in a June 2013 lawsuit filed by Visa USA Inc. against Wal-Mart in New York federal court to block the retail giant from pursuing future claims against Visa in regard to its interchange policies.
"The proposed settlement would allow credit card companies and big banks to perpetuate a broken system that costs consumers billions of dollars each year, and we, like more than 7,000 other conscientious merchants who have opted out, cannot go along with it," stated Wal-Mart spokesman Randy Hargrove.
In its recent lawsuit, Wal-Mart argues that many of Visa's practices are evidence that Visa operates a monopoly. For example, Visa implemented FANF to make up for lower debit card interchange revenue as a result of price caps instituted by implementation of the Durbin Amendment to the Dodd-Frank Act of 2010. Wal-Mart said FANF is designed to protect Visa's market dominance by charging a blanket fee to merchants, "regardless of whether they send Visa a single transaction."
The retailer also said the very pervasiveness of mag stripe card technology in the U.S. payments market indicates Visa's anti-competitive nature.
"Visa has long recognized that the magnetic stripe technology … is inherently insecure and fraud-prone," Wal-Mart said. "Yet, Visa has shifted most of the cost of fraud losses to merchants in this country through the implementation of various compliance programs and liability rules. Its success in forcing merchants and consumers to accept and use technologically-inferior and fraud-prone products is further evidence of its substantial market power."
But payments attorney Paul Rianda cautioned that Wal-Mart's claims must be tempered with the fact that other forces affect and shape Visa's practices. "Market forces must have some influence over the rates," he said.
Consumer behavior also plays a role. "I find that people in America do not like to adopt new payment technologies," Rianda said. "There have been a number of different new technologies (i.e. biometrics) proposed and for the most part none have been adopted in any widespread manner."
Additionally, Rianda said the adoption of the Europay/MasterCard/Visa (EMV) chip card standard to replace the inferior mag stripe is dependant on merchants transitioning to EMV-compliant POS systems. "The fact that merchants will have to pay the bill for changing equipment for the adoption of EMV has also been an impediment to a change of the underlying infrastructure of the industry," he said.
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