MasterCard to Pay Retailers $1 Billion
by May 12, 2003 12:00 am 91 views
MasterCard International Inc. broke with Visa USA Inc. and agreed to pay the nation’s biggest retailers about $1 billion to settle a lawsuit against the two credit-card behemoths over the fees they charge, The Wall Street Journal reported.
The agreement could mean lower prices for consumers and lower earnings for the banks that are part of the credit-card association that issues MasterCards. The retailers who brought the lawsuit — including Wal-Mart Stores Inc. of Bentonville, Sears, Roebuck & Co. and others — have said that a victory in the case would mean merchants would pay less to banks and card associations, and that they would be free to pass those savings on to their customers.
While terms of the settlement weren’t disclosed, people familiar with the matter confirmed that it involved damages of about $1 billion. It isn’t clear whether the settlement will be paid completely in cash, The Wall Street Journal reported.
The settlement leaves Visa, the other large credit-card brand jointly owned by member banks, alone to face the retailers at trial in New York federal court.
The dispute centered on MasterCard’s “honor all cards” policy, which meant that merchants had to accept Visa and MasterCard branded debit cards, even though they often meant higher fees.
Merchants often are expected to clear Visa and MasterCard debit-card transactions through the Visa and MasterCard routing systems, requiring a customer signature rather than the cheaper alternatives that require personal-identification numbers.
On a typical $100 transaction, it costs a merchant $1.49 to route a debit-card transaction through the Visa or MasterCard credit-card network, compared with nine cents to route the same transaction through a rival system operated by First Data or others.
Merchants said they are forced, unfairly, to pay those higher costs by the policies of Visa and MasterCard, under which a retailer that accepts the brand’s credit cards must also accept that brand’s debit cards. The merchants want the right to refuse the debit cards because of their higher fees.