LAW SUITS GIVE MERCHANTS EARLY VICTORY IN INTERCHANGE WAR
A verdict is years away in the more than 50 merchant lawsuits over interchange against Visa and MasterCard International, but one executive from the merchant acquiring industry believes the lawsuits have already had an effect.
Speaking this week on a panel at the 2006 Electronic Transactions Association Meeting & Expo in Las Vegas, Tom Wimsett, president and CEO of Retriever Payment Systems, noted that in the past year MasterCard announced it would go public and Visa said it would name independent executives to its board of directors.
However, Tom Brown, senior counsel and vice president at Visa USA, would not say if the new board members would have an actual vote on Visa's interchange pricing. Brown said regulators stepping into interchange policy in Australia and Europe have hurt cardholders. That's caused issuers to shrink rewards programs and increase annual and other card fees, according to Brown.
Alex Pollock, resident fellow at the American Enterprise Institute, said Visa and MasterCard generate about $25 billion a year in interchange. The many lawsuits are "exceptionally expensive" for the associations says Pollack, and the sheer number of them have strengthened the merchants' position. Wimsett concurred, saying that Visa and MasterCard have postponed raising their interchange rates and probably will be more hesitant to raise rates in the future because of the lawsuits.
He also said merchants' strength will make the associations more transparent. "More information will be made available to merchants and ISOs," Wimsett said. In a typical transaction about 80% of the transaction fee goes to the card issuer in the form of interchange and about 16% goes to "the acquiring side," said Wimsett. The remainder goes to Visa or MasterCard, whichever network handles the transaction, and other parties to the transaction.
[source: Cardline]
