Visa, MasterCard Estimate Potential Fee Settlement at $4 Billion

Visa Inc. (V) and MasterCard Inc. (MA), the world’s biggest payment networks, put any potential settlement of price-fixing litigation by merchants at about $4 billion.
MasterCard “extrapolated an estimate of a reasonably possible loss of at least $500 million if there is a negotiated settlement with all plaintiffs,” MasterCard Chief Executive Officer Ajaypal S. Banga said on an earnings conference call with investors yesterday.
In February, Visa, MasterCard and the banks being sued by merchants over swipe fees, or interchange, agreed that San Francisco-based Visa would be responsible for two-thirds of any settlement and Purchase, New York-based MasterCard would be responsible for about one-eighth. Visa has a litigation escrow account with $2.7 billion in cash available, it said in a regulatory filing. Those figures put a potential settlement at $4 billion.
The opposing parties yesterday argued before U.S. District Judge John Gleeson in Brooklyn, New York, on why he should rule in their favor without the need of a trial in the antitrust litigation, begun in 2005.
Banga didn’t say that any settlement was imminent, either in the class action or in suits brought by individual merchants including Publix Super Markets Inc. (PUSH), the Lakeland, Florida-based supermarket chain, and Rite Aid Corp. (RAD), the Camp Hill, Pennsylvania-based drugstore chain.

‘Substantial Progress’

“While we’ve made substantial progress with the individual merchant plaintiffs, there has not been similar progress with the class plaintiffs,” he said. “At this time, it is not possible to put an upper limit on this loss due to the significantly higher demands by the class plaintiffs, which are unacceptable to MasterCard.”
The merchants estimate damages in the case “will range in the tens of billions of dollars,” according to their complaint.
Visa and MasterCard argued they and banks including JPMorgan Chase & Co. (JPM), Bank of America Corp. (BAC) and Citigroup Inc. (C) can’t be accused of a conspiracy because the merchants don’t directly pay the interchange fees on payment-card purchases.
They also argued that the accusations are covered by a settlement in previous litigation and that the payment-card operators are now public companies, which set the fees themselves, rather than joint ventures of the banks.
The interchange fees on credit cards, which average about 2 percent of the purchase price, add up to $40 billion a year for retailers, not including debit cards.

‘Result of Competition’

“The level of interchange is not the result of any anticompetitive conduct,” Peter E. Greene, a lawyer for JPMorgan, told Gleeson yesterday. “That level is the result of competition.”
Greene is a partner at Skadden, Arps, Slate, Meagher & Flom LLP in New York.
“The defendants’ rules and interchange fees increase merchants’ costs to accepting payment cards, and that shows harm to competition,” K. Craig Wildfang, a lawyer for the merchants, told Gleeson.
The lawsuit threatens a revenue source for banks that U.S. lawmakers left untouched in passing the Dodd-Frank Act financial overhaul last year. Congress opted to cap only debit-card interchange fees, which typically had cost merchants about half of what they pay to accept credit cards. The debit caps may cut annual revenue at the biggest banks by $8 billion, according to data compiled by Bloomberg Government.

Summary Judgment

Both sides have asked Gleeson for summary judgment in their favor now that discovery, or information-gathering, is done. They say a trial isn’t needed, at least on most counts, because there are no facts in dispute for a jury to decide. Gleeson said yesterday that he would rule on the motions at a later date.
The lawsuit contains allegations that the card companies’ rules, including those prohibiting merchants from steering customers to cheaper forms of payment, violate U.S. competition law. Last year, Visa and MasterCard settled with the U.S. government on such anti-steering allegations. New York-based American Express Co. (AXP), the biggest credit-card issuer by purchases, is fighting that suit.
The two sides also debated yesterday whether the networks’ rules preventing merchants from adding a surcharge to payment- card purchases violates antitrust law.
Visa, MasterCard and the banks argued in court papers that the case has to be tossed because the merchants have no standing to bring it: They don’t directly pay the interchange fees -- the merchants’ banks pay them to the cardholders’ banks, which pass them along to the merchants.

Antitrust Violation

They cite a 1977 U.S. Supreme Court decision that said indirect buyers can’t claim they were injured by an antitrust violation.
“Interchange fees are not paid by merchants,” David Graham, a lawyer for Citigroup at Sidley & Austin LLP in Chicago, told the judge yesterday.
Courts have refused to apply the 1977 case when the direct purchaser is a co-conspirator, as the merchants’ banks are, the plaintiffs argue.
“It’s undisputed that it’s merchants who pay the fee,” said Wildfang, a partner at Robins, Kaplan, Miller & Ciresi LLP in Minneapolis.
In 2003, Visa and MasterCard settled a separate antitrust class action, called In re Visa Check, for $3 billion. That case targeted debit-card rules.

Litigation Releases

As part of the settlement, the merchants can’t sue over conduct occurring before 2004. The defendants argue that release covers their current rules, which date from before 2004.
“Plaintiffs do not challenge new conduct,” said Mark Ladner, a lawyer for Bank of America at Morrison & Foerster LLP in New York. “They simply challenge continued adherence to those rules.”
The merchants said they are alleging new antitrust injuries that came after the rules were reauthorized and new fee rates established.
The defendants also argue the banks no longer control the payment-card companies now that they are publicly traded, and don’t control the rate of the interchange fees. MasterCard conducted an initial-public offering in May 2006, Visa in March 2008. Before that, they were joint ventures owned by the banks.
Merchants argue the banks continue to control rules and interchange rates in a way that restrains competition or at least threatens anticompetitive effects.
“Visa and MasterCard were formed by competitors,” Wildfang said. “The defendants continue yesterday to abide by those rules.”
The merchants are also seeking to have the IPOs unwound, contending they lessen competition. Gleeson previously dismissed that argument, though he allowed the merchants to re-file it.
The case is In re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation, 05-md-1720, U.S. District Court, Eastern District of New York (Brooklyn).

URL: http://www.bloomberg.com/news/2011-11-02/visa-mastercard-put-potential-price-fixing-fee-settlement-at-4-billion.html

MasterCard In, Visa Out on Huntington's Debit Cards

By ANDREW R. JOHNSON

MasterCard Inc. has won branding rights on the debit-card portfolio of regional bank Huntington Bancshares Inc., a coup for the transaction processor as it tries to steal share from larger rival Visa Inc.
Huntington said Thursday that it is replacing its customers' Visa debit cards with MasterCard-branded Platinum debit cards and expects the conversion to be done by Nov. 1. The portfolio includes about 1.5 million consumer and business debit cards.
"This is a big deal for us and a pretty big deal in the universe of card conversions as well," said Steve Steinour, chief executive of the Columbus, Ohio-based bank.
MasterCard, which has a small share of the debit-card market today, has been working to increase that business in the face of new federal restrictions on fees. The company said it is continually pursuing potential deals with banks but has no other U.S. debit portfolio wins to announce in the near term, said Chris McWilton, president of U.S. markets at MasterCard.
Huntington's debit-card customers made $6.7 billion in purchases in 2010, according to Nilson Report, a payments industry newsletter. MasterCard's U.S. debit purchase volume was $333 billion in 2010 compared with Visa's debit purchase volume of $1.05 trillion, according to Nilson.
A spokesman for Huntington declined to say how long its contract with MasterCard lasts but such agreements can run five to seven years in some cases. Financial terms of the contract weren't disclosed. The deal doesn't affect Huntington credit cards, which are issued by a Bank of America Corp. unit and include Visa's and MasterCard's brands.
While the logos of Visa and MasterCard appear on banks' credit and debit cards, the companies don't lend to consumers. Rather, they help process transactions made by the customers of their client banks.
"The more debit cards that have MasterCard's logo on them, the more payment volume and transactions MasterCard will be processing, and therefore the more revenue and profit MasterCard will be earning," said Jason Kupferberg, an analyst with Jefferies Group Inc.
A Visa spokesman declined to comment.
Executives at Purchase, N.Y.-based MasterCard and analysts have said its efforts could get a lift from the Durbin amendment, a provision in last year's Dodd-Frank financial regulation law that ushered in new rules for debit-card processing.
In addition to capping the fees that banks can charge merchants when a customer swipes a debit card, it also included provisions that require banks to offer merchants multiple processing options on their debit cards. The rationale for the requirement is having more options would create more price competition, saving money for merchants.
The so-called network exclusivity provision is expected to affect Visa more than MasterCard because Visa has more exclusive processing relationships with banks. MasterCard, which operates a debit processing network called Maestro, could win more deals as a result, analysts said.
MasterCard reports its earnings Nov. 2.
Visa's debit network, Interlink, will likely lose a portion of its transaction volume as a result of the regulations, Joseph Saunders, chairman and chief executive of Visa, said during the company's earnings conference call Wednesday.
But Mr. Saunders said he is confident pricing changes the company is rolling out will help Visa maintain its top position in the market.

URL:http://online.wsj.com/article/SB10001424052970203687504577001763009919848.html?mod=googlenews_wsj

Visa, MasterCard See Potential $4B Settlement

Visa Inc. (V) and MasterCard Inc. (MA), the world’s biggest payment networks, put any potential settlement of price-fixing litigation by merchants at about $4 billion.
MasterCard “extrapolated an estimate of a reasonably possible loss of at least $500 million if there is a negotiated settlement with all plaintiffs,” MasterCard Chief Executive Officer Ajaypal S. Banga said on an earnings conference call with investors yesterday.
In February, Visa, MasterCard and the banks being sued by merchants over swipe fees, or interchange, agreed that San Francisco-based Visa would be responsible for two-thirds of any settlement and Purchase, New York-based MasterCard would be responsible for about one-eighth. Visa has a litigation escrow account with $2.7 billion in cash available, it said in a regulatory filing. Those figures put a potential settlement at $4 billion.
The opposing parties yesterday argued before U.S. District Judge John Gleeson in Brooklyn, New York, on why he should rule in their favor without the need of a trial in the antitrust litigation, begun in 2005.
Banga didn’t say that any settlement was imminent, either in the class action or in suits brought by individual merchants including Publix Super Markets Inc. (PUSH), the Lakeland, Florida-based supermarket chain, and Rite Aid Corp. (RAD), the Camp Hill, Pennsylvania-based drugstore chain.

‘Substantial Progress’

“While we’ve made substantial progress with the individual merchant plaintiffs, there has not been similar progress with the class plaintiffs,” he said. “At this time, it is not possible to put an upper limit on this loss due to the significantly higher demands by the class plaintiffs, which are unacceptable to MasterCard.”
The merchants estimate damages in the case “will range in the tens of billions of dollars,” according to their complaint.
Visa and MasterCard argued they and banks including JPMorgan Chase & Co. (JPM), Bank of America Corp. (BAC) and Citigroup Inc. (C) can’t be accused of a conspiracy because the merchants don’t directly pay the interchange fees on payment-card purchases.
They also argued that the accusations are covered by a settlement in previous litigation and that the payment-card operators are now public companies, which set the fees themselves, rather than joint ventures of the banks.
The interchange fees on credit cards, which average about 2 percent of the purchase price, add up to $40 billion a year for retailers, not including debit cards.

‘Result of Competition’

“The level of interchange is not the result of any anticompetitive conduct,” Peter E. Greene, a lawyer for JPMorgan, told Gleeson yesterday. “That level is the result of competition.”
Greene is a partner at Skadden, Arps, Slate, Meagher & Flom LLP in New York.
“The defendants’ rules and interchange fees increase merchants’ costs to accepting payment cards, and that shows harm to competition,” K. Craig Wildfang, a lawyer for the merchants, told Gleeson.
The lawsuit threatens a revenue source for banks that U.S. lawmakers left untouched in passing the Dodd-Frank Act financial overhaul last year. Congress opted to cap only debit-card interchange fees, which typically had cost merchants about half of what they pay to accept credit cards. The debit caps may cut annual revenue at the biggest banks by $8 billion, according to data compiled by Bloomberg Government.

Summary Judgment

Both sides have asked Gleeson for summary judgment in their favor now that discovery, or information-gathering, is done. They say a trial isn’t needed, at least on most counts, because there are no facts in dispute for a jury to decide. Gleeson said yesterday that he would rule on the motions at a later date.
The lawsuit contains allegations that the card companies’ rules, including those prohibiting merchants from steering customers to cheaper forms of payment, violate U.S. competition law. Last year, Visa and MasterCard settled with the U.S. government on such anti-steering allegations. New York-based American Express Co. (AXP), the biggest credit-card issuer by purchases, is fighting that suit.
The two sides also debated yesterday whether the networks’ rules preventing merchants from adding a surcharge to payment- card purchases violates antitrust law.
Visa, MasterCard and the banks argued in court papers that the case has to be tossed because the merchants have no standing to bring it: They don’t directly pay the interchange fees -- the merchants’ banks pay them to the cardholders’ banks, which pass them along to the merchants.

Antitrust Violation

They cite a 1977 U.S. Supreme Court decision that said indirect buyers can’t claim they were injured by an antitrust violation.
“Interchange fees are not paid by merchants,” David Graham, a lawyer for Citigroup at Sidley & Austin LLP in Chicago, told the judge yesterday.
Courts have refused to apply the 1977 case when the direct purchaser is a co-conspirator, as the merchants’ banks are, the plaintiffs argue.
“It’s undisputed that it’s merchants who pay the fee,” said Wildfang, a partner at Robins, Kaplan, Miller & Ciresi LLP in Minneapolis.
In 2003, Visa and MasterCard settled a separate antitrust class action, called In re Visa Check, for $3 billion. That case targeted debit-card rules.

Litigation Releases

As part of the settlement, the merchants can’t sue over conduct occurring before 2004. The defendants argue that release covers their current rules, which date from before 2004.
“Plaintiffs do not challenge new conduct,” said Mark Ladner, a lawyer for Bank of America at Morrison & Foerster LLP in New York. “They simply challenge continued adherence to those rules.”
The merchants said they are alleging new antitrust injuries that came after the rules were reauthorized and new fee rates established.
The defendants also argue the banks no longer control the payment-card companies now that they are publicly traded, and don’t control the rate of the interchange fees. MasterCard conducted an initial-public offering in May 2006, Visa in March 2008. Before that, they were joint ventures owned by the banks.
Merchants argue the banks continue to control rules and interchange rates in a way that restrains competition or at least threatens anticompetitive effects.
“Visa and MasterCard were formed by competitors,” Wildfang said. “The defendants continue yesterday to abide by those rules.”
The merchants are also seeking to have the IPOs unwound, contending they lessen competition. Gleeson previously dismissed that argument, though he allowed the merchants to re-file it.
The case is In re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation, 05-md-1720, U.S. District Court, Eastern District of New York (Brooklyn).

URL:http://www.bloomberg.com/news/2011-11-02/visa-mastercard-put-potential-price-fixing-fee-settlement-at-4-billion.html

Don't Be Surprised With Drops In Price Of Visa And MasterCard Stocks

A trade group representing operators of ATMs has filed a lawsuit against Visa and MasterCard, accusing them of fixing prices and suppressing competition among ATM networks. ^[1]
The lawsuit was filed in federal court in Washington and alleges that Visa and MasterCard violate antitrust laws by placing restrictions on the prices these independent ATM operators can charge customers using other networks such as STAR or TransFund.

Lawsuit Targets Fee Agreements

Under the network rules of Visa and MasterCard, the service fee for any transaction at an ATM should not be less than the amount charged at that ATM for a Visa or MasterCard transaction. This effectively means that an ATM operator cannot offer customers a discount or benefit for completing a transaction over a network that is less costly to the operator. More competitive pricing might allow these smaller networks to gain market share and more business.

The lawsuit claims that this artificially raises the price consumers pay for ATM service, limits operators’ revenue, and violates antitrust laws. The lawsuit seeks national class action status and would be comprised of independent operators of some 200,000 ATMs in the United States.

Potential Impact on Visa, MasterCard

The lawsuit alleges some serious charges against Visa and MasterCard and the way these companies keep competition at bay. As a result of this lawsuit, the companies’ litigation and settlement expenses will likely rise, taking a toll on the profits that are already under pressure after the Fed put a cap on the fees on debit card transactions.

In the long run, if the courts find Visa and MasterCard to be in violation of antitrust rules, we may see a sharp increase in alternate low cost networks which would bring down transaction charges at ATMs. However there wouldn’t be a significant threat to Visa and MasterCard’s businesses, because their widespread networks across the world would take a new entrant at least a decade to establish.

URL: http://www.forbes.com/sites/greatspeculations/2011/10/18/dont-be-surprised-with-drops-in-price-of-visa-and-mastercard-stocks/

Visa, MasterCard to use buying history for ad targeting?

All the purchases you make with your MasterCard or Visa could be used to provide you with more-targeted ads as you surf the Web, a new report claims.
According to today's Wall Street Journal, the credit card companies are currently trying to work out a system whereby purchases consumers make in a brick-and-mortar store can be used to deliver more effective ads online.
A MasterCard document obtained by the Journal outlines some of the company's plans, which included linking Web users with purchases. According to document, the credit card provider said it believes "you are what you buy."
However, MasterCard told the Journal that the plans included in that document have been shelved because it would have revealed too much information about individual buyers. Instead, the company told the Journal, it is exploring ways to anonymously group a person's purchase history with others to create marketing "segments." That data would then be sold to marketing firms.
Citing a source, the Journal said that Visa is planning a similar service, which would aggregate its customers' purchase history into segments, including location, to make ads more effective at appealing to people in a respective area.
Although those plans might have a profoundly positive impact on the advertising industry, it does raise several privacy concerns. Although companies have long shared customer data with marketing agencies, individual consumers have always been wary of companies peering into where they are, what they're buying, and how much they're spending.
For its part, MasterCard told the Journal that customers have nothing to worry about. For one, the company says, it collects data, such as when a purchase was made and where, on 23 billion transactions, but it never includes who actually makes the purchase. Plus, both MasterCard and Visa, which also collects that information, allow users to opt out of the data collection, if they so choose.
Looking ahead, there's no telling what MasterCard and Visa will do, since, as the companies pointed out to the Journal, their plans are still "preliminary."
However, as the Journal's sources in the advertising industry said, buying history is a potential treasure trove for marketers. And MasterCard and Visa, along with other credit card companies, realize that. What's more, the Journal says, MasterCard could be getting close to selling purchase data through online data auction services, BlueKai and Exelate, though those firms have yet to sign an agreement.
Neither Visa nor MasterCard immediately responded to CNET's request for comment.

URL: http://news.cnet.com/8301-13506_3-20125179-17/visa-mastercard-to-use-buying-history-for-ad-targeting/

More Lawsuits Take Aim At Visa And MasterCard ATM Policies

NEW YORK (Dow Jones)--Visa Inc. (V) and MasterCard Inc. (MA) face new lawsuits claiming their fee policies for ATM transactions are anti-competitive.
One suit, filed Monday in U.S. District Court in Washington, D.C., argues the companies, which process credit- and debit-card transactions, prohibit operators of automated teller machines from charging consumers different levels of fees depending on which card network processes their transactions.
"The ATM restraints prevent ATM operators from offering their customers a discount or benefit for completing a transaction over a network that is less costly to the ATM operator, so consumers cannot be rewarded for using a lower cost and more efficient network," the suit said.
In addition to Visa and MasterCard, several smaller debit-card networks offer consumers ATM access, including First Data Corp.'s Star network and Discover Financial Services' (DFS) Pulse network.
A separate lawsuit filed in U.S. District Court in Washington, also naming Bank of America Corp. (BAC), J.P. Morgan Chase & Co. (JPM) and Wells Fargo & Co. (WFC) as defendants, makes similar allegations, Bloomberg News reported Wednesday. The suit claims the banks conspired to fix ATM fees.
Last week a trade group called the National ATM Council Inc. filed a suit against Visa and MasterCard arguing the companies' rules amount to price-fixing. The group, which represents independent ATM operators, says the operators have suffered losses in the "tens of millions of dollars" because of the companies' rules.
A MasterCard spokesman wrote in an email Wednesday that the ATM operators' claims lack merit.
"These rules were put in place to protect consumers from ATM operators seeking to impose discriminatory surcharges on our cardholders," the spokesman wrote. "We believe these important consumer protections must be preserved and we will vigorously defend against the claims brought against us."
A Visa spokesman did not immediately respond to a request for comment.

URL: http://online.wsj.com/article/BT-CO-20111019-712283.html

WikiLeaks says "blockade" threatens its existence

After releasing tens of thousands of confidential U.S. government cables, WikiLeaks needs $3.5 million over the next year to continue operating, Assange said.
Visa and MasterCard stopped processing donations for WikiLeaks in December 2010 after the United States criticized the organization's release of thousands of sensitive U.S. diplomatic cables from its embassies all over the world.
In the 24 hours before credit card donations were blocked, the organization said it had received $135,000. Now, it is receiving on average about 7,000 euros ($9,700)a month.
Assange said there were no lawful grounds for the blockade by Bank of America Corp, Visa Inc, MasterCard Inc, eBay Inc unit PayPal and Western Union Co, which he said had cost Wikileaks 95 percent of its revenue.
"If WikiLeaks does not find a way to remove this blockade, given our current levels of expenditure, we will simply not be able to continue by the turn of the year," Assange told a news conference.
In July, WikiLeaks filed a complaint to the Directorate-General for Competition of the European Commission, saying Visa and MasterCard had breached antitrust provisions set out by the EU Treaty.
Assange, who is fighting extradition from Britain to Sweden, where he faces allegations of sexual misconduct, said he hoped the European Commission would make a decision to hold a full investigation by mid-November.
In interviews last year, Assange said WikiLeaks had extensive internal documents from a bank, believed to be Bank of America, an announcement that knocked 3 percent off the value of the bank's shares.
However, on Monday he said this data was now out of WikiLeaks' hands and in the possession of an unnamed suspended WikiLeaks employee.
"At this stage, we do not believe, unfortunately, that we will regain that material, which is a great loss," he said.
Daniel Domscheit-Berg, who last year was fired by Assange as WikiLeaks' co-spokesman, told Reuters in August that he had destroyed about 3,000 submissions that WikiLeaks had received relating to Bank of America.


URL: http://www.reuters.com/article/2011/10/24/us-britain-wikileaks-idUSTRE79N46K20111024?feedType=RSS&feedName=topNews