Visa (NYSE:V) and MasterCard (NYSE:MA) were accused of price fixing by a trade group representing operators of automated teller machines. Visa and MasterCard require ATM operators to levy a service fee for any transaction at an ATM that is no less than the amount charged at that ATM for a Visa or MasterCard transaction even for transactions that don’t use the companies’ networks. [1]
In February this year, Visa and MasterCard were sued by merchants over swipe fees and the two companies have put any potential settlement of price-fixing litigation by merchants at about $4 billion. [2] If there is a negotiated settlement with all plaintiffs, MasterCard estimates its possible loss at $500 million.
According to MasterCard, it is not possible to put an upper limit on this loss due to the significantly higher demand by the class plaintiffs, which are not acceptable to the company. Visa and MasterCard argued that they can’t be accused of a conspiracy because the merchants don’t directly pay the interchange fees on payment-card purchases.
We have a price estimate of $90 on Visa, about the same as the current market price. We have a $350 estimate for MasterCard, which is slightly below the market price.
URL: http://seekingalpha.com/article/306288-visa-and-mastercard-battle-price-fixing-litigation
Tuesday, 8 November 2011
Monday, 7 November 2011
Smart Investors Are Switching to Plastic: MA, V, AXP
If consumer sentiment soured last quarter, it appears that MasterCard (MA) cardholders were curiously immune. Earlier this week, the company announced third-quarter revenues were up 27%, and the dollar volume of purchases made using MasterCard-branded credit and debit cards rose 18%. Earnings per share were up an almost mind-blowing 43%. Not bad, given that we might technically be in a recession. MasterCard’s results followed stellar (if slightly more modest) results from rival Visa (V). For the quarter ended September 30, Visa earnings per share were up 20%. Most companies would kill for 20% EPS growth; only when compared to MasterCard does it look a little shabby.
American Express (AXP), MasterCard and Visa’s smaller rival that caters primarily to business customers, reported earnings last month. Earnings per share were up 14% for the quarter. Again, not bad given the condition of the economy.
Figure 1: MasterCard, Visa, and American Express
Not surprisingly, all three card stocks have enjoyed a healthy rally this year. MasterCard is the clear winner, up nearly 70% year-to-date, but Visa too has had a nice run. Both of these stocks had been held back by uncertainty surrounding the implementation of the Dodd-Frank Durbin Amendment’s restrictions on debit card swipe fees. (American Express was unaffected, as the company issues only credit cards and not debit cards.)
In lumping American Express with MasterCard and Visa, we’re not quite comparing apples to apples. AmEx actually makes loans and accepts credit risk. MasterCard and Visa do not; they simply allow banks to issue credit cards branded with their logos, and the issuing banks accept the credit risk. MasterCard and Visa also get a significant amount of their revenues from debit cards; American Express does not.
So, while I consider America Express “safe” in that its clientele tends to be high-quality borrowers, without a debit card business I consider the company’s growth to be limited. Thus, we’ll focus only on MasterCard and Visa.
Some of the rocket-like outperformance of these stocks this year was thanks to the Durbin uncertainty being lifted (note the vertical spike in both MasterCard and Visa in late June after the Fed’s favorable ruling), but there also are two powerful tailwinds supporting these companies:
By some estimate, as much as 40% of transactions in the U.S. still take place with cash or paper checks, and the percentage is significantly higher in most emerging markets. Suffice it to say, MasterCard and Visa will have healthy demand for their credit and debit cards for the foreseeable future, regardless of what happens to the economy. If retail sales were to experience zero growth in the years ahead, MasterCard and Visa would be able to enjoy at least modest gains purely from consumers switching to plastic from cash or checks.
MasterCard and Visa also are well positioned to profit from the rise of the new emerging-market middle class. Visa gets close to half of its revenues from outside the United States, and MasterCard gets more than half. Much of this is from the fast-growing economies of Asia, Latin America and the Middle East. Expect to see these percentages rise in the years ahead. While the U.S. and Europe remain mired in a cycle of debt deflation, emerging markets continue to grow, and millions of people formerly trapped in poverty join the ranks of middle class consumers every year.
Neither MasterCard nor Visa are “cheap” in strict value-investor terms; the companies trade at 17 and 16 times their respective 2012 earnings estimates. Still, this slight premium is worth paying for two high-quality, high-growth companies supported by long-term trends.
URL: http://www.gurufocus.com/news/151398/smart-investors-are-switching-to-plastic-ma-v-axp
American Express (AXP), MasterCard and Visa’s smaller rival that caters primarily to business customers, reported earnings last month. Earnings per share were up 14% for the quarter. Again, not bad given the condition of the economy.
Figure 1: MasterCard, Visa, and American Express
Not surprisingly, all three card stocks have enjoyed a healthy rally this year. MasterCard is the clear winner, up nearly 70% year-to-date, but Visa too has had a nice run. Both of these stocks had been held back by uncertainty surrounding the implementation of the Dodd-Frank Durbin Amendment’s restrictions on debit card swipe fees. (American Express was unaffected, as the company issues only credit cards and not debit cards.)
In lumping American Express with MasterCard and Visa, we’re not quite comparing apples to apples. AmEx actually makes loans and accepts credit risk. MasterCard and Visa do not; they simply allow banks to issue credit cards branded with their logos, and the issuing banks accept the credit risk. MasterCard and Visa also get a significant amount of their revenues from debit cards; American Express does not.
So, while I consider America Express “safe” in that its clientele tends to be high-quality borrowers, without a debit card business I consider the company’s growth to be limited. Thus, we’ll focus only on MasterCard and Visa.
Some of the rocket-like outperformance of these stocks this year was thanks to the Durbin uncertainty being lifted (note the vertical spike in both MasterCard and Visa in late June after the Fed’s favorable ruling), but there also are two powerful tailwinds supporting these companies:
- The macro move towards a global cashless society.
- The rise of the emerging-market consumer.
By some estimate, as much as 40% of transactions in the U.S. still take place with cash or paper checks, and the percentage is significantly higher in most emerging markets. Suffice it to say, MasterCard and Visa will have healthy demand for their credit and debit cards for the foreseeable future, regardless of what happens to the economy. If retail sales were to experience zero growth in the years ahead, MasterCard and Visa would be able to enjoy at least modest gains purely from consumers switching to plastic from cash or checks.
MasterCard and Visa also are well positioned to profit from the rise of the new emerging-market middle class. Visa gets close to half of its revenues from outside the United States, and MasterCard gets more than half. Much of this is from the fast-growing economies of Asia, Latin America and the Middle East. Expect to see these percentages rise in the years ahead. While the U.S. and Europe remain mired in a cycle of debt deflation, emerging markets continue to grow, and millions of people formerly trapped in poverty join the ranks of middle class consumers every year.
Neither MasterCard nor Visa are “cheap” in strict value-investor terms; the companies trade at 17 and 16 times their respective 2012 earnings estimates. Still, this slight premium is worth paying for two high-quality, high-growth companies supported by long-term trends.
URL: http://www.gurufocus.com/news/151398/smart-investors-are-switching-to-plastic-ma-v-axp
Visa and MasterCard Debit Cards
Visa and MasterCard have both confirmed that they are looking into offering their debit cards in Canada. These would be similar to the Interac cards that we’re familiar with here. Interac is a non-profit organization, owned by the banks and credit unions, its fees are based on the cost of processing transactions.
While increased competition is normally good for the consumer and can lead to lower prices, in this case it will likely mean higher fees. These fees would be charged to the merchants that accept the cards and could easily by twice the amount of the current Interac fees. While the customer won’t be directly paying these fees, the merchants will likely pass this expense on to the customer through higher prices.
There are already a couple signs that we’re in for higher merchant fees in Canada.
- Canada’s existing debit system is “broken,” said Kevin Stanton, president of MasterCard Canada, saying it’s one of the few countries in the world where a non-profit monopoly controls the market, resulting in irrational pricing that precludes true market competition. – Toronto Star
- Interac has asked the Competition Bureau about restructuring itself as a for-profit entity to compete with Visa and MasterCard, which are trying to increase their share of the debit card market. – Toronto StarURL: http://canadianfinanceblog.com/visa-and-mastercard-debit-cards/
Friday, 4 November 2011
Meredith Whitney Downgrades Visa, MasterCard to ‘Outperform’
Nov. 3 (Bloomberg) -- Meredith Whitney, the bank analyst who predicted “hundreds of billions of dollars” of municipal defaults, downgraded Visa Inc. and MasterCard Inc. to “outperform” from “buy,” an employee of her firm said.
Meredith Whitney Advisory Group cut the two companies today, Marc Lombardo, a research analyst, said in a phone interview. The research firm has a five-tier rating system, with “buy” at the top, followed by “outperform.”
Whitney had “buy” ratings on Visa and MasterCard since she started coverage in March 2010, according to data compiled by Bloomberg. She called Visa her “single best buy” during an interview with Bloomberg Radio on May 4, 2010. The stock had climbed 3.5 percent since then through yesterday, compared with a 5.5 percent gain for the Standard & Poor’s 500 Index.
Visa and MasterCard, the world’s biggest payments networks, plunged last year after U.S. lawmakers approved caps on debit- card transaction fees as part of the Dodd-Frank Act. The shares rebounded this year as consumers worldwide continued to shift to plastic from cash and checks.
MasterCard advanced 1.7 percent to $363.75 at 1:37 p.m. in New York after surging 60 percent in 2011 through yesterday, the top performance in the 75-company S&P 500 Information Technology Index. Visa, the index’s fifth-biggest gainer, climbed 1.9 percent to $93.19 after advancing 30 percent this year.
James Issokson, a spokesman for Purchase, New York-based MasterCard, and Erica Harvill of San Francisco-based Visa, declined to comment.
Whitney became a celebrity during the financial crisis after she correctly predicted that Citigroup Inc. would cut its dividend. Her call last year that there would be a wave of state and local government bond defaults has so far proved unfounded. Defaults totaled $1.13 billion in 2011, compared with $4.25 billion for all of 2010, Bank of America Corp. said in a Sept. 23 research note.
URL: http://www.businessweek.com/news/2011-11-03/meredith-whitney-downgrades-visa-mastercard-to-outperform-.html
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.
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.
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.
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.
“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.
“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 “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
Thursday, 3 November 2011
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.
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.
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.
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.
“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.
“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 “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
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