Special Deals Could Land the Card Companies Back in Court

The news that Visa USA Inc. and MasterCard International Inc. are negotiating new debit-card acceptance deals with big retail chains and their acquirers in which the chains will pay lower transaction fees than what is standard for other merchants has already fueled speculation that the giant, bank-owned card networks are headed for yet more litigation. And it has one proprietary debit program licking its chops at what it sees as new opportunities to sell its product to mid-sized and smaller merchants that may resent the big retailers' special treatment. “The lawsuits will follow,” predicts John K. Lannan, president of Chico, Calif.-based Debitman Card Inc. and a longtime debit card industry executive. To the extent any of the special-pricing deals involve interchange rates, he figures middle-tier and smaller retailers will allege discrimination and take the card associations to court. “Interchange is supposed to be a recovery of costs,” he argues. “If (Visa and MasterCard) are going to reduce that for large merchants, then the middle-sized and small merchants have to pay for it. I don't know how long that will last.” As reported today in the Wall Street Journal, the card associations' negotiations with large, unnamed retail companies will likely close early next year and will leave the retailers paying less to debit card issuers than do smaller merchants. The negotiations follow a landmark legal settlement this spring in which Visa and MasterCard agreed to cut debit card rates and allow merchants to accept either debit or credit products without having to accept both, as had been the rule. The settlement handed merchants, especially those with large transaction volumes, new leverage in negotiating card-acceptance costs. Lannan says Debitman can capitalize on the possible resentment of the smaller chains and independents that don't have the clout to negotiate special rates. A non-bank debit card program secured by personal identification numbers and settled through the automated clearing house, Debitman charges merchants 15 cents per transactions, well below even the PIN debit rates charged by bank-controlled systems. The company has recruited 20,000 acceptance locations and four retailers as issuers, and is aggressively seeking more. The moves by Visa and MasterCard to offer special pricing to select merchants, Lannan says, “forces (mid-sized and small) retailers to take a hard look at their strategy as to what products they take at the point of sale.”