Visa and MasterCard: Doing What Competitors Do?

Does the motion filed last week by MasterCard in federal court against Visa signal a new era of real competition between the two card companies? The answer seems to be yes, but the question is whether it’s healthy competition.

The motion seeks to stop Visa from enacting a “settlement fee” against any top-100 Visa debit card issuer that changes its brand or loses significant debit volume. “I think it will bring about ill will to the entire business for these guys to go into litigation,” says John Gould, director of consumer credit for TowerGroup, which last month issued a study on the effect of the Wal-Mart lawsuit on the debit and credit card industry. “MasterCard would have been better off to take advantage of Visa fees to attract new card issuers. MasterCard had a good opportunity to come off as the good guy and it blew it.”

But on the other side of the issue is Lloyd Constantine, the anti-trust attorney whose suit on behalf of Wal-Mart Stores Inc. and other retailers led to the settlement that Visa’s new fee is meant to address. Constantine sees the motion as a “healthy sign of a new competitive atmosphere” in the payments industry. “This would never have happened a few years ago,” he says. “MasterCard and Visa are doing what real competitors do. They sue each other.”

Visa’s intention is to assess its top 100 members over a 10-year period to pay its $2 billion share of the settlement. To avoid paying, some issuers may try to switch brands. According to a MasterCard statement, for every 1% of Visa debit volume that a debit issuer might switch to MasterCard, the issuer would have to pay Visa $20 million under its settlement fee arrangement.