With a Federal Lawsuit, Intuit Challenges the Card Networks’ Interchange Regime

Lawsuits brought by merchants against Visa Inc. and Mastercard Inc. have become almost routine for the two network giants, but now they face an unusual action—a suit from Intuit Inc., which is not only a card-accepting merchant but also an independent sales organization and payment facilitator.

Filed Feb. 19 in U.S. District Court for the Northern District of California, Intuit alleges the networks’ interchange pricing models constitute unlawful price fixing, with rates set without regard to actual cost. The wide-ranging complaint also alleges the two networks undermined the intent of the nearly 10-year-old Durbin Amendment, which caps interchange on debit card transactions for large issuers. Intuit asks the court for damages “in an amount to be proved at trial,” and trebled.

All in all, Mountain View, Calif.-based Intuit alleges it has paid “billions of dollars” in interchange, network, and other fees during what it defines as the “damages period,” a span of time starting no later than August 2004 and running to the present. The company incurred these costs in its roles as merchant, ISO, and payfac, according to the filing. Payfacs, which host typically small businesses on their merchant accounts, as well as ISOs usually recover interchange and other transaction costs from their clients.

The suit also attacks the networks’ honor-all-cards rules, which require merchants to accept all network-branded cards if they accept any. The rule, according to Intuit, helps maintain what it says is an unlawful cartel for the two networks.

Mastercard would not comment on the case. Visa did not respond to a request for comment.

Intuit’s litigation comes after years in which its products, such as its QuickBooks accounting software for businesses, have offered transaction-processing services. As recently as October 2019, Intuit launched an instant-deposit service for QuickBooks users. The service relies on Visa Direct, the network’s real-time payments service.

While Intuit’s case largely re-asserts allegations that merchants have brought for decades against Visa and Mastercard in and out of court, its distinguishing characteristic is that is has been brought by a transaction processor. Observers recall only two previous cases involving such litigation. One suit was brought by a big processor called National Bancard Corp. (Nabanco) in the 1980s. First Data Corp. acquired Nabanco’s parent company, First Financial Management Corp., in 1995.

The other example involved a related issue in which First Data in the early 2000s was attempting to corral network volume within a structure called First Data Net, triggering litigation from Visa. That effort appears to have been a one-off. “In the [United States], no processor since has tried to profit bypassing the networks within its  processing world,” notes Eric Grover, principal at Intrepid Ventures, a Minden, Nev.-based consultancy.

Also, part of the complaint is likely to get a hearing in another venue. Network acceptance mandates and restrictions such as honor all cards, no surcharging, no bypass, and accept at all outlets are due to be litigated as part of a massive–and yearslong–federal case called MDL 1720.

Observers like Grover and Todd Ablowitz, chief executive at Infinicept, a Centennial, Colo.-based consultancy for payfacs, say interchange cases aren’t likely to end any time soon, particularly because interchange pricing plays a central role in how transactions are priced and yet remain controversial. In the card networks, acquirers, which recruit and process for merchants, pay interchange fees to issuers on each transaction. “Payments players understand the central role of interchange,” says Ablowitz.

As for Intuit’s case, he adds, “We’ll be watching to see what happens.”