Bank View
How Visa, MasterCard and the Banks See It
On the value side of the equation, card associations and issuing banks say that merchants receive many valuable services and benefits for the modest cost of payment card acceptance.
Some of the merchant benefits include:
- With payment cards, consumers spend more money. Research also shows that accepting card payments is simpler, faster, and cheaper than accepting cash or checks. This means that card-based transactions are more profitable for the merchant.
- The risk of accepting cards is very low because merchants are guaranteed payment. That is not the case if they accept a bad check, and there are also risks associated with handling cash. Furthermore, merchants have the benefit of real-time fraud detection built into card payment processing.
- Card-based transaction statements simplify and automate transaction accounting, which has operational cost benefits.
- Payment card networks offer significant marketing opportunities to merchants, which have become especially important in an era of growing e-commerce and mobile commerce.
- Customers appreciate the convenience and rewards associated with using payment cards.
The card associations and issuing banks say these benefits far outweigh the costs of interchange paid by the merchants.
Visa and MasterCard disputed the merchants’ contention that they have no choice but to pay default interchange rates.
They agreed that card associations set default rates to streamline the contracting process for everyone involved in processing card payments. However, they claimed that each merchant is free to negotiate its own acceptance costs with the acquiring bank of its choice.
They claimed that if a merchant does not like what the acquiring bank offers, they can work with a different acquiring bank that offers better rates, offer cash discounts to their customers, or choose not to accept payment cards.
Merchants pointed out that it is card associations, not acquiring banks, which determine interchange rates. Acquiring banks have their own payment processing fees merchants must pay, but they have no role in setting interchange rates (see more about interchange).
Card associations said that is not exactly so. They maintained that acquiring banks could negotiate with issuing banks over the issuing banks’ acceptance fee (which is interchange).
Merchants pointed out that the process of negotiating separate processing fees twice, once with the acquiring bank and once with the issuing bank, for every one of over 7 million merchants, would be so cumbersome that it simply could never happen.
Card associations saw that fact as proof that default interchange rates serve a purpose. Merchants saw it as proof that the practice is monopolistic.
Visa and MasterCard also disputed the merchants’ contention that there is a lack of transparency in system.
They pointed out that they post their interchange rates and fee structure on their public web site for everyone to see, and that there are no rules preventing merchants from showing consumers how much interchange is deducted from a transaction.
Merchants pointed out, however, that the processing fees on a transaction are not known until after settlement, by which time the customer is long gone from the store.
They say that even if they could show these fees on a receipt, they believe it would be confusing to the consumer as to what the charge was for and who paid it.
Independent analysts noted that given the fact that consumers do not pay interchange, they have no financial incentive to use lower cost payment products. Therefore, exposing interchange fees to them would make no difference in their behavior.
Perhaps the most worrisome charge of all for MasterCard, Visa, and the banks relates to charges that they violated anti-trust law.
Merchants claimed that the way card associations set interchange rates and irregularities in the IPO process, as the banks divested themselves of ownership interest in the card associations, amounted to illegal activities.
The card associations and banks simply denied that there has been any violation of antitrust rules in the way they operate. They also deny that there was any fraudulent conveyance of stock during the IPO process.
Disclaimer: You can file yourself without using a claims recovery service like Brownstone by going to www.paymentcardsettlement.com or calling 1-800-625-6440. Claim forms are being delivered and are available online beginning December 1, 2023. Class members need not sign up for a third-party service in order to participate in any monetary relief. No-cost assistance is available from the Class Administrator and Class Counsel during the claims-filing period. Additional information regarding the litigation, is available at http://www.paymentcardsettlement.com.