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Insider’s report

on payments:

Interchange challenges by a U.S. District Court judge. But soon retailers began
to balk; many sought to opt out for a variety of reasons,
create need for including a provision of the settlement that banned future
lawsuits regarding interchange and related rules.
payments experts The U.S. Court of Appeals for the Second Circuit in New
York agreed with the dissenting retailers, writing in a June

By Patti Murphy 2016 opinion that "the class plaintiffs were inadequately
represented" and that "the settlement was inadequate and
Proscribes Inc. unreasonable." The Supreme Court's decision not to review
the appeals court decision means the case now can be
he U.S. Supreme Court decided against weighing placed back on the docket at the U.S. District Court in New
in on a multibillion-dollar payout by Mastercard York, where it was originally.
and Visa to settle an anti-trust suit filed by a
T group of retailers over interchange pricing and Duncan said retailers are considering whether to negotiate
anti-steering rules. The High Court's decision leaves intact another settlement or to focus on more recently filed law-
a 2016 appeals court ruling that scrapped the settlement suits over interchange and related issues. And there is no
after hundreds of companies – including some of the big- dearth of litigation. In 2016, at least four lawsuits were filed
gest names in retailing – opposed the 2013 agreement. It against Visa and/or Mastercard over the EMV (Europay,
also leaves open the possibility of an ongoing legal fracas Mastercard and Visa) mandate. Wal-Mart and The Home
over interchange and related issues. Depot Inc. alleged in separate filings that to maximize
transaction interchange, the card brands require them to
"If this settlement had been approved, the structure of accept signatures instead of other, more secure methods of
fees that drive up the prices of everything consumers buy authorization, like PINs.
would be cemented into place forever," Mallory Duncan,
Senior Vice President and General Counsel at the National There is little doubt interchange has become the boogey-
Retail Federation, stated. "Now something can finally be man of card payments. And retailers and their powerful
done to bring these fees under control." trade groups are determined to eradicate or at least severely
handicap it. Their strategy reminds me of lingchi, a method
Interchange generates a pile of cash, but it's a vulnerable of torture and execution practiced in China from the Dark
pile. An analysis published in 2016 by S&P Global Market Ages until the early 20th century that translates as death by
Intelligence found credit and debit card interchange a thousand cuts. Only in this situation, it's more like death
generated $32.25 billion in revenues for U.S. financial by a thousand lawsuits and regulations.
institutions in 2015. In 2011, the total was $30.58 billion;
however, with implementation of Durbin Amendment caps "The Court's decision ensures that retailers will continue to
on debit card interchange, revenues fell to $27.97 billion the be able to challenge the card networks' unfair price fixing
following year. of credit card fees," NACS, the Association for Convenience
and Fuel Retailing, said in a statement. "If the justices had
Visa and Mastercard have been taking heat over interchange come down in favor of the settlement, the card companies
for decades, but the battle intensified in 2006 when a large would have been insulated from lawsuits challenging
group of retailers (led by big-box stores like Wal-Mart Stores improperly set fees."
Inc., as well as the NRF and other retail trade groups) filed
a class-action lawsuit alleging that interchange and rules It's not just that interchange is under legal attack. New
meant to maximize interchange collections amounted to and emerging technologies are being leveraged to provide
price-fixing. merchants with lower-cost alternatives to bankcard accep-
tance, such as decoupled debit cards, bitcoin payments, and
Following years of legal maneuvering, the parties reached person-to-person (bank-to-bank) networks. And the push
an out-of-court settlement that included $7.2 billion (later for real-time payments is creating more and better options.
reduced to $5.7 billion) in restitution, which was approved In addition to better certainty of funds and lower transac-

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