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Payments, a retrospective
Payments, a retrospectiv
e

by a leg, and banks and their partners represented by the
Insider’sreport third leg. For stability the stool needs the support of all
three legs, and already at least one of the legs is wobbly.
on payments
Some folks blame the situation on lawyers; after all,
there's a lot of fee income to be had from multibillion-
dollar settlements. But the card associations (MasterCard
and Visa) and the banks that originally owned them are
The assault on culpable too.

interchange widens By settling the so-called WalMart lawsuit out of court in
2003, MasterCard and Visa in effect declared open season
on interchange. (Despite its moniker, the WalMart suit was
a class action that included thousands of merchants. Under
By Patti Murphy the settlement MasterCard and Visa agreed, among other
things, to create funds for multibillion-dollar distributions
[Editor's note: As part of our retrospective series, we are reprinting Patti to merchants for past overcharges.)
Murphy's column addressing early assaults on interchange, published
Oct. 22, 2007, in issue 07:10:02.] What's going on?
nterchange is under attack in Washington … again. The latest attack against interchange comes from the
Is anybody surprised? I'm not. Ganging up on Merchant Payments Coalition (MPC), a confederation of
big business has become a sport for some folks in groups representing various categories of merchants and
I Washington, and we are heading into an election other card-accepting businesses; members are said to
year. The latest salvos: new complaints from merchants represent 2.7 million stores employing some 50 million
about MasterCard and Visa, and word that the Department Americans.
of Justice is investigating interchange.
In a letter to the House Judiciary Committee's Anti-Trust
Surely there are other businesses picking the pockets of Task Force, the MPC accused Visa and MasterCard of
Americans, you may be saying to yourself, why all the obfuscations – muddying the pool of public knowledge
jawboning over interchange? about interchange during a hearing the panel held in July.

The truth is that taking down interchange is an issue that The MPC argued during those hearings that the way
ostensibly puts money back into merchants' tills, and small MasterCard and Visa set interchange rates constitute a
businesses (like retail merchants) are the backbone of the violation of federal antitrust laws primarily because the
economy and of the electorate. What congressman doesn't associations are owned by banks. Recent efforts to take the
want to support a plan that can be construed as saving their associations public and diversify ownership should temper
constituents millions or even billions of dollars without those concerns. But it may not be enough.
costing Uncle Sam a penny?
The Justice Department apparently is taking another
Of course, the money has to come from somewhere, and in look at MasterCard and Visa. The National Association
the case of interchange it comes from the feet on the street, of Convenience Stores (NACS) reports that a key Justice
themselves small business owners. But a lot of people Department official told lawmakers during a hearing in
don't see things that way. Heck, how many of the folks September that the agency's antitrust division is looking
we socialize with (outside our work lives) have any idea into interchange. Thomas Barnett, the assistant attorney
of what it really is that we do to earn our living? Multiply general in charge of that division is reported to have said
that number by millions of Americans and you start to that the investigation is "comprehensive" and "will take
get a sense for how huge a task it is to counter attacks on some time."
interchange.
It wouldn't be the first time federal antitrust lawyers
And let's be clear, the campaign against interchange is not have set their sights on Visa and MasterCard. The Justice
just a war of words. It's an attack on the economic model Department took the two organizations to court in 1998.
that has driven broad-based acceptance of payment cards Three years later, in a win for the government, a federal
among both businesses and consumers. court struck down association rules that precluded member
banks from also issuing non-bank cards (like American
Here's a visual: the card business model as a three-legged Express and Discover), and three years after that (in 2004)
stool, with merchants and cardholders each represented
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