STRATEGIC PARTNERS
April 28, 2003
NEW YORK -- Though the terms of a deal reached by MasterCard International in the high-profile class action pitting Wal-Mart Stores and other retailers against MasterCard and Visa USA were not disclosed when the surprise settlement was announced on April 28, it reportedly carried a $1 billion price tag.
The Wall Street Journal, citing "people familiar with the matter," reported that the settlement included damages of about $1 billion.
(See related story MasterCard settles in debit case)
Visa is now the lone defendant in the case, which centers on the card companies' "honor all cards" policies, which require merchants to accept Visa- and MasterCard-branded cards for signature-based debit transactions if they also want to accept Visa- and MasterCard-branded credit cards.
U.S. District Court Judge John Gleeson of the Eastern District of New York in Brooklyn ordered the terms to be kept under seal so as not to prejudice a jury that must deliberate the case against Visa. MasterCard declined to provide details of the settlement.
On a typical $100 transaction, according to the Wall Street Journal, merchants pay about $1.49 to route a debit-card transaction through the Visa or MasterCard settlment system, compared with nine cents to route PIN-based debit transactions through EFT networks such as Star or NYCE.
Merchants are seeking the right to refuse the signature-based debit cards because of their higher interchange fees.
According to the Wall Street Journal, Many of the nation's largest card issuers will feel the impact of the settlement. Though banks won't have to shoulder any of the direct settlement cost, which will be covered by a MasterCard reserve that will be paid out over time, they will likely see a significant drop in interchange revenues.
Wall Street brokerages say if Visa also settles or loses the case, earnings at banks that issue Visa cards could drop by as much as 1 percent to 2 percent a year.
The lawsuit over the fees originally was filed in 1996 by a number of retailers who claimed they were paying too much for debit-card transactions -- but had been repeatedly delayed by a series of pretrial motions.
Visa has shown little sign that it plans to reach a deal with the plaintiffs, according to the Wall Street Journal.
"Visa is focused on demonstrating at trial that our practices are legal, appropriate and in the best interest of consumers," Visa said in a statement.
The basic allegations raised in the suit by the merchants apply to both Visa and MasterCard. With MasterCard effectively conceding defeat, it raises the pressure on Visa.
Again citing "people familiar with the matter," the Journalreported that Gleeson has been tough with both parties, seeking to force a settlement rather than pursue a lengthy trial.
Lloyd Constantine, the lawyer representing the retailers, said settlement discussions had been going on at an intense pace "for the past five days" before MasterCard decided to settle. Constantine declined to comment on the settlement.
Experts following the case said that MasterCard had an incentive to separate itself from Visa because MasterCard has been achieving much of its recent growth in its core credit-card market, with less emphasis on debit cards than Visa.
MasterCard, for the first time in 25 years, has more than half of the total of the combined market for credit cards branded with either Visa or MasterCard, according to the Nilson Report.
Opening arguments in the case against Visa have been postponed until April 30.
