STRATEGIC PARTNERS
March 5, 2002
NEW YORK -- The Justice Department yesterday opened arguments in U.S. District Court in Manhattan in a trial that could force major changes in the way the Visa and Master Card networks operate, according to the Associated Press and Reuters.
The Justice Department filed the lawsuit in October 1998, alleging that Visa USA and MasterCard International Inc. violated antitrust law by limiting competition.
The two companies currently control about 75 percent of the U.S. credit card market. The next-largest issuer, American Express, has about a 17 percent share, with Discover and other cards making up the balance.
The lawsuit charged that the same group of banks control both Visa and MasterCard, lessening competition between the two networks. And it said rules adopted by both credit card associations restrict the ability of banks to conduct business with other card networks.
Both Visa and MasterCard are set up as nonprofit associations, with representatives of their 8,500 member banks sitting on their boards and policy-making committees.
Their rules allow banks to issue both Visa and MasterCard credit cards, but prohibit member banks from issuing other cards.
The result, according to the DOJ, is reduced consumer choice and slowed technological innovations in the credit card market.
Banks that issue more Visa cards are allowed to sit on MasterCard's board with the hope of making them issue more MasterCard cards, and vice versa, their lawyers said.
To support its argument that the networks stifle innovation, the government cited the slow advance of smart cards in the U.S. Government lawyers said that a joint move by Visa and MasterCard not to go ahead with the cards kept them out of the U.S. market for years.
U.S. Justice Department lawyer Melvin Schwarz noted that American Express introduced smart cards into the U.S. when it launched its popular Blue card, designed for online purchases, last September.
Visa and MasterCard lawyers countered that the networks opted not to pursue smart card initiatives because costs outweighed the returns.
Visa and MasterCard have denied the DOJ's allegations and suggested that American Express, which will testify for the government, has been attempting to orchestrate industry changes for its own benefit.
A change in Visa/MasterCard rules would clear the way for American Express and other independent card companies to create joint ventures with major banks to gain access to the banks' customers. The companies could then issue more credit cards as well as introduce debit cards, which must be tied to checking or other deposit accounts.
