MasterCard recently announced a pretty boffo quarter; its share went up seven percent, and MasterCard, based in Purchase, NY, expects the next two years to see rising earnings. But a surprise entry was on the balance sheets: $495 million set aside to settle a lawsuit over credit card swipe fees paid by retailers.
The story starts in 2005, and to understand why the lawsuit was brought, you need to understand how the payment system works. The banks back credit cards financially and the card issuers (MasterCard and Visa, also a part of this suit) run the payments processing network. MasterCard and Visa make money on swipe fees, as well as a percentage of the charge. Banks get another share of the swipe fee, and they also make money on the interest they charge cardholders. It's a good system for them...but not the retailers, who can lose a lot of money on big purchases as customers resort to using cards more often.
The suit maintains that Visa, MasterCard, and the banks are violating anti-trust laws because the banks and the card issuers work together to decide what prices to charge, instead of letting the market set the prices independently. Retailers argue that they have no choice but to pay artificially-inflated fees, and have no recourse due to the "collaboration" between the banks and the card issuers. Needless to say, MasterCard and Visa disagree, but settling is a lot cheaper than going to court.
Retailers and credit card issuers haven't been friendly for a while. As plastic has become a more popular way to pay merchants, the merchants have started grumbling about the fees they have to pay credit card companies. In fact, retailers recently took their case to the federal government and walked away with a major victory: debit card swipe fees were limited to 21 cents, less than half of the average swipe fee being collected in 2011.
Next on the retailer hit list? Credit card swipe fees. In fact, part of the reason the class action lawsuit the retailers brought is heading towards a settlement is to sweeten the deal, MasterCard and Visa have offered to reduce swipe fees for one year by 33%. That's a lot of money in merchant pockets, and it lays down the possible groundwork to make that fee reduction permanent.
But why should this matter to you, the consumer? The short answer is, prices. As merchants pay more and more to process payments, eventually that cost is going to be passed onto the consumer. Twenty cents may not sound like a lot, but it can add up very quickly. It's especially important to retailers to keep prices low in this tough economy; people are still looking for the best deal to stretch their dollars further.
In other words, this fight isn't over yet, and it probably never will be. As long as banks and card issuers want to make money off of retailers, and vice versa, we're going to see these lawsuits passed back and forth for a long, long time.
Image Credit:
http://www.mcsvisa.com/images/mastercard.gif
