U.S.

Visa, MasterCard Fight Charges

By CBSNews.com staff CBSNews.com staff

June 11, 2000 / 6:52 PM EDT / CBS

In its biggest antitrust case since Microsoft, the U.S. government has taken Visa and MasterCard to federal court in New York.

Prosecutors say the two together have "stifled" and "thwarted competition" and "lessened consumer choice."

Visa and MasterCard are both owned by the banks that issue them, and require those banks not to offer any competing cards.

It's a trillion dollar market controlled by two giant networks. Three out of every four credit cards in the United States are issued by Visa or MasterCard.

After 15 years of trying to crack the credit card market, Discover still ranks only a distant fourth with just 6 percent of the market.

"They lock customers in and they lock us out," says David Nelms of Discover Financial Services. "We think we can be growing much faster and saving consumers quite a but of money if we weren't hindered by the two of them working together."

American Express argues it's been held back too. And consumer groups say everyone's paying for it.

Frank Torres of Consumers Union says, "What we have here is almost a choke point on the payment system of this country. It locks out not only Amex and Discover, but any other upstart company that wants to come into this marketplace."

But Visa says it offers there's plenty of choice out there and consumers shouldn't care.

Visa spokesman Kelly Presta says: "Because this is battle between two titans. It's a clash between Visa and American Express, our higher priced competitor."

"The government's essential argument here is that both Visa and MasterCard are controlled by the same group of banks, that together they control a vast portion of the credit card market, and that they are in several ways stifling competition and innovation," says CBS News Legal Consultant Andrew Cohen.

Visa spokesman Kelly Presta told CBS News: Consumers have as much access to American Express as Visa or MasterCard.

"Less than 20 percent get a credit card from a bank with whom they have a relationship," he says. "Most get it through the mail. If you have access to that, you know how to get an American Express card. Last year, customers received more than 4 billion solicitations for cards in the United States alone."

"The bank is the least expensive method of distribution," countered Judge Robert Bork of the American Enterprise Institute, who has lobbied on behalf of American Express, "so right away American Express is put at a disadvantage by the rule that Visa and MasterCard have that if any bank deals with American Express or Discover, they lose the Visa and MasterCard accounts."

"It's going to be very difficult for the government to convince the judge that there isn't enough competition in the credit card market," says Cohen. "If the judge gets his own mail at home every day he knows that there are dozens of solicitations a month from various companies looking to sgn up new credit card users."

Visa and MasterCard have repeatedly denied the allegations and suggested that American Express, which will testify for the government, has been maneuvering behind the scenes to try to force changes in the industry for its own benefit.

"We used to be smaller than MasterCard and smaller than American Express and have grown to be larger by listening to consumers," says Presta. "American Express has gone to the government and encouraged them to bring a suit. We believe they're trying to win in the courts what they failed to win in the marketplace. Antitrust laws are to protect competition, not competitors."

"The future products like the debit card in which you put a card in and it comes right out of your bank account is the wave of the future," says Bork, former solicitor-general in the Nixon administration. "Visa has 100 percent of that and American Express and Discover cannot have debit cards because the banks are not allowed to deal with them."

Bruce Brittain, a credit card analyst in Atlanta, says he was not convinced of the government's argument that the current system limits consumers' choice.

"From the consumer's point of view, there is a lot of competition in the credit card world," Brittain says. "Being able to get an Amex or Discover card from your local bank doesn't make much difference to them. They can get them now if they want by calling an 800 number, picking up a form at a restaurant, going onto the Internet."

He says the benefit for Amex of linking up with a big bank would be that it could offer financial services beyond its traditional travel card.

"This is just one headache for Visa and MasterCard," says Cohen, "because in addition to this suit by the government there is another lawsuit out there, filed by some of the nation's biggest retailers, alleging that the credit card companies charged them excessive transaction fees — and that's a class-action lawsuit — so even if the defendants win here they are by no means out of the woods."