Visa Inc. and MasterCard Inc. have been accused of bullying retailers of all sizes, particularly small ones. Now, Visa is being picked on by someone much bigger than it is: Wal-Mart Stores Inc., which this week filed a $5-billion (U.S.) federal anti-trust lawsuit against Visa over transaction fees.
Credit-card giants trade at lofty earnings multiples, because investors have come to believe their profitable business models are virtually impregnable. And it often seems that way.
Just last week, the two sent shock waves through Russian financial circles when they suddenly blocked access without warning to their global payments systems for four banks on Washington's sanctions list. After this remarkable display of what life could be like for a heavily sanctioned Russia, a blustering Vladimir Putin insisted his country could develop its own card system. But there had to be a big sigh of relief inside the Kremlin – and a lot of C-suites across the Motherland – when Visa and MasterCard subsequently restored normal service for two of the banks. Who needs a missile arsenal when you have these powerhouses firing off economic rockets?
Closer to home, the card players have been making life tough for years for small retailers faced with ever-rising transaction fees and forced to accept all manner of premium cards, which carry even heftier charges.
Competition watchdogs haven't been able to do much about it, and lawsuits carry huge costs of their own. Still, they keep coming. A Canadian class-action case alleging a conspiracy by financial institutions and the card companies got the green light to proceed Friday from the B.C. Supreme Court.
And now the horde of litigants have a powerful ally in Wal-Mart, which has launched its own legal action against Visa after withdrawing last year from a $5.7-billion settlement of a similar, interminable U.S. antitrust case that involved more than 50 lawsuits against both Visa and MasterCard.
It's hard to picture the world's biggest retailer as a friend of smaller merchants, more than a few of which have been driven to the wall by its own heavy-handed practices. But after years of court challenges, this could turn out to be a game-changer for the credit-card industry.
Wal-Mart revealed a long list of complaints against Visa ranging from conspiring with banks to fix prices and restricting competition to a failure to implement effective security measures. The inflated fees enabled the card issuers to vacuum up more than $350-billion since 2004, damaging the retailer and its customers in the process, Wal-Mart said.
Visa rejects all of the allegations.
"The anti-competitive conduct of Visa and the banks forced Wal-Mart to raise retail prices paid by its customers and/or reduce retail services provided to its customers as a means of offsetting some of the artificially inflated interchange fees," the company said in its court filing. Those fees amounted to as much as 2 per cent of the sale price. As a result, "sales were below what they would have been otherwise."
When Wal-Mart rejected the class-action settlement, it was joined on the sidelines by the likes of Amazon.com, Target, Macy's, major U.S. airlines and even the Minnesota Twins baseball team, among many others. They not only argued that the dollar amount was too low but strenuously opposed a condition of the deal that blocks future lawsuits over the same credit-card fee practices or similar ones that might be imposed in future to cover new payment technologies. Most vowed to appeal.
Wal-Mart, which has not included MasterCard or any banks in the latest lawsuit, has gone toe-to-toe with the card industry before. It was a key player in a class-action case fought over the demands of the two networks that merchants taking their credit cards also had to accept their debit-card offerings. That one resulted in a $3-billion settlement in 2003.
One thing we know for sure: Wal-Mart has the deep pockets for these lengthy battles. And this one promises to get a lot nastier.
A previous version of this article stated that retailers have not been allowed by the big credit-card companies to charge less for cash payments. In fact, neither Visa nor MasterCard prevent merchants from offering discounts for cash or other forms of payment.