Learn about the people who benefit most from reading Market Platform Dynamics' book on Paying with Plastic

In re: Visa Check/MasterMoney Antitrust Litigation; Wal-Mart Stores, Inc. et al. v. Visa U.S.A., Inc. and MasterCard International, Inc.

The lawsuit, filed in October 1996 by a group of retailers, challenged a basic foundation of the payment card industry: the Visa and MasterCard networks’ honor-all-cards rules. The honor-all-cards rule required any merchant that joined a payment card system to accept for payment all of the cards that carry that system’s mark. The antitrust suit sought to prevent the Visa and MasterCard bankcard associations from enforcing their honor-all-cards rules. Specifically, the merchants objected to the requirement that they accept debit cards with the Visa or MasterCard logo if they also accept Visa or MasterCard credit cards, arguing that this constitutes illegal “tying”. Named plaintiffs in the case included Wal-Mart, The Limited, Sears Roebuck, Safeway, Circuit City, the National Retail Federation, the International Mass Retail Association, the Food Marketing Institute, and 13 other large and small retailers. The suit was granted class action status, so about 5 million merchants were considered parties to it.

The retailers wanted to be able to accept the card associations’ credit cards but reject their debit cards even though the retailers pay about the same or less for debit. They argued that users of Visa and MasterCard signature debit cards (also called off-line debit) will continue to shop at their stores and many would instead pay with PIN debit cards (also called on-line debit) from ATM/debit systems such as STAR or NYCE, or with cash or checks—methods the merchants claim are less expensive for them. Fees paid by merchants for PIN debit are significantly cheaper than for the associations’ signature debit. The plaintiffs claimed tens of billions of dollars in damages. (The associations’ signature debit brands are Visa Check and MasterMoney. Visa and MasterCard also operate PIN debit brands, Interlink and Maestro, respectively.)

Visa and MasterCard argued that their honor-all-cards rules were fundamental to the associations’ existence. Visa said its rule was “pro-competitive and beneficial to both merchants and consumers” and helped Visa cardholders by reducing confusion over which Visa cards in their wallets or purses will be accepted at a given merchant. That is, all a Visa cardholder needed to worry about is whether the retailer accepts Visa and all a Visa retailer needs to worry about is whether a customer is using a Visa card—neither party need worry about the particular type of card in question. It is worth noting that PIN debit transactions do not carry the same consumer benefits as Visa and MasterCard signature debit transactions do, including liability fraud protections, the right to dispute charges, and global acceptance of the card. Merchants also benefit from the honor-all-cards rule by providing customers the widest possible range of ways to pay.

Signature debit card transactions are processed through the card companies’ networks while PIN debit transactions are processed through competing ATM/debit networks. The retailers claimed that in the absence of the honor-all-cards rules, the associations would have been forced to lower their interchange fees (a fee paid by acquirers to issuers) so that merchant fees for Visa and MasterCard debit (which reflect interchange fees) would have been comparable to those for PIN debit.

The retailers also claimed Visa and MasterCard intentionally created their debit cards, also called check cards, to look similar to credit cards in order to trick customers and merchants into using them and processing them just like credit cards, and their strategy resulted in hobbling the growth of PIN debit as a competing payment option.

In April 2003, on the eve of trial, the merchants and card associations agreed to a settlement. Visa and MasterCard agreed to stop requiring merchants to take both debit and credit cards on January 1, 2004 and to pay the retailers $3.05 billion over the next ten years (about $2.2 billion to $2.6 billion in present value).

In a related matter, the European Commission announced its formal decision in August 2001 that the Visa honor-all-cards rule in the European Union was not anticompetitive.