Sunday, June 18, 2000
'Plastic' holders could get new clout
Trustbusters going after Visa, MasterCard
By Jeff McKinney
The Cincinnati Enquirer
Millions of consumers could win big if the government is successful in efforts to change how the world's two largest credit-card networks — Visa and MasterCard — operate and sell plastic to individuals.
U.S. antitrust officials last week began challenging in court how Visa and MasterCard, which dominate about 75 percent of the $1.3 trillion credit-card industry. The government contends the two limit competition with each other and block access to rivals such as American Express and Discover from most of the nation's banks that issue cards to consumers.
Though the case's outcome won't be known for months, experts predict should the government prove Visa and MasterCard control the market, consumers may see:
• Lower interest rates and other bargains.
• Increased competition.
• More innovative products and improved services from more credit-card companies.
The case, which comes after the Justice Department successfully argued that Microsoft Corp. abused its monopoly over personal computer systems to harm consumers, could also dramatically change how individuals use plastic and issuers promote cards.
But even if the government is successful in its battle against Visa and MasterCard, it likely won't bring any quick pocketbook savings or stop consumers' mailboxes from being swamped daily with billions of those pesky credit-card solicitations.
That's because the industry is competitive with issuers of credit cards — not brands like Visa or MasterCard — already offering things like no annual service fees or six-month introductory rates with zero interest to win business, said Robert McKinley, president of CardWeb.com Inc., a credit card consulting firm.
He also said the nation's 6,300 credit-card issuers — including banks, credit unions and retailers — won't stop inundating consumers with credit-card offers because the business is so aggressive and that's an effective way for them to reach potential users.
The Justice Department filed the suit in late 1998, alleging that Visa USA and MasterCard International Inc. violated antitrust law by limiting competition. Visa International, which governs Visa USA and other regional subsidiaries, also was named in the lawsuit.
Visa and MasterCard have repeatedly denied the allegations and contended American Express — which is not a party to the case but will testify for the government — has been maneuvering behind the scenes to try to force industry changes for its own benefit.
Visa and MasterCard are set up as nonprofit groups. Representatives of their 8,500 member banks sit on their boards as well as policy-making committees. Their rules allow banks to issue Visa and MasterCard credit cards, but bar member banks from issuing other cards.
But Mr. McKinley predicted that credit-card issuers — including banks that push plastic with the Visa and MasterCard brands — could be forced to cards with additional consumers benefits and perks if:
• The government can successfully block a rule of Visa and MasterCard that prevents member banks from distributing cards of rivals, including American Express, Discover and Diner's Club.
• Prevent executives of member banks of Visa and MasterCard from continuing to control each network's board and run their governing committees, setting such things as various fees tied to cards.
• Stop the networks from being run by the same group of large banks, putting pressure on Visa and MasterCard to offer brand-using members higher valued products at lower costs.
“If you saw the government separating Visa and MasterCard and not allowing bank executives to have it both ways, you'd see the networks more aggressively going after each other,” Mr. McKinley said.
For consumers, he and other experts suggested that would allow more companies to carry those brands and offer cards with incentives to win business. They could offer perks such as:
• Exclusive discounts with airlines or automakers.
• Extended insurance warranty on such things as appliances.
• Free extra night stay at major hotels.
• Free vehicle towing services built into a credit card.
He said increased competition also could force Visa and MasterCard to offer such perks at the brand level. That could mean that smaller card issuers, such as credit unions, that can not afford to offer incentives individually would possibly be able to.
“Many of these credit cards are plain vanilla (in terms of benefits), but this could add some sweetness to them,” he said.
Executives from the American Bankers Association, the industry's largest trade group, said Wednesay it could not comment on the issue with the case in litigation.
Still, a favorable ruling for the government also could potentially make credit cards less expensive, said Ed Mierswinski, consumer program director at U.S. Public Interest Research Group in Washington, D.C., a liberal consumer-advocacy group.
He said it could force the dominant players of the existing credit card brands, which control about 80 percent of the market, to lower pricing if more credit card issuers are able to compete.
“Visa and MasterCard don't compete and that hurts competition, and that means higher prices and less innovation,” Mr. Mierswinski said. “And more credit-card promotions would be a form of lower pricing, giving people more value for their money.”
David Butler, a spokesman for Consumers Union, agreed. He said opening the industry to more competition would allow other businesses such as dot.com and start-up companies to sell the cards through a banking system dominated by Visa and MasterCard.
In turn, he said increased competition could force credit card issuers to be more responsive to users' needs, possibly providing more details about such things like how fees are structured, how long it would take to pay off a certain debt and how rates vary.
“It remains to be seen what the decision will be, but a favorable one could make the industry' more responsive to consumers' needs,” Mr. Butler said.
'Plastic' holders could get new clout
Old, new economies reflected in father, son
AK Steel stokes Middletown economy
Kmart setting pace for online shopping
Dot-coms under pressure with no money, employees
Home office
Publishers putting Ohio into print
Virtual reality new way to learn
What's the Buzz?
