Best Buy Co. is suing Visa and Mastercard for allegedly violating antitrust and unfair business practices laws regarding plastic card payments.The Visa-Master Card cases is a textbook example of the flaw in antitrust thinking. Prior to the rise of Visa and Master Card, there was no such thing as nationally-accepted credit cards. Credit itself was originally a concept where individual store owners would allow customers to purchase goods now and pay later. Department stores became the initial issuer of plastic credit cards in the mid-20th century. Visa and Master Card came along later as an alliance of banks that formed a national network to process credit orders. Individual banks issue the cards, while Visa and Master Card maintain the infrastructure necessary to ensure compatibility from merchant-to-merchant.
Best Buy contends Visa and MasterCard's rules unfairly force it to accept their check cards and prepaid cards if it also chooses to accept their credit cards. The company claims that system forces it to pay high prices for taking check and prepaid cards and harms competition.
Visa and MasterCard have agreed to pay $3 billion to thousands of retailers to settle a 1996 lawsuit that accused the credit card companies of abusing their market power in charging high merchant fees. But Best Buy and a handful of other retailers opted out of that class-action lawsuit to pursue their own claims.
Without Visa and Master Card—and their allegedly "monopolistic" fee practices—many of today's large retailers would not exist. Imagine running Wal-Mart, a lead plaintiff in the class-action settlement, without any bank-financed credit cards. The stores may complain about high credit-processing fees, but the price they would pay without Visa and Master Card are far higher, both in terms of sales and administration.
The problem however, as it always seems to be in antitrust, is that success breeds a sense of entitlement among the consumer base. Because Visa and Master Card have created incredibly effective networks, the retailers now seem to view credit card processing as a form of public utility—something that they're entitled to use regardless of ability or desire to pay. The Justice Department, in continuing their own antitrust case against Visa and Master Card, wholeheartedly subscribe to this theory as well. The potential fear, then, is that government regulators will seek to increase their direct control over credit card processing to the point where it does become a quasi-public utility, a la the telephone companies.
I'm not sure Visa and Master Card have quite figured that out yet. They appear to be writing off these antitrust suits as a cost of doing business, a common attitude among large corporations. But at some point they may come to understand their survival is at stake. Hopefully that realization won't come too late.