Industry Intelligence

Several months after successfully getting debit card transaction fees capped, retailers are taking aim at credit card transaction fees.

According to The Street, 5 million retailers have filed an anti-trust lawsuit against Visa, MasterCard and 13 other large banks, including Bank of America and Citigroup, over the 2 percent interchange fees they charge retailers on credit card transactions. The outcome could cost the defendants billions of dollars and force them to lower the fees.

The case, which will be heard by Judge John Gleeson of the U.S. Eastern District of New York, is set to start in September, according to media reports.

Estimates of the potential cost of a settlement of the antitrust case vary dramatically -- from a few billion dollars into the hundreds of billions, The Street reported. Deutsche Bank research found that a settlement or judge’s ruling could take the 2 percent interchange fees banks and card companies charge retailers on credit card transactions to as low as 0.5 percent. That would equal the rate in Australia, but still be higher than the 0.3 percent charged in the European Union, according to a report by Sanford Bernstein analyst Rod Bourgeois.

A Jan. 4 report by Deutsche Bank analyst Matt O’Connor said reducing credit card interchange fees by 75 percent would cost US Bancorp about $1.2 billion of its 2012 revenues -- some four times O’Connor's estimate of revenue the bank lost from the Durbin Amendment. For JPMorgan Chase, the implied cost would be $5.38 billion, more than five times the $1 billion the bank lost to Durbin, according to O’Connor’s estimate. For Bank of America, the implied cost would be $3.68 billion, nearly double the $1.9 billion O’Connor estimates the bank lost to Durbin. Citigroup, essentially unaffected by Durbin, would take a $3.02 billion hit if credit card interchange fees fell to 0.5 percent, the news outlet reported.

The plaintiffs include the Association for Convenience & Fuel Retailing (NACS) and the National Restaurant Association. The suit argues that the banks, Visa and MasterCard have illegally colluded to charge fees for credit card transactions that are far higher than an open, competitive market would dictate they should be.

Ten individual plaintiffs, including The Kroger Co., Walgreen Co. and some other large chains, have opted out of the class, and MasterCard said in its latest quarterly earnings filing that it has made “substantial progress” in settlement talks with those plaintiffs, according to the news report.

However, they represent less than 5 percent of the purchase volume of the class plaintiffs, and “there has not been similar progress” with the class plaintiffs, whose settlement demands “remain unacceptable” given the size of the monetary demands and "unacceptable changes to MasterCard's business practices," MasterCard said in the quarterly filing.