For years, most major credit card issuers offered only one type of credit card product platform. This was either Visa or MasterCard. Discover offered its own platform as did American Express.
Under pressure to reveal potentially damaging information about possible exclusivity arrangements and other anticompetitive practices, Visa has decided to avoid a trial altogether and settle with American Express. This settlement is expected to approach $2.25 billion.
The actual acts that are covered by the settlement are not clearly known, since the purpose of the settlement was to keep previous business practices secret as much as it was to limit future liability. To be fair, this liability could have affected Visa’s expected initial public offering in early 2008.
Implications for the Credit Card Industry
American Express intends to use most of this settlement to reward its biggest spending cardholders. They want to focus on expanding their membership base, which may have suffered due to anticompetitive practices.
Visa may still have a liability with Discover. Discover would have suffered similarly to American Express from these practices.
MasterCard has yet to respond to these revelations. Many industry watchdogs indicate that MasterCard may have to also act quickly to limit the extent of a settlement. The closer they wait to the September 2008 trial date, the more likely Discover and American Express may be willing to go to trial.
In the end, consumers should have additional choices, since they can now get American Express branded cards from Bank of America and other banks that previously offered Visa products exclusively. Still, this does not compensate for the lack of choice caused by acquisitions of credit card issuers. There are simply fewer major credit card issuers to choose from
Tags: MasterCard Settlement, Visa settlement