U.S. v. Visa/MasterCard

August 22 marked the end of two months of testimony and evidence in the antitrust case against Visa and MasterCard. The Department of Justice (DOJ) filed the case nearly two years ago. Each side presented 18 witnesses. There were two main charges:

1. both credit card associations are controlled by the same large banks;
2. both associations prohibit member banks from issuing rival cards, such as American Express and Discover.

We may gain some perspective on the current case by reviewing a bit of history. Back in 1970, the Worthen National Bank & Trust Company of Arkansas was issuing BankAmericards as a member of National BankAmericard Inc. (NBI). In November 1970, Worthen applied for membership in the Interbank Card Association, which operated the Master Charge card system. However, this dual membership violated by-laws of NBI. In April 1972, Worthen filed for partial summary judgment to prevent NBI from enforcing its by-law prohibiting "duality;" that is, allowing individual banks to issue both Visa and MasterCards. After lengthy testimony, the court concluded, "Both merchants and cardholders will be better served if they are allowed to do business with a bank which handles both cards. Despite NBI's arguments to the contrary, the court believes that this will inspire even greater competition between the two systems." The court found for Worthen and ruled that NBI was "in restraint of trade or commerce and that such action is a horizontal restraint of trade or commerce and a per se violation of the antitrust laws."

Let us return to the current litigation. In his article in the New York Times Robert D. Hershey, Jr. reported that the Justice Department intended to require that those banks sitting on the MasterCard board begin issuing only MasterCards, and that members of the Visa board would have to limit themselves to Visa cards. In short, the large banks represented on the boards would be denied "duality." Additionally, it appears that the Justice Department wanted the associations to drop their ban on member banks issuing Discover and American Express cards.

However, market forces are already eliminating duality. In 1997, Citigroup left Visa for MasterCard when Visa's board of directors refused to allow Citigroup to put the Visa logo on the back of the card and the Citi insignia on the front. According to Credit Card News, both associations responded by offering their members partnership programs designed to encourage financial institutions to concentrate their cards with just one association. Visa is testing a program that would allow its members issuing debit cards to put the Visa logo on the back of the card. The article concludes: "The end of duality would clearly not be in MasterCard's interest. The interests of the two associations are diverging rapidly, and Visa has already said that it would not mind an end to duality."