This paper examines the implications of Visa's 2010 antitrust settlement with the U.S. Department of Justice, which required Visa and MasterCard to allow merchants to disclose processing fees and offer discounts to customers using lower-fee cards. The paper explains how the previous system functioned as a competitive "straightjacket" on merchants, traces the likely consumer and retailer responses to the new rules, and proposes four strategic recommendations for Visa to protect its dominant market position: renegotiating merchant fees, expanding rewards programs, offering competitive interest rates to attract balance transfers, and improving customer service and payment flexibility.
Visa, MasterCard, and American Express currently dominate the US credit card market. This is partially due to the fact that customers know most establishments accept these major credit cards. However, due to a 2010 settlement with the Justice Department, Visa's monopoly on the market may soon end. Credit cards with lower fee scales may begin to make encroachments upon the market, given that Visa and MasterCard must now allow store owners to "reveal processing fees to customers and offer discounts to those [customers] using cards that carry lower fees. Until now, shops and restaurants had been forbidden to tell customers about the fees — or to offer discounts or rebates to people paying with cards carrying lower merchant fees" (Rubin 2010).
In the antitrust suit, merchants successfully argued that Visa and the other major credit card companies placed a "competitive straightjacket" upon them by requiring that they treat all credit cards the same, even though some cards charge merchants lower fees (Rubin 2010). Merchants were forced to acquiesce to Visa's demands for fear of losing the credit card company's support — and the many customers who automatically use these major credit card brands. Customers often did not acquire credit cards from smaller companies, as they could see no pricing advantage at retailers for doing so. Visa accounts for 43 percent of all credit card expenditures in the US and thus has a great deal of market leverage — withdrawing from a business could be disastrous for that establishment's financial health (Rubin 2010).
In the wake of the antitrust settlement, as more and more consumers try to pay down credit card debt, they are seeking ways to reduce their balances as quickly as possible. If they are now able to receive discounts from merchants by using less prominent cards, they will likely consider acquiring new credit cards in order to obtain special deals and rebates. Additionally, many consumers seek to shift their balances to cards with more favorable interest rates, and they may be attracted to new types of credit cards if those cards are accepted at a wider array of stores than ever before. As merchants can now charge customers lower fees when they use certain credit cards, they may be more inclined to offer a broader range of credit card options to consumers — thinking outside the Visa box.
"Four strategies to retain Visa's market position"
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