A large group of national grocery chains have levied their lawyers at credit card monolith Visa USA claiming Visa’s fee system is unfair in a federal antitrust lawsuit.
The lawsuit, filed in U.S. District Court in New York, comes in with some heavyweights too. Led by Kroger, the third largest retailer in the U.S., the lawsuit state Visa forces the retailers to put fees on customers who don’t utilize Visa for their purchases. The retailers are forced to put the fees on their products. Retailers like Walgreens, Eckerds, Safeway, Maxi Drug, Ahold and Albertson have also signed off on the suit.
Retailers charge Visa and its member banks essentially run a scam by setting interchange fee amongst themselves and pass those fees on to merchants. Then those merchants have to pass on the price to customers but not just customers who use Visa but all their customers who pay with cash or check or even government assistance.
Needless to say, Visa isn’t happy. The company, based out of San Francisco said that they couldn’t address the charges yet because they have to check their statement er uhthe lawsuit.
The National Retail Federation threw in their numbers in the middle of this too saying Visa and MasterCard made a lean 17.4 billion in fees in 2004. They said the transaction fees figured about 1.75% of each transaction on average but increase this year pushed fees on some cards to 2.9%.
Kroger said in their statement that interchange fees cost retailers and consumers $20 billion or more a year and Kroger said they will pay $350 million in fees this year, up more than 215% over 5 years ago and that Visa raised Kroger’s rate 11 times in the 5 year period.
Right now, Visa doesn’t allow retailers to pass on Visa’s fee to Visa customers. They make the retailers suck it up or slap on the consumer, across the board. That is the most common answer. Retailers want to be able to pass on that cost directly Visa customers directly.
The problem most of these retailers have is the monopolistic environment Visa has the advantage of having. With only 4 major credit cards on the market in the form of Visa, MasterCard, American Express and Discovery, it’s a tough business to get into and Visa is by far the largest of them all. If retailers want to offer a more complete payment service to their customers, they have to offer Visa. In many cases, if they don’t, they would lose a fair amount of business.
“The collective setting of interchange fees by Visa and its member banks constitutes horizontal price-fixing that leads to higher retail prices for our customers,” said Paul Heldman, Kroger senior vice president and general counsel. “This hidden cost must be borne by all Kroger customers, whether they pay for their groceries with cash, by check or by debit or credit card. At a time when technology has made card authorization and processing faster, cheaper, safer and more efficient than ever, we believe that our customers should be receiving the benefit of declining interchange fees. Instead, Visa is using its extraordinary market power to profit at our customers’ expense.”
Smaller retailers have complained of these problems with the credit card companies for years but in order to do business, particularly on the Internet, they were forced to sign on the dotted line and pay the apparently exorbitant fees.
John Stith is a staff writer for murdok covering technology and business.
