Litigation and credit cards go together like Chip and Pin. Merchants and card issuers continue to bicker about who owns the customer. In the latest case, which made its way to the Supreme Court of the United States, the SCOTUS acknowledged the difference between American Express and bank cards. American Express owns both sides of the transaction while bank cards use two businesses to service merchant and issuer payments.
The real business point is about anti-steering. Did Amex strategy to prohibit merchants from pushing customers away from least cost options create an unfair advantage? SCOTUS says no, and that becomes the law of the land.
There is plenty of press coverage but my favorite today is in the Washington Post.
The Supreme Court sided with American Express on Monday in a closely watched case over credit card fees, with major implications not only for the credit card industry but also for some of the country’s biggest platform companies such as Google and Facebook, analysts said.
In a 5-to−4 decision, the court held that American Express is allowed to use contract language to bar retailers and merchants from steering their customers toward paying with competing credit card networks such as Visa and Mastercard.
There are acceptance issues. Visa and Mastercard are accepted at 10.3 million locations while Amex is accepted at 9.0 million.
American Express charges merchants higher fees to use its payment platform, which it says helps the company deliver better cardholder benefits.
But the higher fees have led some merchants to encourage consumers to pay using cheaper, non-Amex cards. To thwart that practice, Amex has sought to use so-called “anti-steering provisions” in its merchant contracts — legal language that the Justice Department and a number of states alleged is anticompetitive and harms merchants.
The real question is “does the steering really hurt businesses or consumers?” Consumers will decide with their pockets, purses and wallets. And, as for emerging technologies, this is more of a safety shield.
The Court’s ruling could shield tech platforms from litigation if plaintiffs cannot prove that both sides of a two-sided market are being harmed by the platform’s practices, said Hal Singer, an economist at George Washington University’s Institute of Public Policy.
American Express has added several bankcard-type cards, such as the Blue Cash card and the Millennial-focused Cobalt card. The network stated in their 1Q18 investor reports that they are looking at some merchant discount reductions to gain parity with MC and V at the point of sale.
Maybe the unexpected consequence is that this win will increase competition with the payment networks, protect emerging technology platforms from unnecessary litigation, and let the consumer market decide how to pay.
Except for rewards, consumers rarely see cost efficiencies passed back in retail savings anyway, so from this perspective, the industry has a zero-sum game. Amex has a victory and there are no measurable negative impacts.
Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group