The Interchange Antitrust Settlement: The Peril of “Going Nuclear”

by Ken Paterson 0

The proposed Visa/MasterCard Antitrustsettlement (Payment Card Interchange Fee and Merchant DiscountAntitrust Litigation) has been public for over a week now, andthere are lots of nuances to be analyzed (Mercator members shouldsee our July Research Note The Interchange AntitrustSettlement: An Initial Assessment), and even the survival of thesettlement has taken on its own dynamic as merchants considerwhether or not to opt out.

So let me focus on just one element: the ability of merchants tosurcharge consumers for using credit cards, a.k.a. “going nuclear.”In the United States, where consumers have very little experiencewith surcharging (outside of exceptional government and educationalpayments), consumer sensitivity to surcharging could beparticularly strong.

Based on preliminary data from Mercator Advisory Group’s June 2012CustomerMonitor Survey Series survey of 1,000 U.S. consumers, avast majority of consumers owning a general purpose credit cardindicated that they had never had the experience of “Storescharging an extra fee if a credit card is used.” When surchargingwas presented as a hypothetical experience in the survey, resultshighlighted some real downside risks for both merchants andissuers. Over eight out of ten credit cardholders encounteringsurcharging would choose either a different method of payment orwould take their business to another merchant. It is important tonote that in these scenarios, no surcharge amounts were noted, onlythe existence of a surcharge. However, the rather dramatic consumerreactions to the notion of surcharging-both anti-merchant andanti-credit card-are notable considering the surcharge amount wasnot specified.

Market observers seem divided at present regarding the likelihoodthat merchants will actually surcharge. And in the current economicenvironment, the likelihood of surcharging is perhaps lower than itmight be in a seller’s market. I liken surcharging to a strategicweapon; its power can be a strong bargaining chip in negotiations,but in the event it is used, considerable collateral damage to allstakeholders is likely. As the payments stakeholders plan theirstrategies in light of the settlement, let’s hope that the creditcardholders are not ignored. Their reaction to the nuclear optionshould not be underestimated.