The lawsuit du jour against the interchange fees charged merchants by Mastercard and Visa are being challenged in court. Again. This time it’s by financial software company, Intuit.
This is a little different from other legal challenges that the networks have faced as Intuit’s claims state it was wronged not only by the fees it was charged to take Mastercard and Visa payment devices, but also by the card network fees it passed along to the merchants that it supported as an Independent Sales Organization or ISO. Digital Transactions’ analysis of the matter had this to say:
All in all, Mountain View, Calif.-based Intuit alleges it has paid “billions of dollars” in interchange, network, and other fees during what it defines as the “damages period,” a span of time starting no later than August 2004 and running to the present. The company incurred these costs in its roles as merchant, ISO, and payfac, according to the filing. Payfacs, which host typically small businesses on their merchant accounts, as well as ISOs usually recover interchange and other transaction costs from their clients.
The suit also attacks the networks’ honor-all-cards rules, which require merchants to accept all network-branded cards if they accept any. The rule, according to Intuit, helps maintain what it says is an unlawful cartel for the two networks.
While Intuit’s case largely re-asserts allegations that merchants have brought for decades against Visa and Mastercard in and out of court, its distinguishing characteristic is that is has been brought by a transaction processor. Observers recall only two previous cases involving such litigation. One suit was brought by a big processor called National Bancard Corp. (Nabanco) in the 1980s. First Data Corp. acquired Nabanco’s parent company, First Financial Management Corp., in 1995.
The outcome here will be interesting to watch. It is one matter for Intuit to claim that it was harmed by Mastercard’s and Visa’s commanding role in payment processing. But Intuit entered the payments market as an ISO, knowing full well the role that interchange plays and how it is assessed by the networks. They monetarily benefited from the business model created by the global networks.
Given the size of Intuit’s business, the damages they could request but haven’t yet defined, could be substantial and weigh heavily on Mastercard’s and Visa’s income if the court rules in Intuit’s favor. Mastercard and Visa might need to raise fees to cover its losses.
Overview by Sarah Grotta, Director, Debit and Alternative Products Advisory Service at Mercator Advisory Group