Dynamic Duopoly Riddled with Legal Issues

Has the Dynamic Duopoly finally met their match?  Will their House of Cards collapse around them in a cloud of interchange fee riddled smoke and dust? 

An article in Bloomberg, entitled, "Visa Clashes with WalMart on $48 Billion dollar Card Fee" paints a grim portrait of Visa and MasterCard's potential to continue Milken fees from merchants...

Oh, one last thing, I tried, really I did, but just couldn't prevent myself from providing the following WikiQuote "From the original Dynamic Duo series":

Riddler: What is it that no one wants to have yet no one wants to lose?!

Robin: An antitrust lawsuit!

Riddler: Correct, Boy Wonder!

Via Bloomberg

• Visa Inc., MasterCard Inc. and JPMorgan Chase & Co., already squeezed by new U.S. curbs on how credit cards are marketed to consumers, are girding for a renewed battle over $48 billion in fees levied on merchants.
  
  
• Lawmakersare promising new rules to bring down the interchange fee, a charge onpurchases sometimes topping 3 percent that’s split by the two banksserving the customer and merchant.
  
  
• Supporters ofthe legislation include the biggest retail chains, restaurants andsmall businesses, which say the fees erode profit and inflate prices.
  
  
• The debate pits the largest card lenders including JPMorgan and the two biggest payment networks, Visa and MasterCard, against Wal-Mart Stores Inc. and Target Corp. Interchange is the second-biggest cost after payroll, Target said, and merchants want to negotiate lower payments collectively without running afoul of antitrust law. (remarkable statistic)
  
  
• “The real question is whether the government is going to jump in and get into the game of price control in the free market,” Chris McWilton,MasterCard’s U.S. markets president, told investors at a June 4conference. San Francisco-based Visa said June 5 the legislation wouldraise consumer costs and cut rewards. A similar bill failed last year, the firm said. (letme chortle here at the "free market" reference, and I've been aninvestor in Mastercard for much of the past 2 years. See how it's beennearly impossible for even Discover to enter this fray with all thefinancial backing they have? Can you imagine "mom and pop transactionfirm" trying to take on MA & V?)
  
  
• The Credit Card Fair Fee Actwould let merchants bargain together on interchange rates anddesignates the Department of Justice as arbiter. Card networks andlenders would be forced to disclose components of the fee and how banksshare the money.
  
  
• Interchange accounted for 19 percent of revenue last year for card-issuing banks on the Visa and MasterCard networks, according to trade magazine Cards and Payments. (again that is a remarkable statistic)
  
  
• The networks handled about 89 percent of worldwide purchases on general- purpose payment cards. (so89% handled by two firms, and there are huge juicy profits, rather thanin a true free market, where a bevy of competitors would be angling toget a piece of... since there are not a bevy of competitors we can'teven begin to say with a straight face this is an open or "free"market...which is why many major hedge funds own these 2 firms - talkabout a wide moat)
  
  
• Visa’s and MasterCard’s dominance allows them to “set these fees on a take-it-or-leave-it basis,” said J. Craig Shearman,spokesman for the Washington-based National Retail Federation. Shearmansaid interchange fees associated with the Visa and MasterCard networkstripled from about $16 billion in 2001 to $48 billion last year. (Hmm,Mr Shearman, it's a free market, why don't retailers just go to thecompetition? What's that? There is almost no competition. Hold on letme go check my "free market" handbook on what to do next)
  
  
• Ina typical transaction, the retailer’s bank deducts 1.9 percent fromproceeds of the purchase, a sum known as the merchant discount rate.The largest portion -- the interchange fee -- goes to the bank thatissued the card. The bank for the merchant keeps what’s left.Interchange fees average 1.7 percent of the purchase, according toJPMorgan analyst Tien-tsin Huang. ()sounds like a good deal for banks... wait, where have I heard that before...
  
  
• Visa and MasterCard get paid a processing feefrom each bank of 15 to 18 cents on a $100 purchase, Huang said in aJune 5 report. MasterCard and Visa process about 58 billiontransactions annually, company filings show.
  
  
• “It’s kind of unprecedented to give one industry that kind of negotiating leverage over their business partners,” she said. (not when your industry are the oligarchs of American society)
  
  
• VisaEurope Ltd. faces an antitrust complaint from EuroCommerce Inc., aretailer group that said this month that stores should be able tonegotiate fees. MasterCard settled in April with European Commissionantitrust regulators by reducing credit card interchange to 0.30percent. (unfortunately banks are not royalty in Europe... only here)
  
  
• JPMorgan, Bank of America Corp. and Citigroup Inc., last year’s biggest bank card lenders, don’t detail interchange revenue. (and here I thought we had a transparent banking system?)
  
  
• “In every other aspect, merchants have the ability to negotiate and reduce their costs except this one,” said Jennifer Hatcher,spokeswoman for the Arlington, Virginia-based institute. Target lacksleverage because it’s “simply not realistic” to stop accepting cards,said Eric Hausman, a spokesman for Minneapolis-based Target
  
  To read the article in it's entirety at Seeking Alpha, please click here