Visa and MasterCard ATM Practices Come Under Scrutiny in Lawsuit

by Trefis Team
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A trade group representing operators of ATMs has filed a lawsuit against Visa (NYSE:V) and MasterCard (NYSE:MA), accusing them of fixing prices and suppressing competition among ATM networks. [1] The lawsuit was filed in federal court in Washington and alleges that Visa and MasterCard violate antitrust laws by placing restrictions on the prices these independent ATM operators can charge customers using other networks such as STAR or TransFund. Visa and MasterCard are the two largest payment network providers in the world and control more than 80% of the market between them.

We have price estimate of $322 on MasterCard’s stock and $91.40 on Visa’s stock, both nearly equal to their current market price.

See our full analysis of Visa | See our full analysis of MasterCard

Lawsuit Targets Fee Agreements

Under the network rules of Visa and MasterCard, the service fee for any transaction at an ATM should not be less than the amount charged at that ATM for a Visa or MasterCard transaction. This effectively means that an ATM operator cannot offer customers a discount or benefit for completing a transaction over a network that is less costly to the operator. More competitive pricing might allow these smaller networks to gain market share and more business.

The lawsuit claims that this artificially raises the price consumers pay for ATM service, limits operators’ revenue, and violates antitrust laws. The lawsuit seeks national class action status and would be comprised of independent operators of some 200,000 ATMs in the United States.

Potential Impact on Visa, MasterCard

The lawsuit alleges some serious charges against Visa and MasterCard and the way these companies keep competition at bay. As a result of this lawsuit, the companies’ litigation and settlement expenses will likely rise, taking a toll on the profits that are already under pressure after the Fed put a cap on the fees on debit card transactions.

In the long run, if the courts find Visa and MasterCard to be in violation of antitrust rules, we may see a sharp increase in alternate low cost networks which would bring down transaction charges at ATMs. However there wouldn’t be a significant threat to Visa and MasterCard’s businesses, because their widespread networks across the world would take a new entrant at least a decade to establish.

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Notes:
  1. Visa, MasterCard Accused of Price Fixing by ATM Operators, Oct 13, 2011, Bloomberg []
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