On October 7, 1998 the Department of Justice announced it’s intent to sue Visa and MasterCard on antitrust grounds. U.S. Attorney General Janet Reno said, “The Justice Department’s antitrust division found persuasive and systematic evidence of the harm done to competition in the credit card market. Competitive initiatives that could benefit consumers have been abandoned, delayed or suppressed. Consumer choice has been reduced, and competition among card networks has been substantially restrained”(American Express Company, 2000, 1).
The suit is being issued by the DOJ, but clearly being driven by American Express and Discover respectively. These companies, the two remaining credit card brands that make up the main players in the industry, have much to gain in a judgement against Visa and MasterCard. To understand the issues, and stakes a basic understanding of the current industry structure is necessary.
Visa and MasterCard are non-stock, not for profit membership corporations owned by thousands of diverse financial institutions (i.e.- banks, credit unions etc.). The Visa association was formed by a group of American banks in the late 1960’s to assist its members in issuing general-purpose payment cards and signing merchants to accept those cards (Allen, 2000, 2). Visa and MasterCard are considered to be an “open” or joint venture relationship with each other and their association members. In essence, this means any financial institution may join the Visa and MasterCard associations assuming they can meet certain capital adequacy requirements, and comply with certain association rules. In return, Visa and MasterCard provide essential functions to the member banks. They license their members to issue Visa and MasterCard branded credit and debit cards, sign members to accept those cards, market the cards to ensure brand recognition, develop new card products and services, and provide an infrastructure of communications, processing, authorization, and settlement functions necessary for the system to operate. Together Visa and MasterCard account for almost 80% of the overall market share in the credit card industry.
Unlike Visa and MasterCard, American Express and Discover are not joint ventures, but are investor-owned, for-profit corporations. They issue all of their respective brands’ cards and they alone determine the pricing and other features of those cards...
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In addition, “if American Express going to be successful as a brand and as a marketer, they need to understand where consumers are doing it, how consumers are spending their time, where consumers want to access information, and how can American Express engage them. American Express has be used in countries all over the world for decades. It simply grew up with the baby boomers’ generation and has earned its reputation as a card with distinction. Through the years, the company has consistently reached consumer by keeping in step with the changing needs of the population. They also has acknowledge that it is the consumers who really decide what American Express stand for and not the company pushing out marketing messages. Further, American Express belie...
The lawsuit states that MasterCard engaged in these practices from 1992 to 2008, and the lawsuit also alleges that consumers were paying an ‘invisible tax’. In 2014, the EU’s antitrust regulation found that MasterCard did in fact charge stores excessive fees in order to process international payments, according to Entrepreneur.com. MasterCard, the second largest payment network
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The current issues that have been created by the market have trapped our political system in a never-ending cycle that has no solution but remains salient. There is constant argument as to the right way to handle the market, the appropriate regulatory measures, and what steps should be taken to protect those that fail to be competitive in the market. As the ideological spectrum splits on the issue and refuses to come to a meaningful compromise, it gets trapped in the policy cycle and in turn traps the cycle. Other issues fail to be handled as officials drag the market into every issue area and forum as a tool to direct and control the discussion. Charles Lindblom sees this as an issue that any society that allows the market to control government will face from the outset of his work.
In 1992 at a convention, Visa USA president and CEO Robert Heller belittled the arrival of non-band credit-card issuers. He joked that it wouldn’t be long before pizza parlors joined AT&T and General Motors in offering cards. Within a year he was punted and people were talking about McDonald’s having a credit card.
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Competitive rivalry examines how intense the competition currently is in the marketplace, which is determined by the number of existing competitors and what each is capable of doing. (Arline, 2015).
mentioned that Amex’s competitive advantage may be eroding and that maintaining long-term goals is harder today. The quarter for American Express has been busy and financial firms aren’t common targets for activists since they face strict regulations that limit management’s ability to control dividends. So with annual stress test process, Federal Reserve has to approve the capital plans for the biggest U.S. banks, which includes American Express. Amex launched Amex Express Checkout, which is a new method of buying online and very similar to PayPal’s online checkout product from merchants such as Burberry, Ledbury, Newegg, Sabon, Ticketmaster, Warby Parker, and The Wall Street Journal. There are some advantages Amex has over PayPal, but it
Business executive Kenneth Chenault has mandated the American Express financial services company for over a decade. Since 1981, Chenault has thrived within the Amex Company while maneuvering the company’s dynamics and withstanding his position in the depths of the economic financial crisis after 9/11. Chenault’s many great experiences and hardships have allowed him to become one of the world’s most prominent leaders, who runs one of the world’s most influential businesses. Kenneth Chenault graduated from Harvard Law School with his Juris Doctorate in 1976. Proceeding his graduation at Harvard, Chenault began his legal career at Rogers and Wells as an associate in New York City.
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