Amex-Issuing Banker Opens Trial Testimony

The second day of the Visa/MasterCard antitrust trial included testimony from a banker who issues American Express cards, a retail store executive who discussed interchange fees, and a former MasterCard executive who had managed smart card initiatives.

Lawrence B. Kesler, an executive vice president at Banco Popular of San Juan, Puerto Rico, testified Tuesday that if his bank had not signed an agreement with American Express Co. to issue cards on the nonbank's behalf, "our customers would have an Optima card from American Express."

Because of its location outside the 50 states, Banco Popular is exempt from Visa U.S.A. and MasterCard International rules that prohibit U.S. banks from issuing other brands. Banco Popular is one of several dozen foreign banks that have formed "network agreements" with American Express, under which they market Amex cards as well as Visa and MasterCard cards.

The second full day of the trial, in which the Justice Department is trying to prove that Visa and MasterCard have an anticompetitive stranglehold on the U.S. card market, was much less crowded and histrionic as the first. There was even a moment of levity, when a lawyer for Visa, Stephen Bomse, exhibited an American Express card - that happened to belong to his co-counsel, M. Laurence Popofsky, who has represented Visa for many years. Mr. Bomse was trying to make a point about the competitive options open to consumers.

Late in the day, Sandy Woods, the director of corporate accounts at Publix Super Markets Inc., a regional grocery store chain in Lakeland, Fla., began answering questions posed by government lawyers. The questions seemed aimed at making the point that merchants like Publix are forced to accept credit cards in order to stay in business. Ms. Woods said that 17% of Publix sales this year were conducted on credit cards or offline debit cards.

Ms. Woods said the store could get by without accepting American Express cards, but it could not afford to shun Visa and MasterCard.

John Elliott, a former MasterCard executive, took the stand for 10 minutes at the end of the day and will testify again today. The government is apparently interested in asking him about smart card initiatives.

Mr. Kesler's testimony filled the morning session. Although he is a member of MasterCard's board of directors in the Latin America region, he said that Banco Popular's bank card portfolio was 75% Visa cards, and 25% MasterCard cards. The government is trying to change the system that allows banks to govern associations where they hold a minority of their card accounts.

Mr. Bomse pushed Mr. Kesler to acknowledge that the American Express Optima cards Banco Popular offers come with certain restrictions that do not apply to a Visa card. For example, Banco Popular according to its agreement with Amex, may not call its product "the American Express card." Also, Banco Popular must pay a licensing fee to Amex to use its brand name. Visa does not levy such a fee, though it does levy membership fees.

Under the network agreement it signed with Banco Popular, American Express said it would wait six months before it began marketing its own Optima cards in competition with Banco Popular.

Separate from the network agreement, Banco Popular also markets Amex corporate cards and gets a $45 fee for each account it brings to Amex. After Banco Popular successfully solicits an American Express corporate account, however, Amex requires Banco Popular to wait 18 months before offering the same customer a MasterCard or Visa corporate card from the bank.