The antitrust demons are stirring again in the bank credit card industry.
The U.S. Justice Department has confirmed that an investigation is under way, but it is saying little about it.
While the probe could go to the core of competitive issues like pricing and card-issuing duality, MasterCard and Visa, which presumably should be on the hot seat, are maintaining their cool.
Each association issued a statement over the past two days, saying there is no cause for alarm or jumping to conclusions. Indeed, they have faced such questioning before, and their business plans have rarely met defeat when legally challenged.
The confirmation from Justice's antitrust division came from Craig Wildfang, special counsel to Assistant Attorney General Anne Bingaman: "We are conducting an investigation into certain allegedly anticompetitive practices in the industry."
Theories abound as to how serious the threat may be to the big credit card joint ventures.
In their statements, MasterCard International and Visa U.S.A. acknowledged that information was requested from them, but they avoided characterizing Justice's inquiries as any type of formal investigation.
The speculation began to fly late Tuesday after a news wire service, Bloomberg Business News, reported on a Justice Department investigation of credit card pricing practices. Visa sought to shoot down the price-fixing concern.
"We have absolutely no reason to believe that price-fixing is a subject of the inquiry," said the San Francisco-based association. "In fact, based on the latest information available to us, the subject appears to be card-issuing duality and its effect on innovation."
Responding to Visa, MasterCard said, "It would be presumptuous to characterize the nature or purpose of this inquiry."
Industry sources believe American Express Travel Related Services Co. and Dean Witter, Discover Co., which issues the Discover card, also have been contacted by the Justice Department's antitrust division. But it was unclear whether they are also subjects of the probe. Both companies declined to comment.
Visa and MasterCard were initially contacted by the Justice Department in June. A source said Justice's request to Visa appeared only to target documents about the Visa-Dean Witter antitrust litigation.
Dean Witter will be seeking Supreme Court review of a recent appeals court decision that denied Dean Witter's bid to become a Visa-issuing member.
Industry experts generally believe Justice is looking at duality -- the practice of individual banks' issuing both brands of bank cards. Duality became the rule in credit cards in the 1970s -- initially over Justice Department objections -- and Visa has been resisting MasterCard's attempts to allow for duality in debit cards.
"I believe the issue is duality," said Moshe Orenbuch, an analyst with Sanford C. Bernstein & Co. "If it was pricing, then Justice would have contacted issuers."
Others, citing published studies documenting price competition at the consumer level, also doubted that line of inquiry. The General Accounting Office in April completed a report showing a significant level of price competition and product choice.
Said Robert McKinley, president of RAM Research in Frederick, Md.: "The GAO report, the Visa-Discover trial, and the California trials [involving challenges by consumer advocates!, prove that on the consumer end things are clean."
Mr. McKinley said it would be ironic if duality is the problem. The Justice Department's opinion in 1974 that "dual affiliation appears unobjectionable" led Visa to repeal its anti-duality bylaw, opening the floodgates for banks to join both associations.
Industry experts suspect Justice will look into duality's impact on the discount fees banks charge merchants to process card transactions. The fees are largely influenced by the interchange rates that MasterCard and Visa set for clearings among their respective members.
Bank card merchant discounts are generally around 2% of credit card sales. Most bank charges are above Discover's and below American Express'. Justice might be asking if merchant pricing would be more competitive if banks were not allowed to offer both the Visa and MasterCard brands.
