Responding to comments on its proposed antitrust settlement with Electronic Payment Services Inc., the Justice Department has assured the electronic banking community that the company's implementation of smart cards will not be exempt from antitrust scrutiny.
Concerns about the issue were raised by a sentence in a proposed final judgment composed in April that said EPS "may restrict the branding of access cards that contain an integrated computer circuit chip with a stored value function."
The proposed settlement aims to ensure that the Wilmington, Del.-based company, which runs what is by some measures the nation's largest electronic banking network, will not limit the ability of its members to offer automated teller machine services from other networks in addition to EPS' MAC network.
Citicorp, Cash Station Inc., and Midwest Payment Systems Inc. were among the companies that used the Justice Department's invitation for comment letters to question the long-term implications of the man card clause.
The objectors' concerns were perhaps best summed up in Citicorp's letter, which stated: "The risk, in short, is that Electronic Payment Services could use its existing dominant power in ATM networks and ATM processing . . . to prevent the establishment of competing smart card networks and thereby leverage its ATM monopoly into market power in the smart card business."
In the Aug. 30 Federal Register, the Justice Department assured the electronic banking industry that the reference to smart cards in the April proposed settlement WaS not designed to exempt Electronic Payment Services' smart card ventures from future antitrust scrutiny.
Rather, the sentence in question means only that this particular settlement would put off specific rulings on smart cards for a time when the branding strategy of such products becomes more clear.
Elaborating, the Justice Department conceded that within the limits of existing antitrust laws, the network operator could indeed restrict the branding of stored value cards.
However, under the provisions of the pending settlement, Electronic Payment Services may not restrict the branding of stand-alone ATM cards or the ATM functions of smart cards.
This means that if the network company is to support smart cards that will use ATMs to load electronic funds to its computer chip, it cannot restrict its financial institution members from placing smart card capabilities from other networks on those same cards.
The department assured that if Electronic Payment Services were to implement branding restrictions on these cards that violated antitrust laws, the restrictions "can and would be challenged at the appropriate time." Justice did not say when the wording of the settlement would be finalized.
Electronic Payment Services executives declined to comment on the issue pending Justice's decision.
To an outsider, the intensity of discussion surrounding the intent of the smart card clause might seem absurd. After all, the object of that clause does not play any meaningful role in domestic payment systems, and few Americans are familiar with the chip cards.
However, electronic banking executives say the attention given this issue is appropriate, given the role that smart cards are expected to play in the United States in the coming years.
According to a recent study by Carmody & Bloom Inc., a consulting firm based in Ridgewood, N.J., the vast majority of electronic banking executives believe that smart cards will have applications in a wide range of payment services.
The executives cited industry standards and the cost of installing smart card-compatible terminals as the most significant barriers to broad smart card use in the United States.
But, experts noted, the industry's reaction to the proposed EPS settlement is an indication that it is only a matter of time before those barriers fall.