Sears, Roebuck and Co.'s courtroom victory over Visa U.S.A. this month has bankers worried that new competitors could enter the market and drive down profits.

A Utah jury found that Visa violated antitrust rules when it blocked Sears' Utah thrift, Mountainwest Financial, from offering a low-cost Visa card.

Mountainwest -- which Sears is spinning off in the public offering of its Dean Witter Financial Services subsidiary -- intends to mail out 18 million solicitations early next year and another 18 million in the fall. It plans to offer a no-fee card at 9.9 percentage points over the prime rate, which today would translate to 15.9%.

"I fit holds up, there'd be more nonbanks in the Visa networks," said A. Christian Frederick, senior vice president of Fleet Financial Group Inc.

If more outsiders do indeed jump into the bank market with Visa cards, they could drive rates even lower -- adding to pressure that bank issuers are already feeling from consumer groups and politicians.

Average rates have already slipped a full percentage point in a year, to about 17.95%, according to RAM Research USA, pushed in part by new nonbank players like American Telephone and Telegraph Co.

Another Round of Incentives?

New competition also could inspire an explosion of expensive consumer incentives -- similar to the rebates General Motors Corp. is offering for the purchase of cars and trucks.

The verdict spurred speculation that another major competitor for banks' card customers -- American Express Co. -- could move to issue a Visa card.

The 1989 Visa bylaw that the jury found anticompetitive was aimed specifically at the Dean Witter unit and American Express.

"If Sears starts issuing Visa, then certainly American Express will be right behind them," said Robert B. McKinley, president of RAM Research, a Frederick, Md., credit card consultancy.

The Optima Issue

American Express declined to discuss its plans. But some credit card executives are hopeful that the company would not want to compete against itself by offering an alternative to its Optima revolving credit card.

"I would suspect they recognize the value of that mark," said Denny D. Dumler, senior vice president of Rocky Mountain Bancard System Inc.

More to the point, bankers are hopeful that the jury verdict will be overturned by the judge or a higher court. Visa said it expects to appeal the case to the U.S. Court of Appeals for the 10th Circuit, which already ruled once in Visa's favor by blocking Sears from issuing the card while the case was being tried.

Visa's primary defense was that its bylaw is procompetitive since it forces the creation of alternative card brands, such as Discover.

But Anita Boomstein, an attorney at Hughes Hubbard & Reed who worked with Sears on its Discover Card, said the retailer had to hire hundreds of employees just to solicit merchants to accept the card. Competing with Visa or MasterCard International is prohibited expensive, she said.

In its closing statement, Sears picked up the argument.

"All of the Visa witnesses said it is good for intrabrand competition to have more proprietary cards like Discover," said William H. Pratt, a lawyer from Kirkland & Ellis. "How many have come out since Visa passed its rule? Not a single one."

Plan to Boost Profits Seen

Visa's blackballing of Mountainwest, he concluded, was aimed at keeping bank profits up through high fees and rates.

On appeal, Visa is likely to turn that proconsumer argument on its head, according to bankers watching the case.

They say Dean Witter is likely to fold Discover into its new Visa program - which is dubbed Prime Option Visa - thereby robbing consumers of an alternative card. When the issue was raised during the trial, Sears emphatically denied such an outcome.

But bankers think it is inevitable.

Verdict Called Anticompetitive

"If you define [competition] as being between the Visa and the Discover brand, the verdict in this case is anticompetitive," Mr. Frederick of Fleet.

Ms. Boomstein said the jury focused on the anticompetitive effects of preventing Sears from issuing a Visa Card. "It outweighed the procompetitive effect of forcing them to form their own [Discover] card," she said.

Some observers said the case has significance, no matter what the outcome, because it represents the first time that a major card organization has lost an antitrust challenge.

The issue of unfair competition has long been looming over the powerful card associations, which are owned primarily by banks.

Antitrust decisions, however, rest on the particular facts of a case. That means the Dean Witter verdict is unlikely to lead to a reversal of earlier antitrust victories by Visa and MasterCard in cases involving pricing of card processing services.

Nonetheless, said Ms. Boomstein, "it's a fairly significant decision."

Besides stimulating potential competition, the verdict opens Visa to a potentially huge damage suit from Mountainwest.

MasterCard Protects Itself

The jury ruled that the Sears bank is entitled to damages. Another trial would have to be held to determine the amount - but antitrust law allows the award to be up to triple actual damages, a Dean Witter spokeswoman said.

MasterCard could itself be subject to potential antitrust suits because its corporate structure mirrors that of Visa. But some observers think New York-based MasterCard has seen its competitive position bolstered as a result of the verdict.

While Visa was engaged in a public battle against Sears, MasterCard welcomed nonbank competitors such as General Motors and General Electric Co. into its fold. It also appointed a senior executive of AT&T's Universal card onto its board.

"MasterCard is getting market share back for the first time in years," said one lawyer.

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