More consumers are using plastic instead of cash or checks to make purchases at the point of sale, but because of rising interchange fees, some merchants would just as soon have customers pay with cash.
What merchants might do next to express their displeasure over how much they pay in fees - Morgan Stanley expects the annual total to rise by about $3.5 billion by 2010 - is less clear.
"I would not be surprised to see retailers taking steps to disfavor cards that continue to increase interchange," said Mallory B. Duncan, the general counsel for the National Retail Federation, a merchant trade group. "One thing retailers have been looking for for some time is a more retail-friendly card. We are concerned about ever-increasing interchange."
Cards like the Wal-Mart and Sam's Club Discover cards, which General Electric Co.'s GE Consumer Finance began issuing this year for Wal-Mart Stores Inc., present an appealing alternative to Visa U.S.A. and MasterCard International products, and other merchants could make similar deals, Mr. Duncan said.
Others observers say merchants could turn to litigation or regulatory oversight.
Both Visa, of San Francisco, and MasterCard, of Purchase, N.Y., raised some interchange rates (and cut others) last week. American Express Co. has gradually lowered its average rate for the last few years, but its rates are still generally higher than Visa and MasterCard.
Discover Financial Services Inc., a Riverwoods, Ill., unit of Morgan Stanley, has touted its network as the least expensive for merchants. And the fact that the Wal-Mart and Sam's Club cards work as private-label cards inside the Bentonville, Ark., retailer's U.S. stores further reduces Wal-Mart's costs. Outside the stores, the cards run on Discover's network.
"To the extent issuers are willing to provide more reasonable interchange opportunities, retailers are interested," Mr. Duncan said.
Roger Hochschild, the president and chief operating officer at Discover, said he is discussing potential deals with several other merchants.
"A lot of the merchants I talk to are very unhappy with Visa and MasterCard rates, and with the new increase going into effect in April, there is tremendous dissatisfaction in the marketplace," Mr. Hochschild said.
In February, Visa issued rules requiring most transactions conducted with its cards without using a PIN to be routed over its network; the rules take effect May 15.
Mr. Hochschild said the requirement shows Visa's relative lack of flexibility. "We pride ourselves on being more flexible than Visa and MasterCard," he said. "I think Visa has a long history of being anti-competitive to protect their position, and I think that will be helpful to us."
Daniel Tarman, a Visa spokes-man, noted that more than 5 million U.S. merchants accept Visa cards - more than accept Discover or Amex. "We are not focused on what other competitors might or might not be doing," Mr. Tarman said. "Our priority here is to ensure that Visa continues to be the leader in" electronic payments.
Kenneth Posner, an analyst at Morgan Stanley, wrote in a report issued last month that retailer consultants are "starting to do work for retailers on strategies for avoiding credit card interchange."
Law firms are offering their services for another class action against the payment brands, this time over credit card interchange, Mr. Posner said.
"For most merchants, interchange is not a big enough deal to pursue costly litigation," he said. "The most likely scenario is a class action where lawyers take the initiative. This whole thing might take a long time."
Seeking regulatory intervention is another possible step. Mr. Posner said merchants have complained to the FTC and the Fed about fees. However, "whether U.S. regulators take any steps anytime soon remains to be seen," he said.
Even MasterCard called merchant unrest over interchange a "risk factor" in its 2004 annual report, issued last month.
"We may be required to increase the amount and scope of incentives that we provide to merchants to encourage the acceptance and usage of our cards," the report said.
A MasterCard spokeswoman said that it recognizes "that merchants have choices, and that we are in a competitive marketplace," but that it still has an "unsurpassed acceptance network."
