Cards Uncorked

  I usually do not write about the same topic two months in a row. But let's face it, folks, this debit thing just won't quit. I'm referring, of course, to the spring settlements by Visa and MasterCard of the class-action antitrust lawsuit brought against them by merchants led by Wal-Mart Stores Inc. As information slowly dribbles out about the settlements, which still await final court approval, it's becoming clearer that the traditional way of doing things in the card business will change.
  For instance, "market forces" are supposed to be the guiding force in setting signature-based (offline) debit card interchange rates come next January. No one really knows exactly what that means, but "market forces" implies close interaction between buyer and seller. So instead of Visa and MasterCard simply imposing debit card interchange rates from on high as they always have, merchants might actually have some meaningful input into the price-setting process. Talk is that merchants, at least the biggest ones, may get to negotiate directly with the card associations. Some might get tiered rates based on charge volume, which is becoming common with personal identification number-based debit cards.
  Another revolutionary outcome of the settlements is the demise of the honor-all-cards rules that required merchants to accept signature-based debit cards if they also took Visa and MasterCard credit cards. If a merchant doesn't like his interchange rate, he can refuse to accept offline cards. Yet I have to agree with a Visa executive cited on page 28 who notes that merchants are unlikely to reject the 133 million Visa check cards consumers can use for point-of-sale payments.
  There are more implications, too. Visa has acknowledged that some utilities that have balked at accepting payment cards might just do so if they can take only offline debit cards and not higher-cost credit cards. In other words, here's a new market that might owe its existence to the settlements.
  Visa USA Executive Vice President Paul Vessey wrote our Afterthoughts column this month (page 48), and he makes some excellent points about the bright future of electronic payments in the wake of the settlements. No argument from me. But he asserts, "some observers remain fixated on our settlement agreement."
  In all due respect, Paul, I think just about everyone in the card industry is going to remain intensely interested, fixated if you will, on the settlements for quite some time. They're by far the biggest thing going on right now-the card equivalent of discovering that Sammy Sosa used a corked bat-and they'll affect many more people than Chicago Cubs fans.