advertisement
advertisement
advertisement

Walmart, Starbucks, Others Say No To Interchange Settlement

Written by Frank Hayes
May 22nd, 2013

With a week to go before the deadline for merchants to opt out of the $7.25 billion interchange settlement, a group of major retailers said on Tuesday (May 21) that they’re not playing.

Walmart (NYSE:WMT), Costco (NASDAQ:COST), Starbucks (NASDAQ:SBUX), Gap (NYSE:GPS), Lowe’s (NYSE:LOW), 7-Eleven, Nike (NYSE:NKE) and a dozen other chains filed paperwork with the U.S. District Court in Brooklyn that’s handling the case, all saying they both objected to the settlement and were opting out. The group also said its members were considering “additional legal action to recover damages from Visa (NYSE:V) and MasterCard (NYSE:MA) under U.S. antitrust laws.”

A key point in the settlement is that Visa and MasterCard won’t be subject to future interchange-related litigation.

Other chains that joined in the mass opt-out were IKEA, Crate & Barrel, J Crew, Dillard’s (NYSE:DDS), Foot Locker (NYSE:FL), REI, Michaels, Panera (NASDAQ:PNRA), GNC (NYSE:GNC), D’Agostino’s, Roundy’s (NYSE:RNDY) and the Alon (NYSE:ALJ) gas station chain.

K. Craig Wildfang, one of the attorneys who negotiated the settlement, told Bloomberg he wasn’t surprised by the announcement from Walmart and the other chains. “These merchants have been publicly critical of the settlement, and we always thought that many of them were likely to opt out,” Wildfang said. “We remain confident that the vast majority of merchants in the class will not opt out.”

That’s an easy claim to make, since “merchants in the class” includes anyone that has taken a Visa or MasterCard payment since 2004—an estimated 8 million retailers, government agencies, utilities, professional practices, publishers, theaters, not-for-profit charities and a wide variety of other organizations that accept payments, many of which don’t realize they’re “merchants.”

Then again, some do. Last week, two cities—Little Rock, Ark., and Oakland, Calif.—filed objections to the settlement. Oakland’s objection, filed on May 15 with the U.S. District Court in Brooklyn, said because the city “is not permitted to charge convenience fees, this hidden and regressive tax has fallen equally on those who make so little money that they cannot qualify for a credit card.”

In Little Rock’s case, because the city takes American Express (NYSE:AXP) for payments and AmEx doesn’t allow surcharging, that city said it can’t benefit from the settlement’s terms either.

The large number of “merchants” means it’s almost certain that most of them won’t object, because they’ll never have been notified. Under the settlement’s terms, notices were originally supposed to be sent to merchants responsible for “more than 90 percent of merchant transaction volume and 90 percent of merchant outlets” as reported by an industry newsletter, the Nilson Report. In practice, that means customers of the 25 largest acquirers and processors.

But there’s a very long tail on the payment-card curve. The smaller the transaction volume, the larger the number of merchants that fall in that category. And although those merchants don’t drive large payment volumes, they represent a huge category of people affected by the settlement—which also includes whole new categories of Visa- and MasterCard-accepting “merchants” in the future who use Square or other card-accepting systems. That last 10 percent of transaction volume could represent 99 percent of merchants affected by the settlement.

Or think of it another way: Even if 800,000 of those merchants individually opted out of the settlement in the next week (which would effectively qualify as a denial-of-service attack against the court’s electronic filing system), that would still leave 90 percent of merchants who haven’t opted out.

More significant than the percentage of opt-outs will probably be the claims—repeated by Walmart and the other large chains who opted out on Tuesday—that the class-action settlement is unfair to merchants and violates their legal rights by blocking them from future antitrust lawsuits against Visa and MasterCard. The final step in the approval process for the settlement is a “fairness hearing” on Sept. 12, when Judge John Gleeson will decide how much weight to give those arguments.

If Judge Gleeson approves it, the deal is done—in theory. But in practice, any settlement in which 99 percent of the millions of people affected were never notified that they were part of a settlement creates a major political problem. And in turn, it means the likelihood of the settlement generating a political backlash in Congress increasingly approaches 99 percent, too.


advertisement

Comments are closed.

Newsletters

StorefrontBacktalk delivers the latest retail technology news & analysis. Join more than 60,000 retail IT leaders who subscribe to our free weekly email. Sign up today!
advertisement

Most Recent Comments

Why Did Gonzales Hackers Like European Cards So Much Better?

I am still unclear about the core point here-- why higher value of European cards. Supply and demand, yes, makes sense. But the fact that the cards were chip and pin (EMV) should make them less valuable because that demonstrably reduces the ability to use them fraudulently. Did the author mean that the chip and pin cards could be used in a country where EMV is not implemented--the US--and this mis-match make it easier to us them since the issuing banks may not have as robust anti-fraud controls as non-EMV banks because they assumed EMV would do the fraud prevention for them Read more...
Two possible reasons that I can think of and have seen in the past - 1) Cards issued by European banks when used online cross border don't usually support AVS checks. So, when a European card is used with a billing address that's in the US, an ecom merchant wouldn't necessarily know that the shipping zip code doesn't match the billing code. 2) Also, in offline chip countries the card determines whether or not a transaction is approved, not the issuer. In my experience, European issuers haven't developed the same checks on authorization requests as US issuers. So, these cards might be more valuable because they are more likely to get approved. Read more...
A smart card slot in terminals doesn't mean there is a reader or that the reader is activated. Then, activated reader or not, the U.S. processors don't have apps certified or ready to load into those terminals to accept and process smart card transactions just yet. Don't get your card(t) before the terminal (horse). Read more...
The marketplace does speak. More fraud capacity translates to higher value for the stolen data. Because nearly 100% of all US transactions are authorized online in real time, we have less fraud regardless of whether the card is Magstripe only or chip and PIn. Hence, $10 prices for US cards vs $25 for the European counterparts. Read more...
@David True. The European cards have both an EMV chip AND a mag stripe. Europeans may generally use the chip for their transactions, but the insecure stripe remains vulnerable to skimming, whether it be from a false front on an ATM or a dishonest waiter with a handheld skimmer. If their stripe is skimmed, the track data can still be cloned and used fraudulently in the United States. If European banks only detect fraud from 9-5 GMT, that might explain why American criminals prefer them over American bank issued cards, who have fraud detection in place 24x7. Read more...

StorefrontBacktalk
Our apologies. Due to legal and security copyright issues, we can't facilitate the printing of Premium Content. If you absolutely need a hard copy, please contact customer service.