Payment processing as we know it will be disrupted at some point; the two important questions are when and how? With the ruling on OHIO v. AMERICAN EXPRESS, we learned that the Supreme Court is much less likely to be the “how.” We also caught a glimpse of how cash discounting may eventually be viewed if taken to the Supreme Court. Amex doesn’t allow a merchant who accepts their cards to “steer” a consumer towards another card like Visa or Mastercard; the Supreme Court decided this was not anti-competitive. A merchant accepting Amex will not be allowed to have a sign at the counter that reads, “We prefer Visa or Mastercard.” Neither will a merchant be allowed to access a fee for using Amex. In the majority opinion, justice Thomas not only sided with Amex by allowing them to keep these restrictions in place, but he went on to explain how the court views credit card processing in general.
Here are a few excerpts you may find interesting.
First of all, the court views payment processing as a two-sided market.
“[Amex] operates what economists call a “two-sided platform,” providing services to two different groups (cardholders and merchants) who depend on the platform to intermediate between them.”
This is an important precedent. To prove anti-competitive behavior by any payments company is made nearly impossible. Such a suit would now require that actions or policies are harmful to both consumers and merchants. If you charge a merchant more money on a particular card and then pass that additional money on to the consumer in rewards, the consumer benefits. If you lower rewards and thus lower interchange, the merchant benefits.
Secondly, our industry is sufficiently regulated by competition; the court doesn’t need to get involved at this time. “The plaintiffs did not offer any evidence that the price of credit card transactions was higher than the price one would expect to find in a competitive market.” (Keep in mind this is Amex, which has the highest fees of all the card brands.)So, if you were worried that the Supreme Court was going to crack down on our industry as a whole or make a landmark ruling that would upset the status quo, your fears appear to be unfounded. This decision was 5/4 along party lines, and a new conservative judge is about to be appointed. Therefore, this interpretation of our industry is unlikely to change in the next five to ten years.
Cash Discounting also appears safe for the near future. There are two reasons Visa and Mastercard would have a tough time fighting Cash Discounting. First of all, the federal government already has a law (the Dodd Frank Financial Reform Act in the Durbin Amendment) which specifically allows merchants to “steer” consumers towards cash payments, so the court would not overrule this law. Secondly, take a look at what Justice Thomas had to say when justifying the Amex anti-steering provisions: “The anti-steering provisions do not, however, prevent merchants from steering customers toward debit cards, checks, or cash.”
If Visa and the other card brands do decide to take action against Cash Discounting, their only option seems to be state laws which tighten the regulation around how cash discounting is implemented. The congress recently had the opportunity to wipe out the Durbin Amendment. This was a hot topic on capital hill. The amendment was left in tact; that this debate will resurface anytime soon seems unlikely.
Visa may decide to go on a full attack against cash discounting. They may claim that processors are taking advantage of the surcharge ruling to add consumer fees to all card types, not just credit cards. However, they could risk the Supreme Court ruling against them in order to level the playing field for Amex, which already allows steering to cash. Based on this case and the majority opinion mentioned above, I personally don’t think the Supreme Court would even take this case.