Card Settlement Retail Opposition Grows
An increasing number of retailers appear to be coming out in opposition to the recent proposed settlement of the antitrust case centering on credit card interchange.
The complicated settlement addressed both the rules under retailers accept cards, as well as the fees paid for that acceptance. If approved, the settlement will see $8.25 billion eventually move from the card brands and major card issuers into the coffers of participating retailers and will also give retailers the right to levy surcharges when consumers use cards instead of cash or checks.
But several retail associations have advised their members to not agree to the proposed settlement, and now one of the largest volume retailers, Walmart, has also come out in opposition.
“Walmart, along with a growing number of consumer groups and merchants, is disappointed in the proposed credit card interchange fee settlement,” Walmart wrote in an announcement of its opposition. “The proposed settlement would not structurally change the broken market or prohibit credit card networks from continually increasing hidden swipe fees, which already cost consumers tens of billions of dollars each year. The proposed settlement would require merchants to broadly waive their rights to take action against the credit card networks for detrimental conduct or acts. We believe the proposed settlement would also constrain emerging payments innovation. As Walmart continues to seek reform that will provide transparency and true competition among financial institutions, we encourage all merchants to put consumers first and reject the settlement.”
But financial analysts at Keefe, Bruyette and Woods, a financial consulting firm, expressed confidence that the settlement will survive retailer grumbling.
“Within the settlement, there is a termination clause that the defendants can evoke if merchants constituting 25% of volume opt-out. In our view, the defendants likely contemplated (ahead of entering into the settlement) that some retailers would take issue with the terms of the settlement and set a fairly high bar in terms of the settlement termination clause,” the analysts wrote in report about the settlement.”
“Additionally, a merchant opting-out doesn’t necessarily mean they won’t settle, but further negotiation might be necessary. To the extent a merchant opts-out, each merchant must carefully consider their relative size and importance before doing so, or they could potentially set themselves up for a costly and possibly unfruitful uphill battle.”
The first signs of retailer discontent with the settlement came in the days immediately after the settlement’s announcement when the Merchant Payments Coalition, an association of retail groups organized to take positions on card interchange, began reminding media outlets that not all retailers are keen on the agreement and that it only becomes final if enough agree.
According to media reports, small merchants in particular are expressing concern about the surcharging provision of the agreement, pointing out that agreeing to surcharge card transactions will put them at a disadvantage, perhaps a crucial disadvantage, with other retailers who decide not to surcharge.
But KBW continued to view the eventual outcome in positive terms.
“We continue to view the current merchant litigation settlement as a favorable outcome for the networks and banks,” the analysts wrote. “This is because total damages were not significantly higher than reserved and the policy changes [in the settlement], while not ideal, are milder than expected."