Payment Systems Face More Antitrust Scrutiny

By Balto, David A. | American Banker, June 14, 1994 | Go to article overview

Payment Systems Face More Antitrust Scrutiny


Balto, David A., American Banker


The recent Justice Department suit against Electronic Payment Services Inc. was its first enforcement action involving payment systems in about 20 years. Does the suit signal increased federal antitrust scrutiny of payment systems? The answer is unequivocal yes.

Antitrust enforcement in the Justice Department is generally on the upswing under the Clinton administration. Newly appointed Assistant Attorney General Anne Bingaman has promised to revitalize antitrust enforcement.

Under her brief stewardship she has secured significant increases in the division's budget and staffing, hired serveral seasoned antitrust trial lawyers, and refocused the division's enforcement resources away from localized criminal price-fixing, and toward monopolization and other civil antitrust violations.

Sending a Signal

First impressions count for a lot, even for an enforcement agency. So it is notable that the first civil antitrust case filed in the new administration was the EPS case, involving the contractual practices within the country's largest automated teller machine network.

The department alleged that EPS had engaged in monopolistic and exclusionary practices, which caused noncompetitive prices for ATM processing. Network issues are particularly complex, especially when viewed under the prism of the antitrust laws.

This challenge represents a willingness to grapple with thorny economic arguments and seek fairly extensive relief. But most important, it represents a renewed interest in payment systems by the Justice Department.

In Ms. Bingaman's words, the action "demonstrates the department's commitment ... to insuring that this important industry is open to competition."

Payment Systems Development

A bit of historical perspective is in order. During the 1970s the Justice Department played an important role in the development of payment systems, in terms of litigation, regulatory advocacy, and business advice.

It sued two automated clearing house associations seeking access for thrifts, participated extensively in proceedings before the National Commission on Electronic Funds Transfer and other regulatory agencies, announced a challenge to the formation of an ATM network because it was "too large," and declined to approve National BankAmericard's proposed anti-duality rule.

From the perspective of credit card and ATM networks, the Justice Department was perhaps a critical player in the development of competition policy.

'More the Better'

During the Reagan-Bush administrations, the department could hardly be perceived on the enforcement agency radar. No enforcement actions were taken or even hinted at.

The department was silent as tremendous consolidation among ATM networks occurred. The department's apparently laissez faire attitude was based on concept known as the "economnics of ubiquity" which loosely translated means, "the more the better." Under this concept the merger between ATM systems seemed pro-competitive because it increased the number of cardholders and ATMs in a network, improving accessibility for consumers.

Eventually, the state attorneys general stepped into the breach. In 1990, they sued to enjoin the Visa- MasterCard point of sale joint venture, Entree, which had reportedly been given a green light at the Department. Visa and MasterCard eventually agreed to abandon Entree and have since entered with separate POS networks.

Now that the department has returned as cop on the beat, it is prudent for payment systems to reassess practice which may have been based on relatively lax antitrust enforcement. What are the practices that deserve special scrutiny:

Pricing is always one of the msot sensitive areas from an antitrust perspective. Two practices that deserve special attention are interchange fees and surcharge prohibitions.

Although credit card interchange fees survived an antitrust challenge in the mid-1980s, that precedent may be revisited.

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