In the wake of another legal blow to Visa and MasterCard's exclusionary bylaws, American Express last month made good on a vow to sign its first U.S. bank issuer through an agreement with MBNA—changing the competitive landscape and potentially affecting payment costs for merchants.
Amex and MBNA this year will roll out co-branded cards, "at which time product details will be available," a statement said. The companies will begin issuing cards in the United States, followed by Canada, Spain and the United Kingdom. Amex and MBNA first must await a final appeals ruling from the U.S. Supreme Court, where a lingering U.S. Department of Justice antitrust suit against Visa and MasterCard allows the associations to hang onto their bylaws, which forbid issuers to work with such other networks as American Express.
MBNA hasn't broken the bylaws by announcing its intent to issue Amex, but a MasterCard spokesperson said issuing cards "will not occur until the courts issue a final judgment." MBNA is one of the largest consumer card issuers, but has a fledgling commercial program. Although the issuer would not confirm, sources said MBNA has one commercial client with annual card spend estimated at more than $50 million, as well as smaller customers.
American Express said it will align with more issuers stateside, but U.S.-based banks still are reticent on the possibility and some are wary of competition issues that may arise
(BTN, Oct. 6, 2003). Court documents said some banks, including Bank One, "would have contracted with American Express to issue Amex in the United States but for the exclusionary rules."
DOJ's mission in challenging Visa and MasterCard's bylaws was to promote competition. Ken Chenault, Amex president and CEO, said that through heightened competition, cardholders would benefit from greater innovation. Such competition could spur the networks to enhance rewards programs, acceptance, online tools and reporting platforms, all of which have proliferated in recent years.
Court documents said that Visa and MasterCard's bylaws are not extended outside of the United States, where banks issue Amex. Although MBNA is Amex's first U.S. bank issuer, Amex has secured deals with banks in other countries. Amex said its Global Network Services has 79 partners issuing its cards in 89 countries.
"This has caused Visa International to 'proactively strengthen' its product offerings to member banks abroad," according to an appellate ruling by the U.S. District Court, Southern District of New York. The court also cited a Visa memo that cautions, "Visa U.S.A. would have to compete more vigorously for marketshare if Amex were permitted to partner with its member banks." The ruling also states that expanding its network to bank partners could "significantly increase Amex's acceptance and cards." As such, the memo concludes that Visa "needs to monitor the situation and counter with competitive products."
Meanwhile, a merchant fee hike could result from Amex opening up its network to the banks. According to court documents, Amex's average merchant fee in 1999 was 2.73 percent, compared with Visa and MasterCard's rate of around 2 percent.
An Amex spokesperson told Business Travel News that it can and will pay bank issuers a higher interchange rate, the percentage of the merchant fee that goes to issuers.
Analysts at Credit Suisse First Boston, in a report filed last year, speculated that to keep issuers on its network Visa and MasterCard would raise its merchant fees and interchange rates. "The burden of such increases is at least partly passed on by merchants and so is shared by consumers," a judge said in the initial antitrust ruling.