Analysts - Credit card settlement should help consumers

NEW YORK -- Visa and MasterCard's multibillion-dollar settlements with thousands of U.S. retailers should mean lower prices for consumers because it will cost stores less to process their debit cards, experts say.

A key element of the deals -- struck this week just before the retailers' huge antitrust suit was to go to trial -- calls for Visa and MasterCard to lower the debit-card transaction fees they charge stores by roughly one-third to one-half, beginning Aug. 1.

Retailers estimated that the fee reduction will save stores $63 billion to $100 billion over the rest of this decade -- savings they pledge to pass on to consumers. They also said the settlements should open up the debit-card market and give consumers more options for how to pay at the cash register.

"It's going to lead to better products and lower prices for every store in the United States," said Lloyd Constantine, lead lawyer for the stores, which include Wal-Mart, Sears, Safeway and Circuit City.

No guarantee

Still, as credit card company executives pointed out Thursday, consumers have no guarantee they will share in the savings with retailers, which also get $3 billion from Visa and MasterCard in the settlements.

"That's something only time will tell," said MasterCard's general counsel, Noah Hanft.

At the heart of the lawsuit was Visa and MasterCard's "honor-all-cards" policy, which required any store accepting the companies' credit cards to also accept their debit cards.

That policy dies Jan. 1 under the terms of the settlement, which a federal judge is expected to approve.

Few expect a significant number of stores to start rejecting Visa and MasterCard debit cards. The companies are far too popular -- they control 70 percent of the debit-card market, by some estimates.

But the settlement frees merchants to clear more debit-card transactions through smaller, regional networks -- companies like Star, NYCE and MAC, whose logos shoppers are used to seeing plastered on ATMs.

Those companies use touch-pads and personal identification numbers, or PINs, rather than the customer signatures Visa and MasterCard use to clear transactions.

"Consumers will get used to using their PIN rather than a pen, and that will lower costs for consumers," said David Balto, a former Federal Trade Commission antitrust enforcer.

Many experts also believe PIN-based transactions are safer because signatures are easier for criminals to forge than PINs are to steal.

Lawyers for the retailers estimated Visa and MasterCard charges had averaged about 1.7 percent for large retailers and 2.5 percent for smaller retailers.

'Pretty much maxed out'

Under those estimates, a large retailer would end up paying about $1.75 to clear a $100 purchase via Visa or MasterCard networks, compared with 25 cents to 50 cents on regional networks. Visa and MasterCard had contended the discrepancy was much smaller.

The federal lawsuit was brought in 1996, but the settlements came together -- first a $1 billion deal with MasterCard, then a $2 billion deal for Visa -- just before trial was to begin this week.

If anything, the settlements should accelerate the already fast-growing market for debit cards, analysts say. By 2010, they're expected to be responsible for twice as many transactions as credit cards.

"People are pretty much maxed out," Constantine said. "They're spending the money that they have. And they're doing it with cash, checks and debit cards. We really are moving toward a cashless society."