Last fall, Visa and MasterCard announced a settlement with the Department of Justice (DOJ) and several state attorneys general to resolve antitrust investigations into the card networks merchant acceptance rules in the United States. American Express is litigating this suit with the DOJ. On July 20, 2011, the court approved the settlement and entered final judgment in the case. The final judgment is available at www.justice.gov/atr/cases/f273100/273170.pdf.
Effective July 20, 2011, Visa and MasterCard made changes to acceptance practices that can be grouped into two categories.
- Merchants may use an incentive to entice customers to use a particular form of payment (such as cash, check, or credit), brand of credit card (such as a Visa instead of a MasterCard), or type of card (such as a low-cost card rather than a rewards or premium card).
- Merchants may communicate or advocate for a particular Payment Type by expressing a preference for particular types of payment or providing the consumer with information regarding the costs to the merchant of a credit, as opposed to a debit, transaction (or, for instance, a Visa rather than a MasterCard transaction).
The settlement does not address the merchant’s authority to charge more or provide less services to consumers who pay with disadvantageous Payment Types or to refuse an unpreferred Payment Type.
In essence, merchants can steer their customers to pay with a preferred payment tender that costs less. Theoretically, this is a great win for merchants to influence their payments mix but implementing steering strategies are not always cost effective and can be extremely complex. We will cover this in a more in-depth research report in the near future but for now, you can read the changes that Visa and MasterCard have adopted.
Visa Changes to Merchant Point-of-Sale Practices
Visa’s Operating Regulations already allowed merchants to steer customers to other forms of payment and offer discounts to customers who choose to pay with cash, check, or PIN debit. Following the settlement, U.S. Merchants may steer customers to use a particular network brand, such as Visa or MasterCard; to a type of payment card, such as a “non-reward” credit card; or to another preferred form of payment. U.S. Merchants may also encourage a customer who initially presents a Visa card to use a payment card with a different network brand, a different type of payment card, or a different form of payment. Merchants may engage in any of the following steering activities:
- Offering a customer a discount or rebate, including an immediate discount or rebate at the point of sale
- Offering a free or discounted product
- Offering a free or discounted or enhanced service; Offering the customer an incentive, encouragement or benefit
- Expressing a preference for the use of a particular brand or type of general purpose card or a particular form of payment;
- Promoting a particular brand or type of general purpose card or a particular form or forms of payment through posted information, through the size, prominence or sequencing of payment choices, or through other communications to a customer;
- Communicating to a customer the reasonably estimated or actual costs incurred by the merchant when a customer uses a particular brand or type of general purpose card or a particular form of payment or the relative costs of using different brands or types of general purpose cards or different forms of payment; or
- Engaging in any other practices substantially equivalent to these.
Visa also revised its rules regarding the size, color, and prominence of the Visa mark displayed at the point of sale for U.S. Merchants. Under Visa’s revised rules, a U.S. Merchant is not required to display the Visa mark in a size as large as other payment marks. U.S. Merchants may promote acceptance brands other than Visa through the size, prominence, or sequencing of payment choices.
The rule changes enhance merchants’ ability to manage the costs associated with accepting electronic payments. However, the merchant must continue to respect a cardholder’s ultimate decision to pay with Visa: the settlement does not impact merchants’ existing obligation to accept for payment properly presented Visa cards, including rewards cards. Surcharging of Visa cards and steering among Visa cards based on the issuing bank are not permitted. Merchants must ensure that their steering practices are not performed in a confusing manner.
Acquirers are permitted to provide to their U.S. Merchants or agents information regarding the costs or fees a merchant would incur in accepting a Visa card, including BIN information and other product-identifying data. In addition, Visa’s Product Eligibility Inquiry Service messages can help merchants electronically identify the card product type. Introduced in 2006, product identification messages give merchants accurate, real-time information at the point of sale about the type of card presented (e.g., a reward credit card) for all U.S. consumer and commercial card programs. The same information is also provided in every Visa authorization response message for U.S.-issued cards. Your acquirer can provide more information about electronic identification of card products.
Acquirers are prohibited from adopting or enforcing rules, agreements, or practices with respect to U.S. Merchants’ acceptance of Visa cards that Visa would be prohibited from adopting or maintaining under the final judgment.
If you have any questions regarding this settlement, please contact your acquirer.
MasterCard Changes to Merchant Point-of-Sale Practices
The Program: Historically, MasterCard mandated merchants adhere to their “honor all cards” rule which meant merchants were required to accept all MasterCard cards presented for payment.
The Change: MasterCard has modified their rules due to a recent settlement between the Department of Justice (DOJ) and MasterCard over an antitrust lawsuit regarding rules the card issuers imposed on merchants. A merchant may now request or encourage a customer to use a payment card with an acceptance brand other than MasterCard ® or other form of payment or a Card of a different product type (e.g., traditional cards, premium cards, rewards cards) than the Card the consumer initially presents. Except where prohibited by law, merchants may do so by methods that include but are not limited to:
- Offering the customer an immediate discount or other incentive if the customer uses a particular payment card with an acceptance brand other than MasterCard ® or another particular form of payment;
- Offering the customer an immediate discount or any other incentive if the customer, who initially presents a Card, uses instead another payment card or another form of payment
- Expressing a preference for the use of a particular payment card or form of payment
- Promoting the use of a particular general purpose payment card with an acceptance brand other than MasterCard ® or the use of a particular form or forms of payment through posted information, through the size, prominence, or sequencing of payment choices, through other communications to customers
- Communicating to customers the reasonably estimated or actual costs incurred by the Merchant when a customer uses particular payment cards or forms of payment or the relative costs of using different general purpose payment cards or forms of payments.
The Impact: Effective immediately, merchants can request other forms of payments from cardholders but they cannot refuse the card presented.