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McDonald's beefs up smart cards
August 18, 1998
The complaint alleges that the control of both networks by the same group of banks diminishes competition between the two giants and also serves to exclude would-be rivals. The suit was filed today in U.S. District Court for the Southern District of New York.
"Vigorous competition among credit card networks is critical to ensure that consumers have the benefit of the best payment methods, particularly as more and more commerce is conducted through credit cards and electronic forms of payment," Joel Klein, the Justice Department's assistant attorney general for antitrust, said in a statement.
Representatives for Visa and MasterCard could not be reached for comment.
Smart cards, plastic cards the size of credit cards but with a computer chip embedded, are used more in Europe and Japan than in the United States, but U.S. banks have been experimenting with them. Internationally, Visa and MasterCard are working to sign banks up to competing e-cash schemes.
The Justice Department's suit describes a cozy U.S. credit card industry in which banks have agreed not to target one another with advertising campaigns and to exclude banks that issue rival cards, such as American Express or Discover. Both Visa and MasterCard are associations governed by member banks, and some 75 percent of all purchases are made using the world's two largest networks.
The problem is not only that rival credit cards cannot compete, the federal agency says in a 43-page complaint. Debit and smart card businesses that would take advantage of the Internet and other forms of e-commerce require bank participation but cannot gain access to leading financial institutions.
Justice's proposed remedy would eliminate duality, requiring banks to line up behind one credit card network or the other, and would put an end to formal exclusion rules.
