Visa and MasterCard’s Roadmap to Bankruptcy?

October 10, 2008
A strange event played out after Visa and MasterCard collectively warned in their respective SEC IPO filings that if the merchant interchange litigation was successful, both credit card associations risked “insolvency.”Who would have thought?To protect themselves from bankruptcy, banks are facing shotgun mergers with other named defendants. The financial institutions spent millions, not just on lavish parties, but in protecting their credit card pricing schemes (with today’s ultra tech-advanced efficiencies, these fees are largely unnecessary). Law firms are making millions representing the banks. Some are growing their entire operation, hiring staff and enjoying the benefits of their representation. Are their shareholders watching?  During the past year, $8.3 trillion in shareholder wealth has been lost, so the once huge interchange fee boondoggle isn’t looking nearly as grand as before.  However, it is still something that much be addressed, especially now as we face a global crisis of confidence in the banking system. 

The rational for merchant credit card fees is mostly obsolete today.  It was designed to be cost-based – to cover the four-party electronic payment network back when we had manual charge card receipts.  The fees keep growing, even though efficiencies keep declining.  Many other nations understand that whether the forced merchant credit card fees are .50% or .70 %, the rates are unfair and too high; the average merchant interchange credit card fee in the U.S. stands at about 1.70 percent.

This nearly $50 billion annual credit card fee scheme seemed like a hefty chuck of change. But, now that banks are facing billions in lost market capitalization and disdain from American consumers, they have even larger worries.The public’s unrestrained infuriation with the banks is just as vast as are the nation’s retailers. The approval ratings for the banks, and by proxy, Visa and MasterCard’s market power and alleged price fixing are getting as low as are their plunging Moody’s ratings. It is even getting to the point that the scorn against the banks and credit card companies are more humiliatingly low then even the anemic approval rating for outgoing President Bush.  Presidential candidate John McCain and his cozy relationship with the banks and call to support them at the expense of consumers will be no better.

Back in 2005, which I was among the first to file a Federal antitrust complaint against Visa, MasterCard and its member banks, the battle was much simpler. Today, the banks are fighting for their future. They are at risk of being seized by a Federal nationalization of their operations. Visa and MasterCard are facing their own profound disgust for their business model, control of Washington legislators and lead cause for harming American families facing financial disaster.

It is turning out that what appeared like an ocean-sized legal challenge for the banks, Visa and MasterCard, has become diminutive in comparison to their larger hurdle and fiscal afflictions brought on by gross mismanagement, greed and un-American pursuits. Maybe Visa and MasterCard’s lawyers knew something when they cautioned that if the merchant interchange antitrust class-action litigation is successful their clients will also face bankruptcy.


News Alert: Paulson gives new detail of bank ownership plan

WASHINGTON (MarketWatch) — Treasury Secretary Henry Paulson on Friday gave some new details of the emerging plans by the federal government to inject capital directly into a “broad array” of financial firms. In a statement after the G7 meeting, Paulson said that officials are working on a “standardized program that is open to a broad array of financial institutions.” The plan is to attract private capital to complement the government’s funds, he said. Paulson went out of his way to say existing shareholders would be protected, saying the government would only make the purchases through a “broadly available equity program” without any voting power, “except with the market standard terms to protect our rights as investors.



Along the way, thousandsof its member banks reaped millions. They glamorized 

their balance sheets, which is now spiraling downwards.  They tried to dodge legal liabilities as they unloaded part of their Visa and MasterCard vault. These member banks mutually controlled the giant credit card networks, some are now facing their own insolvency and government intervention.

“Every 6 months, Visa/Mastercard raise their rates by 4-8 basis points”: Nova

September 12, 2008

I just received a call from a Nova sales rep with an interesting pitch. He explained that every six months, Visa and MasterCard raise their rates.  In Nova’s own words is the email followup I just received.


Thank you for your time on the phone today!  As you know, I am a representative of Nova, one of the largest credit card processors in the industry.  In addition to a very competitive rate, some of the other benefits of doing business with us are as follows:

Local Customer Support

  • Next Day Funding
  • FREE Supplies
  • No Term Commitment
  • Can Work with Existing Equipment
  • Seamless Transition
  • 1 Year Rate Guarantee
  • Paid Cancellation / Software Fees (based on volume)

As we discussed, there was just a rate increase that occurred in April and there is another one coming up in October. Every 6 months, Visa/Mastercard raise their rates by 4-8 basis points.  Many businesses take the time during these periods to reevaluate their situation. I would like the opportunity to prepare a formal credit card comparison for  If you are able to fax a current statement to my attention, I am confident that I can secure you a competitive rate.  Once received, it would only take me a day or so to get back to you.  If you have any questions/concerns, please feel free to contact me.  Thanks again Mitch and have a great weekend!

Kind Regards,

Jeff ……
Account Executive

“Old Foes Unite to Keep Charging Credit Card Fees to Merchants” (via The Hill)

May 12, 2008 – The Credit Card Interchange Report Comments:

Even financial interpreter Jim Cramer is in for a grueling week as Visa and MasterCard readies for what both companies warn might lead to their “insolvency” [according to their SEC filing statements].For an update on Thursday’s planned Capital Hill combat against the giant credit card associations and its member banks, click here to read Jessica Holzer’s May 12th The Hill column.   

You know there are splinters in Visa and MasterCard’s haywired argument when lobbyists for the banks and the credit unions join forces; while they are gasping, we are ready to further illuminate the issues. It has been more than three-years since launching the class-action complaint to arrest this $40 billion annual hidden tax on merchants and consumers.

Let us not forgot that interchange fees were designed decades ago to cover the cost of a four-party electronic payment network – back when we used manual credit card imprinters and mailed in thick bundles of carbon copy credit card receipts to clear the payments. Back then, it took days to transfer funds, today it is instant and efficient.

Today’s efficiencies have done away with the antiquated payment process, yet the fees are higher than ever. Why the disparity as interchange rates abroad are a fraction of the nearly 2.0% tax charged in the U.S.?



This is the “perfect storm.” 

We are ready to explain why interchange fees are obsolete, illegal and anti-competitive. Even the banking industry’s shareholders are in for another bombshell so audible and eclipsing that the impact from their executive’s round of previously misfortunate decisions and billions in prior writeoffs may be petite in comparison. A trial by jury allows fort trebled damages.
When was the last time you heard the U.S. Federal Reserve explain that interchange fees “dampen innovation” for check writing? Never: there are no interchange fees to clear checks. Likewise, why hasn’t the Fed explained that merchants “derive huge benefits” from accepting paper checks for payment? Again, there are no fees to clear a check and if it is so significant a cost, why hasn’t the banking industry demanded interchange fees for that payment form?
The banking lobbyists are ready and so are we, but our story is being told by regular shop owners to personalize the issue. After years of toil, merchants and consumers are at the cusp of forcing the demise of these unbridled and unnecessary interchange fees on American’s and our neighbors around the world. The American public is fed up with the banking industry’s mismanagement and audacity; the days of cartel-like price-fixing will vanish, just as did those bulky manual credit card imprinters also disappear.
“Visa’s IPOIs Worth a Close Reading” (via WSJ)

Understanding the Word “Insolvency” Is Crystal Clear

Visa Inc. Files 10-K Annual Report, Amends S-1 Registration


Want to know more about lead plaintiff  Click here and read their daily blog: Tales from the World of Photo Scanning





Visa Inc. Makes Operating Regulations Available to the Public

May 9, 2008

Before reprinting today’s Visa Inc. press release, these thoughts:

Our merchant interchange antitrust litigation is based on many years of alleged illegal activities.  Just as if a convicted bank robber apologizes and cleans up their act, they are still in violation of the law.  So too are Visa and MasterCard.  Because most of the same banks that control a large percentage of Visa’s newly public shares are also owners of MasterCard, we expect that the same decision will be forthcoming by the other credit card association. 

Moving forward, this is a smart decision and one more confirming action that Visa recognizes that they were in error and are quickly trying to fix their business model; from creating an independent board, to less ownership by the banks, to posting interchange rates online (although mostly as an attempt to respond to merchant concerns) and now this.  

The Visa Inc. May 9th press release is reprinted below.


Visa Inc. Makes Operating Regulations Available to the Public

Move Seeks to Increase Company’s Transparency

SAN FRANCISCO, CA, May 8, 2008
Visa Inc. announced today that it will for the first time make its Visa International and Regional Operating Regulations available publicly, effective May 15, 2008.

The Operating Regulations, which will be available on Visa’s corporate website at, are the set of rules which govern the participation of issuing and acquiring financial institutions in the Visa system.


“As Visa continues to evolve to meet the needs of customers, we are committed to providing our partners and interested parties with greater insight into Visa’s operations,” says Joseph W. Saunders, Chairman and CEO, Visa Inc.  “Greater transparency is one of the ways we hope to strengthen our working relationships in the marketplace.”


Previously, Visa Inc. made its Visa USA Operating Regulations available to merchants and third party agents under a non-disclosure agreement.  On May 15, Visa’s rules will be publicly available to interested parties, including all Visa rules related to merchants’ participation in the system.  However, to protect cardholder and merchant safety and the Visa system, Visa has omitted proprietary and competitive information, as well as certain details from the rules relating to the security of the network.  For example, in the merchant rules, Visa has omitted authorization limits by country and processing codes which could aid fraudsters.


“Today’s announcement builds on our commitment to making Visa transparent in an increasingly competitive environment,” adds Saunders.  “While our operating regulations only govern our client financial institutions, we believe that merchants and others will benefit from access to the rules, which provide a greater understanding of the complexities of electronic payments.”


Visa and MasterCard’s Interchangee Fee “Adjustments”

April 3, 2008

[UPDATE, original post on April 1st]

Based on the letter sent to Chase Paymentech customers, we were advised that the announced Visa and MasterCard interchange fee “adjustments” would take place on April 1 and be posted on their website.  Well, it’s April 1st and Visa still has the old rates listed

[Editors note, (April 3) We just checked back today and noticed that Visa’s new fee schedule is now online, but try to figure out what each individual payment transaction charge is and why is Visa’s only five pages when the MasterCard schedule is more than one-hundred?]

At least MasterCard complied and has the new 103 page rate schedule posted, but click here to see if you can guess what the heck is going on.  

For us, the best part of MasterCard’s [April Fool’s Day] posting was this gem: “… MasterCard has no involvement in acquirer and merchant pricing policies or agreements.”  Good stuff, except when you understand that those that did were the thousands of banks, and with representation  on MasterCard’s board of directors which owned MasterCard, prior to the IPO and still maintains a nearly 50% investment.

MasterCard U.S. and Interregional Interchange Rate Programs