The country's credit-card giants are gearing up to slug it out
at the checkout counter once again.
After years of prohibiting merchants who accept its cards from
steering customers to other brands, American Express Co. is lifting
those restrictions.
The change comes after a federal judge in February found that
AmEx's rules on the matter were anticompetitive; a separate court
this week denied the company's request to keep the rules in place
pending its appeal.
That means starting next month, merchants will be able to offer
discounts or rebates to customers paying with a card from Visa Inc.
or MasterCard Inc. or display signs showing which card brand they
prefer. Visa and MasterCard also could negotiate lower fees with
certain merchants in exchange for the merchant agreeing to steer
customers toward their cards.
Merchants, who pay a percentage of each card transaction to
card-issuing banks, have long griped that they pay more when
customers swipe an AmEx card than when they use other types of
plastic.
"These fees are a part of doing business, but you'd be silly not
to consider all of your options," said Evan Johnson, an owner of
Rocky's Aqua Restaurant in Clinton, Conn. The seafood restaurant
has a "We prefer Visa" sticker posted near the front door, which
Mr. Johnson says is a relic of the card firm's advertising campaign
from the 1990s.
AmEx says it will remove the prohibition on customer steering as
it pursues its appeal. "Steering is not a good thing for consumers
and we believe many merchants agree," the company said in a
statement.
MasterCard already is planning to take advantage of merchants'
new flexibility, spreading the word to its employees who deal with
merchant contracts, says Chris McWilton, president of North America
for the Purchase, N.Y.-based network.
He declined to comment on MasterCard's specific plans to promote
its brand to merchants who also accept AmEx, but "these are all
things we have been thinking about for some time because we saw
this coming down the pike."
A spokeswoman for Visa declined to comment.
Merchant fees vary widely depending on which type of card is
used, along with other costs that can be added by middlemen
processors. And large merchants are often able to use their size to
negotiate lower fees with the card networks. The fee structure has
become more complicated in recent years as lenders issued cards
that are loaded with rewards and other perks. Such cards are more
expensive for merchants to accept than nonrewards cards, and are
closer to the rates that AmEx charges.
For example, some retailers will pay 1.47% of a transaction plus
another 10 cents when a customer uses a plain-vanilla Visa credit
card, but the rate jumps to 2.10% plus 10 cents for a high-end Visa
rewards card, according to a public listing of Visa's rates. The
merchant may also pay other fees to middlemen for those Visa
transactions.
AmEx charged an average rate of 2.49% of each transaction in the
first quarter, according to a regulatory filing. In a trial last
summer, several AmEx executives testified that the company no
longer maintains a premium over Visa and MasterCard rates. The
six-week trial stemmed from a 2010 lawsuit in which the Justice
Department contended that AmEx's prohibition on steering inhibits
competition and raises fees for consumers.
It isn't clear how or if business owners will try to sway
customers to use certain cards, including debit cards that are
cheaper for merchants than credit cards. Such attempts can be
tricky and risk annoying customers who don't want to be told which
cards they should use.
Kroger Co. Chief Executive Rodney McMullen said the grocery
chain is evaluating its options, but it is too early to tell what
the removal of the AmEx restriction will mean for its relationships
with specific card companies.
"We continue to look for ways to help save on [card] fees so
that we can pass those savings to our customers," he said in an
interview.
Gas-station owners who get their fuel from Sinclair Oil Corp.
typically pay 6.5 cents a gallon when customers use a Visa card to
pay for gas at $3 a gallon, but the price goes up by roughly two
cents for an AmEx card, says Russell Gibson, manager of marketing
technical service for the fuel distributor. He was one of a number
of merchants who testified against AmEx at the trial last
summer.
While it is up to each gas-station owner to set their own card
policy, Mr. Gibson says he will consider alerting them to the
change in AmEx rules. "The jury is still out, but the fact is that
we now have choices where before we did not," he said.
U.S. District Judge Nicholas Garaufis, who oversaw the AmEx
case, laid out specific language that AmEx must use to alert
merchants to the rule change. The notification also warns merchants
that they aren't permitted to disparage AmEx or mischaracterize its
brand.
Merchants also won't be permitted to charge customers more for
using an AmEx card, although they can offer a discount for using a
card other than Amex.
Annie Gasparro contributed to this article.
Write to Robin Sidel at robin.sidel@wsj.com
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