American Express’ 4 year long battle with the US Justice Department may mean drastic new changes in the card payment industry.
In 2010 a class action law suit was filed against the major card firms MasterCard, Visa and AmEx due to excessive fees associated to supporting merchants by the US justice Department. MasterCard and Visa were quick to settle and paid out an amount of $5.7 billion collectively. AmEx on the other hand stood their ground and his been legally battling the Justice Department ever since.
AmEx boasts the priciest fee structure with an average of 2%-3% merchant fees every time an AmEx card transaction is processed. With a 26% market share in the US, and a Take or Leave it policy when it comes to its fee structure, many merchants find themselves unable to not support the card brand.
The US justice department claims AmEx’s fees not only create issue with merchants but also their customers. Given the high fees, many merchants have been forced to raise prices to compensate, even when it comes to payments from other card brands.
AmEx on the other hand disagrees with the Justice Department. The card company claims its place in the market is insignificant as it is too small to have any anti-competitive effect. By the end of 2013 a total of 53.6 million AmEx cards were in circulation, compared to MasterCard and Visa with 178 million and 254 million respectively.
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AmEx also claims its higher fees help fund its class leading fraud reduction programs, financing and marketing, and data analytics.
“American Express may need those rules in place to remain competitive with Visa and MasterCard. They’re willing to put more on the line,” Darren Bush, an antitrust law expert at University of Houston Law Center, told Bloomberg.
One of the main reasons AmEx is continuing the battle for 4 years without the assistance MasterCard and Visa is revenue. AmEx’s fee structure is responsible for an average of 65% of its income; the high rates also contribute to customer satisfaction solutions such as discounts and frequent-flyer miles. If the court’s ruling is to be against American Express it would mean merchants would be able to offer their own incentives for using a competitor’s card.