Those higher credit-card swipe fees aren’t going anywhere.
The Supreme Court sided with American Express, rejecting arguments that its contracts prevent merchants from steering consumers toward other cards with lower fees amounted to antitrust violations.
Amex caters to valuable high-end consumers, but is smaller than competitors Visa and MasterCard. To compete, it offers more rewards to consumers, but also imposes higher fees on retailers.
Merchants would like to be able to move shoppers toward payment options that are cheaper for the stores. All told, merchants pay more than $70 billion annually toward credit card swipe fees, which are typically figured as a percentage of the sale price, according to the National Retail Federation.
“Today’s ruling is a blow to competition and transparency in the credit card market,” Stephanie Martz, the NRF’s senior vice president and general counsel. “The American Express rules in question have amounted to a gag order on retailers’ ability to educate their customers on how high swipe fees drive up the price of merchandise.
“By denying merchants the right to simply ask for another card or offer an incentive for using a preferred card, the Supreme Court has undermined the principle of free markets where one company should not be allowed to dictate the practices of an entire industry in order to protect its business model,” Martz said. “This misguided decision represents a missed opportunity to take a stand in favor of free markets and bring soaring credit card fees under control.”
(The disappointment comes just days after the high court served up a big win for brick-and-mortar retailers, ruling that e-commerce companies would also need to collect state taxes on their sales).
Justice Clarence Thomas, writing for the majority in the five-to-four decision in the case, Ohio vs. American Express, said Amex had spurred innovation and competition in the credit-card business that has over time helped reduce merchant fees.
“There is nothing inherently anticompetitive about Amex’s antisteering provisions,” Thomas wrote. “These agreements actually stem negative externalities [or costs suffered by third parties] in the credit-card market and promote interbrand competition. When merchants steer cardholders away from Amex at the point of sale, it undermines the cardholder’s expectation of ‘welcome acceptance’ — the promise of a frictionless transaction.
Much of the argument in the case revolved around an understanding of the credit-card market as a “two-sided platform” comprised of merchants and consumers, where both sides would need to be impacted for an antitrust violation to be found.
It was a day in which retailers were hoping the court would listen to the instincts of its more liberal wing.
A dissent written by Justice Stephen Breyer argued against the majority’s reading of the two-side situation in this case. It also weighed in in favor of strong antitrust laws.
“For more than 120 years, the American economy has prospered by charting a middle path between pure laissez-faire and state capitalism, governed by an antitrust law ‘dedicated to the principle that markets, not individual firms and certainly not political power, produce the optimal mixture of goods and services,’” Breyer wrote. “By means of a strong antitrust law, the United States has sought to avoid the danger of monopoly capitalism. Long gone, we hope, are the days when the great trusts presided unfettered by competition over the American economy.”
Breyer argued Amex’s antisteering contracts with merchants have “serious anticompetitive effects.”