Breaking eBusiness and Search News Advertise | Newsletter | Sitemap | News Feeds WebProNews Search Part of the iEntry network Groceries Charge Visa On Fees John Stith
Staff Writer
Published: 2005-07-16
A large group of national grocery chains have levied their lawyers at credit card monolith Visa USA claiming Visa's fee system is unfair in a federal antitrust lawsuit.
The lawsuit, filed in U.S. District Court in New York, comes in with some heavyweights too. Led by Kroger, the third largest retailer in the U.S., the lawsuit state Visa forces the retailers to put fees on customers who don't utilize Visa for their purchases. The retailers are forced to put the fees on their products. Retailers like Walgreens, Eckerds, Safeway, Maxi Drug, Ahold and Albertson have also signed off on the suit.
Retailers charge Visa and its member banks essentially run a scam by setting interchange fee amongst themselves and pass those fees on to merchants. Then those merchants have to pass on the price to customers but not just customers who use Visa but all their customers who pay with cash or check or even government assistance.
Needless to say, Visa isn't happy. The company, based out of San Francisco said that they couldn't address the charges yet because they have to check their statement er uh the lawsuit.
The National Retail Federation threw in their numbers in the middle of this too saying Visa and MasterCard made a lean 17.4 billion in fees in 2004. They said the transaction fees figured about 1.75% of each transaction on average but increase this year pushed fees on some cards to 2.9%.
Kroger said in their statement that interchange fees cost retailers and consumers $20 billion or more a year and Kroger said they will pay $350 million in fees this year, up more than 215% over 5 years ago and that Visa raised Kroger's rate 11 times in the 5 year period.
Right now, Visa doesn't allow retailers to pass on Visa's fee to Visa customers. They make the retailers suck it up or slap on the consumer, across the board. That is the most common answer. Retailers want to be able to pass on that cost directly Visa customers directly.
The problem most of these retailers have is the monopolistic environment Visa has the advantage of having. With only 4 major credit cards on the market in the form of Visa, MasterCard, American Express and Discovery, it's a tough business to get into and Visa is by far the largest of them all. If retailers want to offer a more complete payment service to their customers, they have to offer Visa. In many cases, if they don't, they would lose a fair amount of business.
"The collective setting of interchange fees by Visa and its member banks constitutes horizontal price-fixing that leads to higher retail prices for our customers," said Paul Heldman, Kroger senior vice president and general counsel. "This hidden cost must be borne by all Kroger customers, whether they pay for their groceries with cash, by check or by debit or credit card. At a time when technology has made card authorization and processing faster, cheaper, safer and more efficient than ever, we believe that our customers should be receiving the benefit of declining interchange fees. Instead, Visa is using its extraordinary market power to profit at our customers' expense."
Smaller retailers have complained of these problems with the credit card companies for years but in order to do business, particularly on the Internet, they were forced to sign on the dotted line and pay the apparently exorbitant fees.
About the Author:
John Stith is a staff writer for WebProNews covering technology and business.
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U.S. retail chain stores Kroger’s, Walgreens and five other food and drugstore chains have filed a lawsuit against the world’s largest credit card company, Visa International Inc. The federal lawsuit claims the company practices fee fixing on transactions, and with restricting competition among member banks.

The retail merchants claim that Visa acts in collusion with its member banks to fix transaction fees taken as a percentage of each retail sale. The suit was filed Thursday in the U.S. District Court in Manhattan, and seeks unspecified damages.  

Member banks, those banks that issue and process merchants’ Visa transactions, are unable to negotiate transaction fees directly with the merchant, and merchants are forced to accept Visa purchases regardless of the issuing bank. The complaint says, “The merchant restraints have resulted in exorbitant interchange fees that bear no relationship to the cost of the services being provided." 

Merchants see the rising use of card transactions and the effect it has on their bottom line.   The interchange fees are currently 1.75% from most banks, but on some cards it rose this year to 2.9%. The National Retail Federation said for 2004 that between Visa and MasterCard, they pulled in $17.4 billion, a surcharge borne by the consumer regardless of whether they pay by cash or plastic.

Retailers do not oppose transaction fees, but believe they should be based on market forces. They claim that technology has lowered the cost of processing the transactions, but the savings is not being passed along to them. There are currently four major credit card providers in the U.S.

''Webpronews'' writer John Smith cites this merchant quote: "The collective setting of interchange fees by Visa and its member banks constitutes horizontal price-fixing that leads to higher retail prices for our customers," said Paul Heldman, Kroger senior vice president and general counsel. "This hidden cost must be borne by all Kroger customers, whether they pay for their groceries with cash, by check or by debit or credit card. At a time when technology has made card authorization and processing faster, cheaper, safer and more efficient than ever, we believe that our customers should be receiving the benefit of declining interchange fees. Instead, Visa is using its extraordinary market power to profit at our customers' expense."

A small group of Connecticut retailers filed a similar lawsuit last month naming along with Visa, MasterCard and several other large banks. The suit was filed in Connecticut’s federal court. That suit also calls the fees “exorbitant”.

The Vice-President of Visa, Paul Cohen, said "It appears this is another in a series of attempts by some merchants to receive all the value of electronic payments, while shifting their normal costs of doing business onto consumers."