Wal-Mart Sues Visa

Visa and cash

Wal-Mart Sues Visa
| Published Sunday, March 30, 2014 |

By R. Alan Clanton
Thursday Review editor

When retail giant Wal-Mart feels it is being taken advantage of by powerful forces, it is time for some perspective. It’s the clash of the titans.

Wal-Mart recently filed a lawsuit in the U.S. District Court (western district of Arkansas) against the California-based Visa for the fees the credit card company charges retailers each time a customer swipes a credit card or debit card through a card reader. Wal-Mart’s suit contends that Visa conspired with banks and other financial institutions to rig those small charges—fixing the prices and insuring that the fees were applied at the highest tolerable rate.

Retailers have complained for decades about those fees—charged almost any time a retail customer uses a card at the point of purchase—which can add up quickly over hours, days and months. In total, retailer associations report that those charges add up to many billions of dollars every year. The fees have been viewed as particularly harmful and costly to small businesses, most of whom do not have the ability to make up for the cost in volume. But in recent years, as those charges have increased, even the big retailers have complained.

Often, retailer stores simply pass that cost along to consumers in the form of higher prices. That point-of-purchase fee averages 2% for each transaction. Some retail business analysts suggest that those charges have added up to over $350 billion in “unearned” revenue in the eight years between January 1, 2004 and the close of the business on Black Friday, 2012.

Past lawsuits over the issue have failed to resolve the matter, but in December 2013 a New York federal judge decided in favor of retailers in the largest class action lawsuit to date: a $5.7 billion settlement which included MasterCard and Visa as defendants. However, Wal-Mart, along with Target and Amazon, opted out of that settlement. Each planned to pursue the matter through separate legal actions.

Wal-Mart, like Amazon and Target, contends that the current 2% swipe fee is a highly inflated figure which results in overcharges for retailers and customers.

Economists and business analysts say that the Great Recession may have brought the issue to the forefront faster than expected. Almost all major retailers experienced the effects of the recession, which began in 2008. Wal-Mart and Target each contend that retail sales were hurt across the board as consumers faced difficult choices at a time when every penny counted at every point-of-purchase.

Wal-Mart also maintains that Visa, MasterCard and numerous major banks conspired to fix those fees in an anti-competitive and illegal manner. Target and Amazon are proceeding with their own legal actions against Visa and MasterCard.

Wal-Mart, according to Fortune magazine and other indexes, is the world’s largest retailer with over 11,000 stores in dozens of countries. Wal-Mart is also the world’s largest employer, with a staggering 2.2 million employees in over 100 countries. It was founded in 1962 in Bentonville, Arkansas by Sam Walton, a former J.C. Penney employee.

Visa is the world’s largest provider of credit cards. Currently based in Foster City, California (near San Francisco), it was originally the brainchild of Joseph P. Williams, a marketer and product developer for Bank of America, then based in Fresno. The first mass-market credit card was issued in 1958 under the name BankAmericard, which was changed to “Visa” in 1976.

Related Thursday Review articles:

Can You Protect Yourself From Credit Card Fraud?; Thursday Review; January 11, 2014.

In Search of a More Secure Credit Card; R. Alan Clanton; Thursday Review; February 19, 2014.