Litigation Risk Rises for Payment Networks
But Morningstar's fair value estimates for Visa and MasterCard are unchanged.
The 2nd U.S. Circuit Court of Appeals in New York has overturned a 2013 $7.25 billion settlement between payment networks Visa (V) and MasterCard (MA) and a group of retailers. Essentially, the court ruled that barring the ability to challenge certain network rules in perpetuity was unfair, the interests of past and future merchants were in conflict, and representation was inadequate given differing interests of the plaintiffs.
In the initial lawsuit leading to the network settlement, merchants alleged that network rules establishing default interchange rates, requiring merchants to accept all branded cards (for example, both high-cost rewards products and lower-cost basic cards), and preventing merchants from influencing customer payment preferences were anti-competitive. In addition to the monetary payment, networks agreed to change certain controversial practices. The settlement also prevented merchants from challenging the networks on a wide range of other practices. Two classes of plaintiffs were included--those that accepted cards between 2004 and 2012 and merchants accepting card payments thereafter. Those in the first class received the monetary judgment and were able to opt out of the settlement; those in the second received changes in network rules and were unable to opt out.
Jim Sinegal does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.