Justice charges

Anyone who has been swamped with junk-mailed offers of credit cards from banks unknown must wonder how anyone avoids the reach of Visa and MasterCard. The federal government wonders that, too – in the form of an antitrust lawsuit that rivals the Microsoft trial in terms of scope and potential effects on the economy’s future.

The Justice Department, suing the two companies in a New York federal court, claims that Visa and MasterCard, both nonprofit companies owned by member banks, have too close a relationship — one that prevents them from competing — and unfairly lock out other credit card companies.

Visa and MasterCard, which own some 75 percent of the credit card market, are often both offered at a single bank, which may sit on the governing board of one card network while doing business with the other. That, says Justice, at the very least, stifles innovation and harms customers. The card copmpanies go further, however, in preventing member banks from offering any other brands of credit card. That has left other credit card companies — American Express, at about 17 percent of the market, and all other cards, including Discover, with the remainder of the market — out in the cold, with little hope of growing market share.

In their defense, Visa and MasterCard claim that their practices are fair, and insinuate that American Express has duped Justice into the suit to further its own causes.

That defense isn’t the only similarity to the recent Microsoft antitrust trial, in which a federal justice has ordered the company broken in two. The core accusation against Visa and MasterCard is also similar: One system of credit card transaction is the only one available to banking service providers, limiting what they can offer, preventing consumers from being able to access alternatives, positioning Visa and MasterCard to have access to what is, allegedly, a captive audience for additional financial service offerings.

Whether the similarities bear out to a similar conclusion for Visa and MasterCard remains to be seen. But it is interesting to see Justice, which had been silent for nearly two decades on large antitrust cases — some say, too ready to approve major mergers — taking such an active role in stopping big players in the new economy. In some ways, it is reminescent of the the 1890s, with the nation trying once again to restore competition to what had become oligopolies.

Whatever the case, Justice’s assault on the comfortable relationship between Visa and MasterCard and the restrictive environment it has spawned is likely to bring more competition the the credit-card industry, which ultimately could help customers.