There are four primary stakeholders in this lawsuit; issuing banks, networks, retailers and the consumers. My colleague Brad Adams gave the merchant and consumer view in a blog post earlier this week. I will comment on the issuing banks and networks.
If the proposed settlement is accepted, the payments industry as a whole can breathe a sigh of relief, given that much uncertainty will be been resolved. The $7.8 billion due in recourse is significant ($6.6 billion up front and $1.2 billion in rebates on interchange) but not as much as the $10 billion industry watchers were estimating.
Furthermore, the defendants were protected from future lawsuits over interchange, unless participants in the class action opted out of the resolution. However, the issuers are incented to keep the interchange rates low to avoid merchants from imposing surcharges on their transactions. This key outcome has the potential to keep rates low or lead to an increase in the adoption of new networks such as Square or Dwolla.
What is certain is that the business model of credit card issuers and the networks is going to be refined as they look for different revenue streams other than interchange fees. Perhaps the issuers and merchants will work together to offer merchant-funded reward programs, or that different payment methods will avoid surcharges such as EMV cards or mobile payments to drive adoption of new technologies. Could the animosity be behind us, and we see a future of the stakeholders working together to keep costs down by leveraging existing infrastructure and rolling out consumer friendly innovations? After all, the end goal for all parties is to increase the use of electronic payments.
The interchange lawsuit settlement: what it could mean for the payments industry by Paul McMeekin