For this week’s blog post, we will continue with the topic of recent Supreme Court decisions that are affecting the business, e-commerce, and internet world. Specifically, we will discuss Ohio v. American Express, a case involving the Sherman Antitrust Act and major credit card companies.
In the United States, credit card use is composed mainly of four cards: Visa (45%), American Express (26.4%), MasterCard (23.3%), and Discover (5.3%). In 2010, the government and 17 states sued American Express, Visa, and Mastercard, alleging that the credit card companies were unreasonably restraining trade and therefore violating the Sherman Antitrust Act. The government claimed that the credit card companies’ “anti-steering provisions” suppressed competition from rival credit card networks. These anti-steering provisions were between the credit card companies and merchants, and prohibited merchants from “steering” cardholders at the point-of-sale to use cards with lower merchant transaction fees. Notably, American Express charged the highest transaction fee for merchants.
In fact, both Visa and MasterCard settled with the government in a consent decree in 2011 to change their anti-steering provisions. American Express, however, continued to litigate up until the Supreme Court case was decided on June 25, 2018. American Express’s business model is different than most credit card companies, which generate revenue mainly from the credit portion of the transactions. It instead focuses on offering better rewards to consumers than other credit cards, typically attracting a higher-spending for the wealthier consumer. It then generates the majority of its revenue from merchant fees, arguing that higher merchant fees are justified by the higher spending clientele that it brings to merchants (AmEx also has a higher minimum spending amount for cardholders than other credit cards).