The U.S. Supreme Court ruled on Monday in a 5-4 opinion that American Express' rules barring Amex-accepting merchants from steering customers to less expensive forms of payments are not anticompetitive. The controversial decision settles an antitrust case that began in 2010 and has gone to multiple courts in the past eight years.
"There is nothing inherently anticompetitive about the provisions. These agreements actually stem negative externalities in the credit card market and promote interbrand competition," Justice Clarence Thomas wrote in his opinion, which was supported by Justices John Roberts, Anthony Kennedy, Samuel Alito and Neil Gorsuch. The decision stated that the plaintiffs, 11 state attorneys general led by Ohio attorney Mike DeWine, did not demonstrate anticompetitive effects for both sides—merchants and cardholders—of a two-sided transaction platform.
"Evidence of a price increase on one side of a two-sided transaction platform cannot by itself demonstrate an anticompetitive exercise of market power," Thomas wrote. "Instead plaintiffs must prove that American Express' antisteering provisions increased the cost of credit card transactions above a competitive level, reduced the number of credit card transactions or otherwise stifled competition in the two-sided credit card market. They failed to do so."
On the contrary, Thomas said, Amex competitors Visa and Mastercard have continued to increase their merchant fees, including at merchant locations where Amex is not accepted, thereby proving that Amex's antisteering provisions alone are not causing higher merchant fees across the market.
Additionally, Thomas noted that Amex's business model has stimulated "competitive innovations," including Visa and Mastercard's launch of premium cards offering consumers better rewards while charging merchants more for accepting them, similar to Amex's business model. Amex also has made banking and card payment services available to low-income consumers who otherwise would not qualify for credit cards or be able to afford traditional bank fees, Thomas continued.
Amex chairman and CEO Stephen Squeri said that since the case began eight years ago, the card network has significantly expanded its merchant network, increased merchant satisfaction and broadened cardholder benefits, services and experiences that build loyalty. "The court's decision is a major victory for consumers and for American Express," he said.
What Does it Mean for Business Travelers?
Not much, according to Mark Williams, CFO of consulting company Dots and Lines. "In today's environment, where using your corporate card is so convenient because it's probably linked to an expense tool that automatically populates expenses and gets paid by the company, you're probably not going to listen to a merchant trying to steer you away from one card to another. There are just too many conveniences attached to using the company's card of choice," he said.
He also noted a convergence among the networks' merchant discount rates, which are the rates merchants pay per transaction to accept a particular network's card. Amex's discount rate, known as one of the highest, has steadily declined over the past few years. During earnings calls, Amex executives often have attributed the decline to the expansion of its OptBlue small business acquiring program and to merchant negotiations in regulated international markets.
In March, Amex revised its 2018 discount rate outlook from decreasing between two and three basis points to decreasing between five and six basis points. At the time, Amex president of global merchant services and loyalty Anre Williams said that despite the discount rate decrease, Amex revenue from that discount grew an average of 5.3 percent the past two years.
The real competition between the networks for corporate clients will come down to service and the kind of data a network can deliver, and Williams said Amex always has been good in that regard. "If I'm a buyer, [I want to know] what are the financial aspects of my deal, what kind of rebate am I going to get, how is it structured, how will that be paid and what can I do with the data you're supplying to me," he said. "The rest doesn't get focused on that much anymore … especially if acceptability and the merchant discount is converging."