Visa, Mastercard Will Drop Debit Card

Visa U.S.A. and Mastercard International agreed to abandon a national debit card venture to settle charges by 14 states that they schemed to monopolize the emerging market, it was announced Tuesday.

But the giant credit card associations--the world’s largest with a combined 370 million cardholders worldwide--denied the allegations and said they agreed to the settlement partly to avoid a lengthy legal battle.

Both said they would continue developing separate debit card systems.

A “point of sale” debit card is presented at stores the same as a credit card, but the money is automatically deducted from the cardholder’s account and transferred to the merchant.

The antitrust suit, filed June 26 in U.S. District Court in Manhattan, claimed Visa and Mastercard’s “Entree” debit card network had an unfair advantage over smaller, regional competitors because virtually every major U.S. bank already was a Visa or Mastercard member.

The suit also noted that Visa and Mastercard had gained control of the nation’s two largest automatic teller machine networks--Cirrus System Inc. of Downers Grove, Ill., and Plus System Inc. of Denver, both of which had been formulating their own plans for national debit card networks since the early 1980s.

Visa also took over the Interlink Network, based in San Mateo, Calif., the nation’s largest regional debit card network.

“There would have been no competitive forces at work,” Robert Abrams, the New York attorney general who led the states’ action, told a news conference. “The agreement doesn’t prevent the concept from going forward. It prevents a monopoly.”

David Brancoli, a spokesman for Visa, disagreed. “We feel the program would have been competitive and we would have prevailed in the courts,” he said.

He said Entree was abandoned partly because some banks had begun to lose interest in it in the face of what could have been a lengthy court battle.

The other states involved in the suit were: Arizona, California, Connecticut, Louisiana, Maryland, Massachusetts, Minnesota, Tennessee, Texas, Utah, Washington, West Virginia and Wisconsin.

At the end of 1989, there were 183.9 million debit cards in circulation nationwide, according to Bankcard Holders of America, a consumer group based in Herndon, Va.