Sears Takes Visa to Court for Right to Issue Cards
A legal showdown is looming between Visa and retailing giant Sears, Roebuck & Co. that could reshape the superpowers of credit cards and affect the costs of buying with plastic for millions of consumers.
Sears, parent of the upstart Discover card, is suing for the right to issue Visa cards, which have a much wider reach.
If Sears prevails, the Chicago-based retailer argues, consumers would benefit from increased competition, which would lower card rates and annual fees. From Visa’s point of view, the Sears move is like Burger King seeking the right to sell Big Macs.
“It would reduce competition, in our opinion, between Discover and Visa, thus giving consumers fewer choices,” said David Brancoli, spokesman for San Francisco-based Visa International, parent of the Visa card network.
Regardless of the outcome, the case’s impact on consumers isn’t expected to be felt immediately.
But the trial, scheduled to begin Wednesday in U.S. District Court in Salt Lake City, is under intense scrutiny by industry analysts as an important test of the status quo.
“If Sears wins, that will really shake things up,” said James Daly, associate editor of Credit Card News, an industry newsletter in Chicago.
The case stems from an antitrust lawsuit filed by Sears in January, 1991, alleging that Visa was unfairly restraining its business by blocking a Sears-owned savings and loan in Utah from issuing a new Visa card.
The thrift, MountainWest Financial, was set to target nearly 7 million people in its promotion of the card, which featured no annual fee. The card, called Prime Option, was due to debut in March, 1991, but Visa’s board of directors rejected MountainWest’s application to distribute it.
“Visa’s sole motive is to protect its member banks from the increased competition sure to result from MountainWest Financial’s proposed Prime Option program and other aggressive non-bank competition,” Sears says in court papers.
Visa says the 6,000 financial institutions that issue Visa cards already offer a wide range of options for consumers. Visa also argues that it has the right to deny an application from Sears because of the retailer’s Discover card, a direct competitor to Visa.
Since its introduction in 1986, Discover has issued 41 million cards in the United States and is accepted by 1.4 million merchants nationwide. But Discover remains a distant laggard compared to No. 1 Visa, which has 142 million cards circulating in the United States and is accepted by 2.8 million U.S. merchants.
