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12-03-2003, 01:41 PM
CHICAGO (Reuters) - Wal-Mart Stores Inc. said on Wednesday it would stop accepting MasterCard for certain debit-card transactions, the first major retailer to make such a move after a seven-year battle over fees.
Wal-Mart, the world's biggest company, said it will no longer accept MasterCard for debit-card transactions that require a signature, as of Feb. 1.
The move was seen as a blow to MasterCard, which is struggling with a market share one-fourth the size of Visa's in the signature-based debit area. Not only will MasterCard lose the business of Wal-Mart, but it could suffer further if other large retailers follow suit, analysts said.
"This is bad for the MasterCard brand image, unquestionably," said David Robertson, publisher of The Nilson Report, an industry newsletter.
Wal-Mart typically accounts for about four to five percent of MasterCard's signature-based debit transactions, Robertson estimated. He said that MasterCard will earn about $110 million in 2003 from all such transactions.
Robertson said some customers will suffer from the Wal-Mart move, because purchases that require a signature allow customers to rack up points or miles on rewards programs but those verified by a personal identification number do not.
Wal-Mart said it would continue accepting MasterCard credit cards, and "most" customers could still use MasterCard debit cards if they punched in a personal identification number, or PIN. Fees are much lower with the PIN system.
Computer services company Unisys said 48 percent of consumers it surveyed prefer using a PIN instead of having to sign for purchases, and 36 percent prefer to sign.
Darrell Rigby, head of the retail practice at consulting firm Bain & Co., said the move was a strategic maneuver by Wal-Mart "to try to get MasterCard to lower their fees."
"Wal-Mart has demonstrated that when they get committed to a program like this, they can hold their breath for a long time," he said. "I think it is likely that MasterCard will end up having to give some concessions to make this work."
Wal-Mart spokeswoman Melissa Berryhill said the retailer "would certainly consider any proposal" from MasterCard to lower its transaction fees, but declined to comment on any discussions or negotiations with MasterCard.
In a statement, MasterCard said Wal-Mart was "putting its hand into its customers' wallets, and telling them which form of payment they must use."
The move comes after Wal-Mart and other retailers sued MasterCard and rival Visa in 1996, arguing that they used their market power to force merchants to accept their higher-cost, signature-verified debit cards.
In the suit, retailers argued that the fees on signature-verified debit cards cost retailers more than 10 times more per transaction than ones that require the customer to punch in a PIN.
Visa agreed to pay about $2 billion and MasterCard agreed to pay about $1 billion to settle the suit in late April.
The Wall Street Journal reported on Wednesday that Wal-Mart reached a deal to accept Visa signature debit-card transactions at a lower fee than Visa currently charges, but the new fees had not yet gone into effect.
Wal-Mart declined to comment on negotiations.
Wal-Mart, the world's biggest company, said it will no longer accept MasterCard for debit-card transactions that require a signature, as of Feb. 1.
The move was seen as a blow to MasterCard, which is struggling with a market share one-fourth the size of Visa's in the signature-based debit area. Not only will MasterCard lose the business of Wal-Mart, but it could suffer further if other large retailers follow suit, analysts said.
"This is bad for the MasterCard brand image, unquestionably," said David Robertson, publisher of The Nilson Report, an industry newsletter.
Wal-Mart typically accounts for about four to five percent of MasterCard's signature-based debit transactions, Robertson estimated. He said that MasterCard will earn about $110 million in 2003 from all such transactions.
Robertson said some customers will suffer from the Wal-Mart move, because purchases that require a signature allow customers to rack up points or miles on rewards programs but those verified by a personal identification number do not.
Wal-Mart said it would continue accepting MasterCard credit cards, and "most" customers could still use MasterCard debit cards if they punched in a personal identification number, or PIN. Fees are much lower with the PIN system.
Computer services company Unisys said 48 percent of consumers it surveyed prefer using a PIN instead of having to sign for purchases, and 36 percent prefer to sign.
Darrell Rigby, head of the retail practice at consulting firm Bain & Co., said the move was a strategic maneuver by Wal-Mart "to try to get MasterCard to lower their fees."
"Wal-Mart has demonstrated that when they get committed to a program like this, they can hold their breath for a long time," he said. "I think it is likely that MasterCard will end up having to give some concessions to make this work."
Wal-Mart spokeswoman Melissa Berryhill said the retailer "would certainly consider any proposal" from MasterCard to lower its transaction fees, but declined to comment on any discussions or negotiations with MasterCard.
In a statement, MasterCard said Wal-Mart was "putting its hand into its customers' wallets, and telling them which form of payment they must use."
The move comes after Wal-Mart and other retailers sued MasterCard and rival Visa in 1996, arguing that they used their market power to force merchants to accept their higher-cost, signature-verified debit cards.
In the suit, retailers argued that the fees on signature-verified debit cards cost retailers more than 10 times more per transaction than ones that require the customer to punch in a PIN.
Visa agreed to pay about $2 billion and MasterCard agreed to pay about $1 billion to settle the suit in late April.
The Wall Street Journal reported on Wednesday that Wal-Mart reached a deal to accept Visa signature debit-card transactions at a lower fee than Visa currently charges, but the new fees had not yet gone into effect.
Wal-Mart declined to comment on negotiations.