Payment Wars: The Merchant-Bank Struggle for Control of Payment Systems

66 Pages Posted: 29 Sep 2006

See all articles by Adam J. Levitin

Adam J. Levitin

Georgetown University Law Center

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In recent years, the cost to merchants of accepting credit cards has risen dramatically without a corresponding increase in the benefits. This trend has sparked a wide-ranging struggle between merchants and banks, as merchants have begun to seek methods for limiting payment costs. The conflict is playing itself out in business practices, banking regulation, IPOs, corporate governance, corporate restructuring, bank mergers, and the largest private antitrust litigation in U.S. history.

This article reviews the factors behind the struggle between merchants and banks and the strategies adopted by each, and uses the framework of the merchant-bank struggle to reevaluate the relationship between banking and commerce. The article argues that the extraordinary transactional and litigation energy being spent in this fight is likely for naught. Ultimately, the growth of national bank brands, technological developments, and innovative business models are likely to independently result in a radical reshaping of the payments world that will ease merchant-bank tensions, but also blur the distinction between banking and commerce.

Keywords: credit card, debit card, payment systems, antitrust, interchange, merchant discount, MasterCard, Visa, IPO, PayPal, merchant, bank, network, no-surcharge rule, honor all cards, Wal-Mart, Industrial Loan Corporations, ILC, PLCC, Private Label, Co-Brand, turn rate, contactless

JEL Classification: E44, G20, G21, G34, K21, K22, K23, L1, L4

Suggested Citation

Levitin, Adam J., Payment Wars: The Merchant-Bank Struggle for Control of Payment Systems. Stanford Journal of Law, Business, and Finance, Vol. 12, 2007, Available at SSRN:

Adam J. Levitin (Contact Author)

Georgetown University Law Center ( email )

600 New Jersey Avenue, NW
Washington, DC 20001
United States

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