The four largest New Zealand banks retained Cornerstone Research and Professor Timothy Bresnahan of Stanford University to assess, from an economic standpoint, a claim by New Zealand’s Commerce Commission that the banks’ standard agreements with each of Visa and with MasterCard included provisions on interchange fees that constituted a fixing of the price for credit card transactions charged to merchants.
The four largest New Zealand banks retained Cornerstone Research and Professor Timothy Bresnahan of Stanford University to assess, from an economic standpoint, a claim by New Zealand’s Commerce Commission that the banks’ standard agreements with each of Visa and with MasterCard (which enable the banks to participate in the Visa and MasterCard schemes) included provisions on interchange fees that constituted a fixing of the price for credit card transactions charged to merchants.
The interchange fee on a credit card transaction is paid by the bank that provides credit card services to merchants; it is a cost to that bank and is passed through to its merchant customers. The interchange fee is paid to the bank that issued the card to the cardholder.
The case settled on the eve of trial under terms that required greater transparency in interchange fees.
The Commerce Commission also claimed that other Visa and MasterCard rules applied to merchants—in particular to honor all cards and no surcharge rules—also harmed competition in markets for credit card services supplied to merchants. The allegations in this case were similar to those made in the class action case challenging the interchange fee and other rules brought by merchants in the United States.
Professor Bresnahan provided analysis for the banks on the economic effect of interchange fees on the incentives faced by card-issuing banks and on the total volume of credit card transactions. The case settled on the eve of trial under terms that required greater transparency in interchange fees, modified the implementation of the rules restraining surcharging, and provided for other terms that remain confidential.
