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Recent History & Future of Credit Card Processing

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Recent History:

In 1990 Discover (an original product of Sears, Roebuck & Co., first issued in 1985) brought a civil antitrust suit against both Visa and MasterCard. It alleged anti-competitive practices had harmed Discover. The suit was eventually lost by Discover in 1994. The decision by the 10th Circuit Court of Appeals stated there was no harm to consumers and Discover already was competing with Visa and MasterCard because it's cards we're already in the market place.

The government is re-litigating the same case Discover lost in 1994. The pending anti-trust case the Department of Justice has brought against both Visa and MasterCard started on June 7, 2000. The suit challenges two things:

Duality – Ironically it was a lawsuit settlement crafted by the Department of Justice (DOJ) that created duality in 1976. The DOJ now alleges that it is anti-competitive, due to the fact that Visa and MasterCard are governed in effect by the same members. Hence, there is no real competition between them. The associations' counter is that it is the member banks themselves, which compete for cardholders and merchants.

The government alleges that Visa's rule 2.10e and MasterCard's “Competitive Programs Policy”, which prohibit the member banks from issuing competing cards of proprietary businesses (i.e. Discover and American Express), restrains trade because they preclude competitors from accessing banks that issue Visa and/or MasterCard.

The opinion of both associations is that it is American Express behind the latest DOJ trial and that their motives are to make up for lost time and market share and not to benefit consumers or merchants needing to accept credit cards.

Future:

The future of the payment system is bright indeed. With the Internet and many advances in technology the bankcards and other payment systems will continue to create new innovations for consumers and businesses alike.

Visa and MasterCard both acknowledge that while credit cards are the Internet payment of choice, that the cards and their current security were not designed with mail, telephone or Internet use in mind. This is why issuers will absorb losses if the card was present and the merchant captured it, but once it is used in a card-not-present environment (like the Internet) the merchant takes 100% risk, as does the acquiring bank.

Expect changes with new card products especially how they are used online and the liability to shift away from the merchant. New technologies can be harnessed to “authenticate” an Internet transaction and provide the same security as retail does. New merchant service technologies such as SET (Secure Electronic Transactions – a new online security method developed by the associations and Microsoft), CVV2, CVC2 and Visa's “Verified by Visa” product.

Timeline Overview:

1914 – Western Union issues the first modern non-cash payment method, a metal plate.
1946 – The earliest form of a credit card, called Charg-It, was developed by John Biggins.
1950 – Diners Club/Carte Blanche introduced the first multi-purpose credit card.
1951 – The Charg-it system helped introduce the first “bank” credit card, which was circulated by Franklin National Bank.
1958 – American Express entered into the industry with the American Express card and Bank of America issued its BankAmericard.
1959 – Other financial institutions had begun credit programs. Revolving credit was being offered.
1960 – Bank of America starts to license other banks to issue its BankAmericard. The new ability for these licensed banks to exchange transaction information starts a process what is now called interchange.
1966 – Fourteen banks formed Interbank Card Association (ICA). The first real bankcard association.
1967 – WSBA licenses ICA to use its MasterCharge brand name.
1968 – ICA changed its name to MasterCharge and began its global network by forming an association with Banco Nacional in Mexico, Eurocard in Europe and additional members in Japan.
1970 – Bank of America creates its own association, called National BankAmericard, Inc. (NBI).
1970 – Worthern Bank & Trust Co. sues NBI about its rule for members to exclusively offer the BankAmericard.
1973 – NBI and ICA introduce the first electronic authorization systems.
1974 – NBI and ICA introduce the first electronic clearing and settlement systems.
1974 – Bank of America's international licensees chartered an international company, IBANCO, to issue, and acquire transactions for, the BankAmericard.
1976 – National BankAmericard, Inc. changes its name to Visa USA. The IBANCO association also changes its name, and became Visa International.
1976 – Visa's reversal of its exclusivity policy goes into effect and allows members, in the U.S., to also offer MasterCharge. MasterCharge did the same and it became known as “duality.”
1977 – MasterCharge changes its name to MasterCard International.

This information has been provided by USMS.


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  2. The Different Types of Merchant Accounts
  3. How to Avoid Credit Card Processing Downgrades
  4. Merchant Account Responsibilities
  5. The Different Types of Credit Card Machines
  6. What is a Merchant Account?
  7. Why Avoid Credit Card Terminal Leases?
  8. 3 Ways to Save Money on Credit Card Processing
  9. Credit Card Processing Checklist
  10. Pros & Cons of Credit Card Processing
  11. What to Expect in Your Monthly Statement
  12. The History of Credit Card Processing
  13. Recent History & Future of Credit Card Processing
  14. The Different Organizations of Merchant Services
  15. The Glory Details of Disputes, Retrievals & Chargebacks
  16. Understand All the Risk with Merchant Services
  17. Factors & Guidelines to Merchant Service Underwriting
  18. The Life Cycle of a Credit Card Transaction



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