MasterCard Sued for Antitrust Violations & Fraud

[Mike AI]

Article on NY Times about it....

Company Sues MasterCard Over Fees for Online Sales
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> May 13, 2003
> By JENNIFER BAYOT
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> Paycom Billing Services, a company that processes credit
> card and check transactions for online merchants, sued
> MasterCard International yesterday, asserting that
> MasterCard violated antitrust laws and charged excessive
> fees.
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> The suit, filed in Federal District Court in Los Angeles,
> seeks at least $23 million in damages. It signals that
> Internet vendors might pursue their own antitrust
> accusations against the card network. Last month,
> MasterCard settled a class-action case brought by
> retailers, agreeing to pay $1 billion and to reduce its
> debit card fees, among other concessions. Visa USA, a
> co-defendant in the case, reached its own settlement two
> days later.
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> "The publicity from that lawsuit has caused Internet
> retailers to question how Visa and MasterCard treat them,"
> said Joseph Cohen, a partner at Beirne, Maynard & Parsons,
> a Houston law firm. "It's sort of like a shark who sees
> blood in the water."
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> The lawsuit by Paycom, which is based in Marina del Ray,
> Calif., asserts that MasterCard uses its market power to
> charge Internet vendors excessive fees. Under MasterCard's
> rules, online merchants pay much more than traditional
> retailers to accept credit card transactions, as much as
> three or four times as much, according to The Nilson
> Report, which tracks payment systems.
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> The higher fees apply whenever a customer cannot physically
> present a card to make a purchase.
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> MasterCard has said the higher rate reflects the amount of
> fraud on the Web. According to Celent Communications, a
> research firm in Boston, fraudulent transactions account
> for more than 2 percent of online card spending, compared
> with 0.1 percent for in-store charges.
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> Most of Paycom's billing clients are sex-related Web sites,
> which industry experts say are more prone to fraud and
> "chargebacks," the term for purchases that customers deny
> making. Paycom says it processes about two million
> transactions a month.
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> David Robertson, publisher of The Nilson Report, said
> Internet companies were plagued by "friendly fraud," in
> which "your perfectly valid cardholder can deny a
> transaction he willingly made."
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> MasterCard, based in Purchase, N.Y., said it could not
> comment on the lawsuit because it had not yet been served
> with Paycom's complaint.
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> Paycom's lawsuit also includes a frequent grievance of
> online merchants: that they must pay for any losses on
> fraudulent transactions. In contrast, any fraud associated
> with in-person transactions is absorbed by the credit card
> issuers.
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> Christopher Mallick, Paycom's chairman, predicted that
> other Internet companies would join the lawsuit or file
> their own.
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> "I can see this - or something like this - turning into a
> class action," he said. "There are thousands and thousands
> of merchants being affected by this."
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> Paycom said it had excluded Visa from its lawsuit because
> Visa had worked harder to reduce fraud, instead of leaving
> merchants to shoulder much of the cost. Mr. Mallick added
> that Visa's penalties for chargebacks were more reasonable.
> "Although restrictive, we think they're fair," he said.
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> Over the last two years, both Visa and MasterCard have
> created products that authenticate online transactions.
> When online vendors use the new systems, called MasterCard
> SecureCode and Verified by Visa, their customers must type
> in passwords to make purchases, much as they use personal
> identification numbers at teller machines. The merchants
> are then no longer liable for fraud; instead, the card
> companies agree to pay for losses.
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http://www.nytimes.com/2003/05/13/technolo...053841161&ei=1&
en=f560a95861956d88
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