Mastercard’s Tactical Move in Civil Trial
In a surprising twist, Mastercard, the global financial services corporation, made a strategic move in the middle of a civil trial in which it stands accused of breaching competition law. The allegations centre around Mastercard’s campaign to persuade, and in some instances, allegedly bribe, numerous well-known retailers to route their debit payments through its own systems, thus bypassing competitor Eftpos.
Richard Wormald, CEO Mastercard Asia Pacific
Mastercard’s Strategic Merchant Agreements
The case against Mastercard hinges on the Strategic Merchant Agreements (SMAs) it is said to have struck with many of Australia’s most well-known retailers. These SMAs allegedly offered the retailers reductions on fees if they agreed to route a minimum number of debit volumes through Mastercard’s systems. Such actions, if proven, would likely have been detrimental to Eftpos, Mastercard’s main domestic competitor.
Richard Wormald, CEO Mastercard Asia Pacific, and former head of cards and payments at Coles, was in charge of Mastercard in Australia at the time. His primary responsibility was to counter the threat posed by Least Cost Routing (LCR), also known as merchant or forced routing, a strategy favoured by the Reserve Bank of Australia (RBA) which could have put Mastercard’s substantial revenue and profit at risk.
Fall of Eftpos and Rise of Mastercard and Visa
By 2017, it is implied that the RBA had shifted its support towards Eftpos, which by the late 2010s was in a precarious commercial position, having seen its market share plummet from 90% to as low as 6 or 7%. In an attempt to salvage its position, Eftpos reportedly proposed merging with both Visa and Mastercard, following unsuccessful overtures to Discover and China Union Pay.
However, Visa and Mastercard were seemingly undeterred, acting in tandem to seize as much of the debit market share and revenue as possible. Their strategies, such as the one allegedly employed by Mastercard, were primarily aimed at winning the entire debit volume of major self-acquirers like Coles and Woolworths.
Mastercard’s Agreements with Coles and Woolworths
According to evidence presented in the trial, Wormald negotiated favourable SMAs with both Coles and Woolworths early in his tenure. The significance of the Coles agreement was such that it had to be approved by Mastercard’s global CFO in New York.
In stark terms, Coles allegedly made commitments to Mastercard to route debit volume and to hold back from doing business with Eftpos. In return, Mastercard reserved the right to terminate the agreement at any time and to impose penalties on Coles in the form of interchange and scheme fees, should it choose to do so.
Mastercard’s Uncertain Future
As the trial continues, the Australian Competition and Consumer Commission (ACCC) appears to be building a formidable case against Mastercard. If found guilty, Mastercard could be facing a substantial penalty and severe damage to its reputation.
The final verdict of the court is still awaited, but the developments so far may have significant implications for the global payments industry and how debit transaction volumes are routed in the future.
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