Here in the United States, the captains of industry like to think that American business sets the standard for the rest of the world. When business in Europe, Asia and other parts of the globe thrive, it's because industries in these countries patterned their operations after ours. And when these foreign businesses founder, it's because they strayed from the model set by the United States.

Certainly that's true of American retailing, which tends to export strategies and efficiencies, but borrows relatively little from the experiences of foreign merchants.

But in one area of commerce-the regulation of consumer credit-the United States seems to be following the lead set by Europe. And if this is so, the consequences may loom large for American retail chains.

Case-in-point: Attorney General Janet Reno's announcement earlier this month that the Justice Department is filing an antitrust suit charging MasterCard and Visa with attempting to illegally lessen competition in the market for consumer credit cards.

According to the Federal complaint, both Visa and MasterCard are controlled by the same group of banks-a situation which enables these institutions to thwart competition from smaller credit card issuers, such as American Express and Discover.

Even though together Visa and MasterCard control 75% of the U.S. credit card market, the fact that both networks are under the control of the same banks is not necessarily anti-competitive.

But the Justice Department action cites other factors that suggest a collusive effort to avoid competition.

While Visa has no qualms about hammering American Express with negative advertising, for example, MasterCard and Visa do not target each other in their ad campaigns.

Moreover, the cozy relationship between the two dominant credit card companies has "slowed down the development of new card products and technologies such as smart cards, commercial cards, and systems to permit secured card transactions over the Internet," officials at the Justice Department charged.

Because of this "duality" of control over the competing credit cards, "products, services and innovations that could benefit consumers are not seriously considered or even proposed," they stated.

The Justice Department's complaint may prompt regulators in other countries to re-examine the relationships between competing credit card issuers. But not in Europe. That's because the 15-nation European Commission (EC) addressed that issue in 1996 by issuing a stern warning to Visa against setting restrictions on the right of member banks to issue rival credit cards.

In this case, the U.S. is clearly following the lead of Europe. And if Europe continues to set the pattern for regulation of consumer credit in this country, there could be significant implications for American retailers.

Indeed, the next step for the EC may be an end to the so-called "non-discrimination rule" prohibiting retailers on the continent from charging higher prices for credit card purchases than for cash transactions.

To the delight of European retailers, the commission has already served notice on the banking industry that its practice of barring merchants from charging for accepting credit cards is abusive.

The next step is up to the regulators in Brussels. But you can bet that the regulators in Washington will be watching those developments closely

COPYRIGHT 1998 Lebhar-Friedman, Inc.
COPYRIGHT 2000 Gale Group