Payment Wars: The Merchant-Bank Struggle for the Control of Payment Systems

Adam J. Levitin, Georgetown University Law Center

Abstract

In recent years, the cost to merchants of accepting credit cards has risen dramatically without any corresponding new benefits. This trend has sparked a wide-ranging struggle between merchants and banks, as merchants have begun to seek greater control over payment systems. The conflict is playing itself out in business practices, banking regulation, IPOs, corporate governance, corporate restructuring, bank mergers, and the largest private antitrust litigation in U.S. history.

This article reviews the factors behind the struggle between merchants and banks and the strategies adopted by each, and uses the framework of the merchant-bank struggle to reevaluate the relationship between banking and commerce. The article argues that the extraordinary transactional and litigation energy being spent in this fight is likely for naught. Ultimately, the growth of national bank brands, technological developments, and innovative business models will independently result in a radical reshaping of the payments world that could ease merchant-bank tensions.