The Department of Justice (DoJ) claims that Visa and Mastercard stifled competition in the credit and debit card market to such an extent that the US has lagged behind in the adoption of smartcard technology.
This is one of the main arguments in the antitrust lawsuit brought by the DoJ against credit card giants Visa USA and Mastercard, which began this week.
Of prime concern to the DoJ are Visa's and MasterCard's bylaws that prevent a bank that issues their cards from issuing any cards of competitors.
The DoJ argues that these circumstances have left these two firms with no incentive to compete with each other while rival credit card firms, such as American Express and Discover Card, have had a more difficult time finding banks to issue their cards.
As a result, smartcard technology has not received the level of investment it has seen in Europe, claims the DoJ.
Competitive rivalry promotes the deployment of new technology by vendors, said the DoJ, claiming that because the two companies stifled that competition, US smartcard technology suffered.
Although Visa and MasterCard have spent heavily to develop and pilot smartcards in the US, during the summer Olympics in Atlanta in 1996 for example, US consumers did not adopt these initiatives widely.
Analysts say the reason for this remains unclear, but the sophistication of US smartcard technology is not the problem.
In Europe, high telecoms rates have contributed to the use of smartcards because the extra information carried on them lessens the need for merchants to dial into central data stores. Lower US telecoms rates have removed that pressure.
"Other possibilities for lack of smartcard adoption in the US may include poor execution, consumers' indifference or a lack of competitive pressure," said Annemarie Earley, financial services market systems analyst at Gartner.
"In this era of the internet and globalisation, financial service providers should recognise that in order to maintain their market positions, competitiveness and advancement in technology are mandatory," she added.
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