The Nilson Report, a payments industry research firm, has been tracking the growth and evolution of the global market from a U.S. perch for more than half a century. In a wide-ranging interview, Nilson Report Publisher David Robertson shared his outlook for how Visa and Mastercard are likely to continue dominating the U.S. market, even as the industry evolves in different ways in other parts of the world.

During the March interview, Robertson, who also owns the firm, discussed how the networks have confronted new digital competitors, and incorporated rivals’ approaches. He also explained how industry dynamics may change in the future, as the networks face merchants pressing for lower interchange fees.

The networks are already slowly losing some leverage in a battle over fees, he said. A pending federal court decision on a proposed settlement of litigation that has been waged between the networks and merchants for more than 20 years could ultimately lead to significantly lower fees. If the court rejects the settlement, the networks may be pushed to negotiate more “comprehensive” changes, he predicted.  

Editor’s note: This interview has been edited for clarity and brevity.

PAYMENTS DIVE: Do you see the big card networks, Visa and Mastercard, adopting 21st-century digital tools and partnerships in ways that would perpetuate their dominance, or are those legacy networks being undercut by new rivals, such as Stripe and Block’s Cash App?

DAVID ROBERTSON: If you're thinking of purely digital transactions, that completely disintermediate a plastic card, then first and foremost, you have Apple Pay, Samsung Pay and Google Pay. And when you think about those [digital] wallets, those transactions are going through the Visa network or the Mastercard network, after they are authorized, or even as they are authorized. So, Visa and Mastercard are not losing any business that way.

On the horizon in the United States is the possibility of account-to-account payments, which would disintermediate both card networks, and they would be over the Automated Clearing House network. But that's not happening in America yet.

It's so cheap right now to send a transaction through Visa and Mastercard that using the ACH is not that much of a cheaper alternative. It will matter, really, for the Walmarts of the world and others that do massive amounts of transactions with debit cards…but to midsize merchants and small merchants, account-to-account payments is really not going to matter

So, it seems the predictions of this digital competition disintermediating the card networks just hasn't happened.

It’s premature in the United States. It will be true in Asia, in Europe, in Latin America, but in the United States, it's very hard to change endemic behavior where the system is not broken. You have a situation where Visa and Mastercard are extraordinarily efficient, and, of course, in the main, we are a credit society, and so you don't disintermediate Visa and Mastercard on the credit side, ever, because that's bank money. The disintermediation, should it occur, and perhaps it will, to a degree, occurs on the debit side, when we're paying with our own money, and that will allow for bank account-to-bank account payments.

The Europeans have a political ax to grind with Americans, and they want to get a Europe-only payment system going. In Asia, it's already so fragmented that Visa and Mastercard never really became the bedrock upon which payments were built.

Walmart has been pushing for years to create an alternative to the card networks. How far along are they in that campaign?

What Walmart has is the consumer's ear and the ability to offer an incentive to migrate behavior. So, I do expect that once the tech backend is built out completely for Walmart across the United States, it will be able to educate consumers efficiently about bank account to bank account payments. 

Are these big retailers getting more leverage with Visa, and the bank issuers, or having less?

Incrementally more. There's been a steady softening of price with these large retailers as their scale just commands more attention, right? And when someone has scale, you can also have your infrastructure handle them in a way that's even cheaper. So, they deserve it in terms of the volume, but they also are sending so many transactions through the system that you can process them less expensively.

Do you think it’s possible that the Credit Card Competition Act will be passed?

I don't think that will happen, but it might. Obviously putting a cap on interchange rates is possible. It was once done for debit, but that was on the backend of the banking industry collapsing. I don't think that merchants have the same clout in Washington that they once did. So, while I think there's a massive lobbying effort afoot, it's also true that financial institutions have a massive lobbying effort afoot. It's a battle between the titans there. I do think what happens is that the battle will be decided between the titans out of court, and also out of politics.

That raises the issue of the networks’ federal court settlement with the merchants. How do you see that playing out? 

If the settlement in the merchant class action suit is rejected again by the judge, which might happen, then I think you have a situation in which Visa and Mastercard have to decide to really reduce prices in a way that they have not previously done. And even what they have on the table now is a framework for price reduction. It's not, as Walmart points out, truly comprehensive price reduction.