A pending antitrust suit issued by the Justice Department against Visa USA Inc. and MasterCard International in regards to unfair tactics used by both companies against American Express (AMEX) could possibly throw some smaller-sized banks into the credit card securitization game down the line, sources say.
"The most likely candidates to serve as member banks for AMEX would probably be smaller or mid-sized banks who may have exited the card business or are looking to offer another product to their customers," said a credit card analyst. "It's hard to say who it would be at this point."
Currently, AMEX completes transactions under its own master trust, while Visa and MasterCard have relationships with member banks that issue their cards to consumers and securitize them. An example would be Providian Financial securitizing its credit-card portfolio that it accumulated through Visa's network. The suit alleges that Visa and MasterCard unlawfully prohibit their member banks in the U.S. from issuing cards with American Express and Discover Card.
If Visa and MasterCard are found guilty in a trial scheduled for next month in a Manhattan federal court, AMEX may find itself in a position to be able to issue cards through member banks as well.
One ratings agency source that is familiar with the situation doesn't think that there will be any direct impact on the asset-backed businesses of Discover or AMEX but that it would result in greater opportunities for both.
"What this opportunity would provide for Discover or AMEX would be to enable Discover or AMEX to sign up banks to issue cards with the Discover or AMEX brand on it," said the source.
The receivables would mostly likely be held by the member banks, not by Discover or AMEX. They wouldn't be receivables that Discover or AMEX would own or even service but Discover or AMEX would receive a portion of the interchange fee.
"Whether the partner banks choose to securitize would be another matter," said the source. "The most likely scenario would be that the partner banks would directly own the receivables."