Uncle Sam thinks so.
In a wide-ranging antitrust lawsuit filed on Wednesday, the U.S. Department of Justice claims the two credit card giants conspired to delay smart cards for about a decade.
Smart cards are credit-card look-alikes that use an embedded computer chip -- rather than a magnetic stripe -- to store data and run small programs as well. The use of such cards has taken off in Europe and Asia, but the market has remained nascent in the United States.
Sinking smart cards
The DOJ believes the reason for the delay is clear: In the early 1980s, MasterCard considered developing smart cards -- according to the DOJ complaint -- but ditched the idea in 1987 when its executive committee refused to approve the project without Visa's agreement.
"After a decade of delay," stated the complaint, "Visa and MasterCard are now finally testing separate smart card options, though with full knowledge of each other's strategic plans."
The leading smart-card authority, The Smart Card Forum, declined to comment on the suit, as both MasterCard and Visa are members of the organization.
American Express - which aided the DOJ in collecting evidence for the suit -- wasn't as reticent.
"The lawsuit ... is a major step toward breaking the illegal stranglehold that Visa and MasterCard have had on the industry for years," said American Express in a formal release.
Yet, the DOJ's assertions have puzzled the smart-card industry.
"MasterCard and Visa have been the ones to shell out for the pilots," said one industry representative on condition of anonymity. "We are a bit surprised by the DOJ's claims."
MasterCard and Visa have more than 50 pilots worldwide -- in some cases the two are working together, in others they are not.
But the DOJ is correct that the U.S. has fallen behind in this market -- there is no doubt that Europe is far ahead of the U.S. in the use of chip-on-a-card technologies.
For example, Germany has been one of the fastest adopters of smart cards, with an estimated 40 million cards in circulation. In August, McDonald's selected VeriFone Inc. to deploy smart-card systems in 55 of its German restaurants.
"This will demonstrate to the North American market that smart cards are no longer an experiment," said VeriFone President Robin Abrams in an Interactive Week interview. "This is a real, honest-to-God rollout."
The German government has also rolled out more than 80 million cards to record patients' critical records and insurance information.
While the gap exists, few blame it on either credit-card firm.
"Visa and MasterCard are moving pretty quickly for financial institutions," said Erina Dubois, Internet commerce analyst for market researcher Dataquest. "And they do have separate products."
Right now, Visa is pushing its version of electronic cash -- Visa Cash -- while MasterCard is favoring that of its subsidiary Mondex.
Internet commerce, too?
The DOJ complaint also pointed the finger at the duopoly for delays in bringing to market a system for secure commerce over the Internet.
In October 1995, Visa and MasterCard jointly announced a system for securely buying products online, stated the complaint, but MasterCard and its member banks pressured Visa to withdraw from the alliance and work with them instead.
This allegation is supported by comments by Visa's own execs, said the DOJ complaint. "In a 1995 presentation, Visa's executive VP and general counsel, stated that if 'We had our group of banks and MasterCard had their group ... this thing would be out there already,' " said the report.