Princeton-based electronic payment processor Heartland Payment Systems is suing a competitor, alleging that Mercury Payment Systems is deceptively inflating fees on merchants, among other things. Mercury, based in Durango, Colo., denies the charges.
Heartland alleges in a federal lawsuit that Mercury is misleading merchant customers by hiding "excess" profits through inflated interchange fees that are charged by credit card brands and their issuing banks, violating the Lanham Act and related California laws.
The Mercer County company said the suit seeks to stop Mercury's "routine deceptive" pricing practices and "recover full value for each merchant and prospect Mercury has wrongfully taken from Heartland by deceptively falsifying pass-through interchange costs and other illegal methods."
Interchange fees are charges levied on merchants by credit and debit card issuers – the issuing banks plus card brands such as Visa and Mastercard. The fees are set by the card brands and are typically adjusted twice a year, according to Heartland.
Payment processors like Heartland and Mercury provide the link between businesses and card-issuing banks, enabling rapid approval or rejection after a card is swiped.
Heartland says it provides a transparent pricing system that enables merchants to see all fees separately on a line-by-line basis, making clearer what the issuers and processors charge. But Heartland claims that Mercury illegally builds their markup into what they purport to be interchange fees, charging customers "inflated interchange fees without disclosure."
Heartland CEO Robert Carr said the company wants to end "falsely inflated interchange billing and other deceptive practices that harm our customers as well as the payment processing industry."
"Aside from putting a stop to Mercury's deceptive, illegal practices, our ultimate objective with this lawsuit is to help ensure a level competitive playing field in the electronic payment processing industry to provide fair, honest services to merchants, regardless of their size or financial sophistication," Carr said in a statement.
Mercury CEO Matt Taylor denied the allegations, telling a Durango newspaper that Heartland historically uses the court system to fight competitors. Taylor questioned the timing of the suit, given that Mercury is preparing an initial public offering.
"Mercury will vigorously defend against the lawsuit filed by Heartland," the company said in a statement. "Mercury Payment Systems' rapid growth in the electronic payments market is directly attributable to the value and flexibility we provide our merchants and partners, and we stand by our business and pricing practices.
Heartland filed the lawsuit Jan. 29 in United States District Court in Northern District of California, San Francisco division. It charges Mercury with false advertising, unfair competition, intentional interference with contractual relations, and intentional interference with prospective economic advantage.
Founded in 1997, Heartland reports about $2 billion in annual revenue and employs about 3,000. Its top customers are restaurants, retail shops and liquor and convenience stores.