For decades, American Express (NYSE:AXP) required businesses that accepted its cards to treat all cards equally. That is, merchants had to agree that they wouldn't attempt to steer customers toward another payment method...say, a Visa (NYSE:V) card in lieu of an American Express card.

This provision was powerful. It protected AmEx from merchants who, without it, would prefer to push customers toward lower-fee Visa or MasterCard cards. After all, it's in the merchant's best interest to process payments in the lowest-cost form. American Express cards have never been the lowest cost; rather, they have almost always been the highest cost.

History provides examples where steering effectors by merchants, Visa, and MasterCard (NYSE:MA) have all proven effective at shifting market share.

A walk down memory lane
In the 1980s, American Express had a stranglehold on the travel and entertainment category -- its cards were widely accepted for the purchase of concert tickets or hotel rooms, for example. But it didn't quite have the same power in so-called "everyday" purchases, which were Visa and MasterCard's domain.

Visa and MasterCard ran masterful campaigns in an attempt to steal American Express's share of the credit card business and keep it out of "everyday" purchase categories. Visa employed a "We Prefer Visa" campaign, in which it highlighted American Express' limited acceptance as well as its higher fees for merchants. It also actively campaigned against AmEx's increasingly strict contracts, suggesting that retailers should avoid signing a contract that would force them to treat all cards equally. Visa positioned itself as a friendlier, less expensive card for retailers, to which consumers and merchants responded favorably.

American Express didn't go down without a fight. It slashed fees for merchants who sold "everyday" products even as it attempted to stiffen requirements in its contract that forbade its merchants from preferring any one card. In the end, though, the lower-cost networks earned a decisive victory. American Express's market share in charge and credit card transaction volume fell from 25% in the 1980s to 20% in 1995. Visa is estimated to have shifted 25% to 45% of American Express' card volume to its network during its "We Prefer Visa" campaign. 

MasterCard also used merchant preference to encourage customers to use its cards. MasterCard struck a deal with Travelocity in the early 2000s to steer spending to its cards. The travel website stated on its website that "Travelocity Prefers MasterCard" and the two ran an advertising campaign showing its preference.

Eventually, American Express caught wind of the promotion and forced Travelocity to shut down the program under its agreement that didn't allow its merchants to steer purchasing volume to other networks. Travelocity changed its tune by calling MasterCard its "Official Card." MasterCard saw a notable decline in the share of volume it won from Travelocity.

Fast forward to today
This history is important because it shows that steering is a highly effective way for card networks to steal competitors' share. History proves it true that Visa and MasterCard have been effective at gaining market share when their merchants can show preference for a particular network.

Likewise, credit card users have shown a willingness to use other, less expensive networks if there is a benefit for the merchant. Visa's "We Prefer Visa" campaign stands as evidence.

One key competitive advantage American Express has had until now is that it could charge above-average fees, and merchants had no power to ask its customers to use a different card. But that's changing. In a recent decision, the Department of Justice ruled that American Express' anti-steering provisions in its merchant agreement were anti-competitive.

Merchants, the DoJ decided, should be able to ask customers to use one card over another. That case is currently being appealed, which will likely stymie any efforts by networks to steer business from AmEx for the time being. If it holds up in appeal, though, American Express has a problem on its hands.

The provision that keeps merchants from protesting high-fee AmEx cards is on its way out, which could blow a gaping hole in American Express' otherwise bulletproof advantage.

Jordan Wathen has no position in any stocks mentioned. The Motley Fool owns shares of and recommends MasterCard and Visa. The Motley Fool recommends American Express. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.