Visa and Mastercard have agreed to cap the swipe fees they charge merchants who accept their credit cards, as part of a class-action settlement that could save merchants an estimated $30 billion on five years – the latest development in almost 20 years. A year-long legal battle.
Every time a customer uses one of its credit cards, Visa or Mastercard charges a swipe fee – also called an interchange fee – for processing the transaction, which it shares with the card-issuing banks. Merchants pass these fees on to customers, a practice that effectively inflates prices (and can motivate discounts for customers paying in cash).
The settlement, which was announced Tuesday and is subject to court approval, dates back to a 2005 lawsuit filed by merchants arguing they paid excessive fees to accept Visa and Mastercard credit cards.
As consumer spending has shifted toward credit cards over the years, processing fees have also increased. To accept Visa and Mastercard, U.S. merchants paid $101 billion in total fees in 2023, including $72 billion in interchange fees, according to the Nilson report, which tracks the payments industry. The fees also generate profits for the big banks that issue the cards and indirectly fund the credit card rewards programs, which are not expected to be affected by the settlement agreement.
In addition to capping swipe fees — an average of 2.26 percent of the transaction, according to Nilson — Visa and Mastercard agreed to reduce the swipe fees posted by each merchant by at least 0.04 percentage points for at least three years. For five years, companies will not increase prices above the rates posted at the end of last year. Systemwide, the average fee must be at least 0.07 percentage points lower than the current average rate, a calculation that an independent auditor will verify.
Merchants will also be allowed to adjust their prices based on the costs associated with accepting different cards, while letting customers know why certain cards – typically business cards and those offering more rewards and benefits – cost more. expensive than others.
“This settlement achieves our goal of eliminating anticompetitive restrictions and providing immediate and significant savings to all U.S. merchants, large and small,” Robert Eisler, co-lead counsel for the plaintiffs, said in a statement.
But not all retailers, especially smaller ones, are as optimistic about the proposed changes. The temporary fee reductions are not enough to meet the need and underscore why Congress must pass legislation to promote a more competitive marketplace, the president said. Merchant Payments Coalitiona trade group representing retailers, supermarkets, convenience stores, gas stations and online merchants.
“The settlement does nothing to incentivize market forces to capture fees or change the behavior of a cartel that centrally sets rates and prohibits competition,” said Christopher Jones, a member of the executive committee of the coalition and senior vice-president of government relations within the coalition. National Grocers Association. “Instead, it tries to provide symbolic, temporary relief and then allows card companies to raise their rates again.”
Senator Richard J. Durbin, an Illinois Democrat who has long fought to control interchange fees, introduced bipartisan legislation in June, it would require major credit card-issuing banks to allow card processing on at least one network other than Visa or Mastercard, in an effort to create more options for merchants beyond the two heavyweights of the sector.
Doug Kantor, general counsel for the National Association of Convenience Stores, said settlement provisions that would allow merchants to charge more for credit cards with higher fees will be complicated to implement and pit merchants against their customers .
“Even if they use them, it makes the merchants the tax collectors for the fees – and it makes the merchants the bad guys in the eyes of the consumer, when it’s really the credit card companies that are crushing everyone when it comes to high fees,” Kantor added.
Neither Visa nor Mastercard have admitted any wrongdoing.
In a statement, Rob Beard, Mastercard’s chief legal officer and general counsel, said the agreement “brings an end to a long-standing dispute by providing substantial certainty and value to business owners, including flexibility in how they handle acceptance of card programs.”
Separately, Kim Lawrence, Visa’s president of North America, said the company had “reached an agreement with meaningful concessions that address the real issues identified by small businesses.”
Ron Shevlin, research director at Cornerstone Advisors, a banking advisory firm, said the most significant part of the deal may be the ability of small merchants to band together to negotiate fees as large groups.
“That’s where the door opened,” he added, “to something they didn’t have the power to do.”
