Visa and Mastercard have agreed to cap the so-called swipe fees they charge merchants that accept credit cards as part of a class action settlement. This is a move that could save merchants an estimated $30 billion over five years. A year-long legal battle.
Each time a customer uses one of their credit cards, Visa or Mastercard collects a swipe fee (also known as an interchange fee) to process the transaction, which they share with the card-issuing bank. Sellers pass these fees on to customers, a practice that effectively inflates prices (and may even offer discounts to customers who pay with cash).
The settlement, announced Tuesday and approved by the court, dates back to a 2005 lawsuit alleging merchants paid excessive fees to accept Visa and Mastercard credit cards.
Over the years, as more consumer spending has shifted to credit cards, processing fees have also risen. U.S. merchants paid a total of $101 billion in fees to accept Visa and Mastercard in 2023, including $72 billion in interchange fees, according to a Nielsen report that tracks the payments industry. These fees also generate profits for large banks that issue cards and indirectly pay for credit card rewards programs, which are not expected to be affected by payment transactions.
In addition to setting a cap on swipe fees (which average 2.26% of transactions, according to Nilson), Visa and Mastercard agreed to roll back posted swipe fees for all merchants by at least 0.04 percentage points for at least three years. For five years, companies will not increase fees above the rates posted at the end of last year. The system-wide average fee must be at least 0.07 percentage points lower than the current average fee, and this calculation will be verified by independent auditors.
Merchants can also adjust their prices based on the costs associated with accepting different cards, and let customers know why some cards (usually business cards and cards with more rewards and benefits) cost more than others. .
“This settlement achieves our goal of removing anticompetitive restrictions and providing immediate and meaningful cost savings to all American merchants, large and small,” Robert Eisler, co-counsel for the plaintiffs, said in a statement.
But not all sellers, especially smaller ones, are so optimistic about the proposed changes. The Merchants Payments Coalition, a trade group representing retailers, supermarkets, convenience stores, gas stations and online merchants, said the temporary fee cuts fall short of what is needed and said Congress should pass legislation to promote a more competitive market. I said it emphasizes why.
“This agreement actually does nothing to allow competitive market forces to extract fees or to change the behavior of cartels that centrally fix rates and prohibit competition,” said Christopher Jones, coalition executive committee member and senior vice president for government relations. said. National Grocers Association. “Instead, they provide tokens, provide temporary relief, and then allow card companies to raise rates again.”
Senator Richard J. Durbin, a Democrat from Illinois who has long fought to curb interchange fees, introduced a bipartisan bill in June that would require large banks that issue credit cards to process cards on at least one network other than Visa. A bill was introduced. Mastercard is part of an effort to create more options for merchants beyond the two giants of the industry.
Doug Kantor, general counsel for the National Association of Convenience Stores, said provisions of the agreement allowing merchants to charge more for credit cards that charge higher fees would be complex to enforce and would be difficult for merchants to implement. They said they would be confronting their customers.
“Even if you use it, it turns the merchant into a fee collector and makes the merchant a bad person in the eyes of the consumer. In reality, credit card companies are pressuring everyone with big fees. “Mr Kantor added.
Neither Visa nor Mastercard admitted to wrongdoing.
“This settlement concludes a long-running dispute by providing significant certainty and value to business owners, including flexibility in how they manage card program acceptance,” Rob Beard, Mastercard’s chief legal officer and general counsel, said in a statement. said.
Separately, Kim Lawrence, Visa's president of North America, said Visa “has reached an agreement with meaningful concessions that address the real pain points identified by small and medium-sized businesses.”
Ron Shevlin, chief research officer at banking consulting firm Cornerstone Advisors, said the most significant part of the deal may be the ability for smaller merchants to band together to negotiate fees as a larger group.
“This is where the door opens for things they didn’t have the power to do,” he added.