Key Highlights
- Visa and Mastercard reached a $200 billion deal to lower credit-card interchange fees charged to merchants.
- The proposed reduction would drop average interchange fees by 0.1 percentage point over five years, with standard credit card fees dropping to 1.25% for eight years.
- Merchants and consumer groups are skeptical about the benefits of the deal.
- Merchant trade groups claim the plan does not significantly reduce costs and could lead to confusion at checkouts.
The $200 Billion Deal: Visa and Mastercard’s Effort to Resolve Long-Standing Dispute
In a significant development in the credit card industry, Visa and Mastercard have agreed on a settlement that could lower interchange fees charged to merchants by a total of $200 billion over time. This deal aims to address a long-standing dispute between the two largest credit card processing firms and their merchant clients.
Interchange Fees: What Are They and Why Do They Matter?
Whenever you use your credit card to make a purchase, merchants must pay a fee known as an interchange fee. These fees are charged by banks issuing the cards and credit card networks like Visa and Mastercard for processing payments through their networks. The fees can vary based on several factors including the type of merchant, payment technology used, whether the transaction is online or in person, and the specific credit card.
Details of the Proposed Settlement
The settlement proposed by Visa and Mastercard would see a reduction in average interchange fees from 2% to 2.1%, dropping by 0.1 percentage point over five years. For standard credit cards, these fees are expected to drop to 1.25%. Additionally, merchants will gain more flexibility in terms of surcharging options, and the controversial “Honor All Cards” rule will be eliminated.
According to Richard Hunt, executive chairman of the Electronics Payments Coalition, which includes Visa, Mastercard, Bank of America, Capital One, Chase, and Citibank, this settlement could save merchants $200 billion over its term. However, the plan still needs court approval and may face further scrutiny from merchant trade groups.
Merchant Groups Skeptical: “Smoke and Mirrors”?
Despite Visa and Mastercard’s claims of significant savings for both consumers and merchants, many merchant groups are not convinced. Lyle Beckwith, senior vice president of government relations at the National Association of Convenience Stores, warned that this proposed settlement is merely a facade with no real benefits.
“No one should be fooled by the credit card industry’s smoke and mirrors,” said Lyle Beckwith, senior vice president of government relations at the National Association of Convenience Stores. “This proposed settlement endorses business as usual, including by letting Visa and Mastercard increase their own fees without any restraints.”
Austen Jensen from the Retail Industry Leaders Association echoed these concerns, emphasizing that consumers would not see significant savings even with the reduced interchange fees.
“The plan to limit interchange fees by only a small fraction does not offset the increases that have occurred over the past several years – let alone the last two decades,” said Austen Jensen from RILA. “This proposed settlement endorses business as usual, including by letting Visa and Mastercard increase their own fees without any limits.”
Historical Context of the Dispute
The current dispute between Visa, Mastercard, and merchants dates back to 2005 when a group of retailers sued the two largest credit card processing firms over alleged antitrust violations. The litigation has been ongoing for nearly two decades, with multiple failed settlement attempts.
Two significant attempts at settlement were made in recent years:
- In 2016, an appeals court overturned a $7.25 billion settlement due to conflicts of interest among the lawyers representing merchants.
- In 2024, a judge rejected a $30 billion plan that would have lowered swipe fees by about 0.07 percentage points over five years and allowed surcharging flexibility but found it insufficient in terms of overall cost reduction for merchants.
Despite the numerous attempts, Visa and Mastercard continue to negotiate with various merchant trade groups, hoping to reach a final agreement that will be accepted by both parties and ultimately approved by a court.
The Future: Is This Third Time a Charm?
While the settlement is yet to be finalized, some industry insiders remain optimistic. Richard Hunt of the Electronics Payments Coalition sees potential in this latest proposal, noting that it could significantly reduce costs for both merchants and consumers if approved by the court.
“Not everyone’s happy so it’s probably a great deal,” said Richard Hunt. “It’s very compelling.”
However, the road ahead is uncertain, with numerous challenges and potential obstacles that could delay or even prevent this latest settlement from becoming a reality.
In conclusion, while Visa and Mastercard have made significant strides in their ongoing efforts to resolve decades-long litigation over credit card interchange fees, the path forward remains fraught with uncertainty. As the court reviews this latest $200 billion deal, only time will tell whether it marks the end of this long-standing dispute or if yet another attempt at a settlement will fall short.
