Visa and Mastercard settle swipe-fee dispute with U.S. merchants
Visa and Mastercard have reached a revised settlement with U.S. merchants concerning swipe fees, which are payments processed when consumers use credit cards. This settlement marks the conclusion of a lengthy legal battle that has lasted over two decades.
Overview of the Settlement
The revised agreement comes after a previous $30 billion settlement was rejected by a U.S. District Judge in June 2024. The judge determined that the initial offer was insufficient to significantly lower swipe fees charged to merchants.
Key Features of the Settlement
- Reduction in Swipe Fees: Visa and Mastercard must lower swipe fees by 0.1 percentage points for five years. Current rates are approximately 2% to 2.5%.
- Card Acceptance Options: Merchants can choose which categories of U.S. cards to accept, including commercial and premium consumer cards.
- Cap on Consumer Rates: Standard consumer card rates will be capped at 1.25% throughout the agreement.
- Surcharge Flexibility: Merchants gain more options to impose surcharges on credit card transactions.
Impact on Merchants and Consumers
According to the National Retail Federation, swipe fees accounted for $111.2 billion in the U.S. in 2024, highlighting the financial strain on retailers. Visa stated that the settlement would provide meaningful relief and increased flexibility for merchants of all sizes.
Mastercard emphasized that smaller retailers would particularly benefit from lower costs and simplified payment rules. However, neither company admitted to any wrongdoing as part of this settlement.
Criticisms of the Settlement
Some merchants have expressed concerns about the settlement’s effectiveness. Doug Kantor, general counsel of the National Association of Convenience Stores, noted that the agreement does not incentivize banks to lower their transaction fees. He suggested that the new terms allow Visa and Mastercard to raise their own fees without restrictions.
Merchants also highlighted the difficulties they face with the “Honor All Cards” rule, which requires acceptance of all card types from Visa and Mastercard. This limitation constrains their ability to choose lower-cost payment options.
Comparative Analysis with Canadian Settlements
In contrast, Canada reached a deal in 2023 with Visa and Mastercard that limited interchange fees to an average of 0.95%. This agreement was forecasted to save retailers approximately $1 billion over five years. However, it was criticized for benefiting primarily larger businesses, as smaller ones received little to no relief.
The Canadian class action lawsuit settlement has also allowed businesses to pass credit card fees onto customers, a practice now becoming popular in the U.S. as merchants navigate the evolving landscape of swipe fees.
As this revised settlement awaits court approval, it signals a pivotal moment in the ongoing discourse surrounding credit card processing fees, their implications for retailers, and the overall consumer payment experience.
