Visa and Mastercard have agreed to limit the so-called swipe fees they charge merchants who accept their credit cards as part of a class-action settlement that could save merchants about $30 billion over five years — the latest development in nearly 20 -year legal battle.
Every time a customer uses one of their credit cards, Visa or Mastercard collects a swipe fee — also called an interchange fee — to process the transaction, which it shares with the card-issuing banks. Merchants pass these charges on to customers, a practice that effectively inflates prices (and can trigger discounts given to customers who pay with cash).
The settlement, announced Tuesday and subject to court approval, can be traced back to a 2005 lawsuit by merchants who claim they paid excessive fees to accept Visa and Mastercard credit cards.
As consumer spending has shifted to credit cards over the years, processing fees have also increased. To accept Visa and Mastercard, US merchants paid a total of $101 billion in 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 pay for credit card rewards programs, which are not expected to be affected by the settlement agreement.
In addition to the cap on swipe fees — an average of 2.26 percent of the transaction, according to Nilson — Visa and Mastercard agreed to cut each merchant’s posted swipe fee by at least 0.04 percentage points for at least three years . For five years, companies will not raise fees above the rates posted at the end of the previous year. Across the system, the average fee must be at least 0.07 percentage points below the current average interest rate, a calculation that will be verified by an independent auditor.
Merchants will also be able 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 with more rewards and benefits — cost more than others.
“This settlement achieves our goal of eliminating anticompetitive restraints and providing immediate and substantial savings to all American merchants, large and small,” said Robert Eisler, co-lead counsel for the plaintiffs.
But not all traders, especially smaller ones, are so optimistic about the proposed changes. The temporary fee reductions fall short of what is required and underscore why Congress must pass legislation to promote a more competitive marketplace, said the Merchants Payments Coalition, a trade group representing retailers, supermarkets, convenience stores, gas stations and online merchants.
“The settlement does nothing to actually bring competitive market forces down on fees or change the behavior of a cartel that centrally sets rates and stifles competition,” said Christopher Jones, a member of the coalition’s executive committee and senior vice president of government relations at the National Grocers Association; “Instead, it’s trying to provide subtle, temporary relief and then allow the card companies to raise rates again.”
Senator Richard J. Durbin, D-Illinois, who has long fought to keep interchange fees under control, introduced bipartisan legislation in June that would have required major banks to issue credit cards to allow the processing of cards to at least one other network besides Visa or Mastercard, in an effort to create more options for merchants beyond the two industry heavyweights.
Doug Kantor, general counsel at the National Association of Convenience Stores, said settlement provisions that would allow merchants to charge more for credit cards that have higher fees would be complicated to enforce and pit merchants against their customers.
“Even if they use them, it makes merchants the debt collectors — and it makes merchants the bad guy in the eyes of the consumer, when it’s really the credit card companies that are squeezing everyone when it comes to big charges,” Mr. Kantor added.
Neither Visa nor Mastercard admitted any wrongdoing.
In a statement, Mastercard’s chief legal officer and general counsel, Rob Beard, said the deal “closes a long-standing dispute by providing meaningful certainty and value to business owners, including flexibility in how we manage acceptance of card programs.”
Separately, Kim Lawrence, Visa’s president of North America, said the company “has reached a settlement with meaningful concessions that address real pain points that small businesses have identified.”
Ron Shevlin, chief researcher at Cornerstone Advisors, a banking consultancy, said the most important part of the deal may be the ability of smaller traders to come together to negotiate fees as large groups.
“Here the door was opened,” he added, “for something they did not have the power to do.”
