Visa and MasterCard reach swipe-fee deal with merchants in the US

Visa and MasterCard announced a revised settlement with merchants who accused the card networks of charging too much to accept their credit cards, after a judge rejected an earlier US$30 billion settlement as inadequate.

Monday’s agreement will end 20 years of litigation where the businesses accused Visa, MasterCard and banks of conspiring to violate U.S. antitrust laws, including the collection of “swipe fees” by the card networks to process transactions.

The agreement, which requires court approval, calls for Visa and MasterCard to reduce swipe fees, now typically around two percent to 2.5 percent, by 0.1 percentage points for five years.

Merchants will be allowed to choose whether to accept US cards in specific categories, including commercial cards, premium consumer cards – including many popular “rewards” cards – and standard consumer cards.

Standard consumer rates will remain capped at 1.25 per cent until the agreement expires. Merchants will also have more options to charge surcharges when people pay with credit cards.

Also known as interchange fees, swipe fees are expected to reach $111.2 billion in the United States in 2024, up from $100.8 billion in 2023 and quadruple the level in 2009, according to the National Retail Federation, the largest retail trade group in the United States.

Visa said the agreement provides merchants of “all sizes” with “meaningful relief, greater flexibility and options to control how they accept payments from their customers.”

Mastercard said smaller merchants in particular would benefit from greater flexibility, lower costs and simpler rules, with businesses and consumers enjoying an “improved payments experience”.

Neither company admitted wrongdoing in agreeing to the settlement.

Traders criticized the agreement

The settlement comes after US District Judge Margo Brody in Brooklyn rejected a $30 billion deal due in June 2024.

That agreement would reduce swipe fees by about 0.07 percentage points over five years, and also give merchants more room to charge surcharges.

But the judge said the fees will remain high, and the $6 billion annual savings for merchants is “modest” compared to what Visa and MasterCard can still charge.

He also faulted the agreement for tying merchants to the “Honor All Cards” rule, which required that they accept all Visa and MasterCard cards, or none at all.

Merchants have long accused Visa and MasterCard of enforcing “anti-steering” rules that prevent businesses from directing customers toward cheaper means of payment.

Doug Kantor, general counsel for the National Association of Convenience Stores, said the agreement does not give banks an incentive to lower the rates they charge, while it allows Visa and MasterCard to raise their rates “without any limits.”

He also said merchants cannot easily turn away rewards card holders, whose share of credit cards is more than 80 percent.

“Merchants can’t afford to say no to most cards,” Kantor said in an interview.

Canada has already reached an agreement

Government in 2023each made a deal Limiting interchange fees with Visa and MasterCard to an average of 0.95 percent. Earlier, the fees paid by businesses for each transaction was around 1.4 percent.

At the time, the government said it expected the deal to save retailers about $1 billion over five years. But small business owners criticized the deal because it only applies to businesses that process a certain dollar amount of their sales through Visa or MasterCard, which they say limits savings for small businesses.

The settlement of the 2022 class action lawsuit between Canadian businesses and two card companies also clears the way for businesses Transfer charges to customers With surcharge. The fee was capped at 2.4 percent and businesses had to explain the fee to customers.

The class action also saw Visa and MasterCard agree to refund millions of dollars to the companies for years of swipe fees.