Visa and Mastercard have agreed to cap the swipe fees they charge to merchants who accept their credit cards as part of a class-action settlement, potentially saving merchants $30 billion over five years. This agreement is the latest development in a nearly two-decade legal battle.
Every time a customer uses a Visa or Mastercard credit card, the company collects a swipe fee for processing the transaction, which is shared with the banks issuing the cards. Merchants pass these fees on to customers, leading to inflated prices, and potentially discounts for customers paying with cash.
The settlement, announced on Tuesday pending court approval, stems from a 2005 lawsuit by merchants claiming excessive fees to accept the credit cards. As consumer spending with credit cards has risen over the years, processing fees have also increased. In 2023, U.S. merchants paid a total of $101 billion in fees, including $72 billion in interchange fees, according to the Nilson Report.
The agreement sets a cap on swipe fees, averaging 2.26% of the transaction amount, with Visa and Mastercard committing to reduce posted swipe fees for merchants by at least 0.04 percentage points for three years. The companies agreed not to increase fees beyond the rates from the previous year for five years.
Merchants will be allowed to adjust prices based on the costs of accepting different cards, informing customers of any extra charges for specific cards. Robert Eisler, co-lead counsel for the plaintiffs, believes that this settlement will provide significant savings for all U.S. merchants.
However, not all merchants, especially smaller ones, are optimistic about these changes. The Merchants Payments Coalition criticizes the settlement for providing only temporary relief and calls for legislative action to promote a more competitive marketplace.
Senator Richard J. Durbin introduced bipartisan legislation to require big banks issuing credit cards to allow processing on networks besides Visa and Mastercard. Doug Kantor from the National Association of Convenience Stores highlighted the complexities of merchants raising prices based on card fees.
Visa and Mastercard did not admit any wrongdoing in the settlement. Both companies emphasized the value and flexibility the agreement provides small businesses.
Ron Shevlin from Cornerstone Advisors believes smaller merchants will benefit from the ability to negotiate fees collectively in larger groups.
