Visa and Mastercard would reduce swipe rates by at least four basis points for three years and ensure an average rate that is seven basis points below the current average for five years.
Visa and Mastercard are close to achieving a settlement with US merchants that would reduce the fees stores pay to accept credit and debit cards, and give them more power to reject certain credit cards, according to people familiar with the matter.
The settlement, estimated to be around $30 billion, would limit credit and debit card fees for businesses; the savings could potentially be passed on to consumers through lower prices.
Some critics argue that these savings may be temporary and that fees would still be high.
The antitrust settlement is one of the largest in US history. It aims to resolve the claims in the nationwide litigation that started in 2005.
Merchants have accused Visa and Mastercard of charging inflated swipe fees, also known as interchange fees, and enforcing rules that prevent stores from directing customers to cheaper payment options.
Swipe fees are small fixed fees plus a percentage of each sale, ranging from 1.5% to 3.5% per transaction, according to Bankrate.com.
Under the terms of the settlement, Visa and Mastercard would reduce swipe rates by at least four basis points for three years and ensure an average rate that is seven basis points below the current average for five years.
The companies also agreed to maintain cap rates for five years and remove any anti-steering provisions, allowing the businesses to offer discounts.
The changes are expected to benefit small businesses. Visa estimated that they make up more than 90% of the settling merchants. The value of fee rollbacks and caps is worth nearly $30 billion, according to court documents. Many merchants are warning customers at checkout that they will incur additional charges when using cards instead of cash.
Despite the scale of the settlement, some critics argue that the relief is only temporary and that fees will remain high. They argue that US merchants will continue to pay some of the highest average swipe fees in the developed world. Industry groups, including the Retail Industry Leaders Association, have expressed concern that the settlement may amount to limited relief, while some merchants who opted out of previous settlements are pursuing separate lawsuits seeking damages.
The agreement requires approval by a federal judge in Brooklyn, with a decision expected no earlier than late 2024 or early 2025. Appeals could further delay its implementation.
The settlement also arrives amid calls in Congress for greater competition in the credit card processing market. Legislation such as the Credit Card Competition Act seeks to allow merchants to process Visa and Mastercard cards through other payment networks, though analysts suggest the settlement may reduce momentum behind such proposals.
Visa and Mastercard have both denied any wrongdoing in reaching the deal. The companies also agreed to pay up to $170 million in legal fees. The deal would categorize credit card payments into three types: rewards, no-rewards, and commercial cards, so that merchants can choose which types of cards they accept.
While some analysts talked about the concessions given to the merchants in the deal, such as allowing merchants to impose surcharges on certain premium cards. Some others talk about how few can take advantage of these options, such as some companies might prefer to finalize sales rather than risk deterring customers with additional fees.
The settlement was reached after a $5.6 billion class-action resolution covering millions of merchants, where some businesses opted out and continue to seek damages separately. The new agreement aims to end the long battle that started in 2005, even as debate continues over the adequacy of its relief for US merchants.
