Visa and Mastercard have reached a monumental $30 billion settlement with U.S. retailers, a deal set to reshape the credit card transaction fee landscape in the United States. Here’s a detailed look at what this means.
This settlement concludes a legal battle dating back to at least 2005 over interchange fees – the charges retailers pay to banks when consumers use a card to make purchases. Now, U.S. merchants are expected to save an estimated $30 billion over the next five years. Interchange fees had been a significant expense, totaling more than $100 billion last year alone
Terms of the Settlement
- Swipe Fee Reduction: Visa and Mastercard will reduce swipe fees by at least 4 basis points for a minimum of three years, with an overall systemwide swipe fee reduction of at least 7 basis points below the current average for five years.
- Retailer Flexibility: Retailers gain the ability to charge extra for using Visa or Mastercard and adjust prices based on the cost of accepting different cards, moving away from the "honor all cards" rule.
The concessions made by Visa and Mastercard are anticipated to impact the revenues of major banks such as JPMorgan Chase & Co., Bank of America Corp., and Citigroup Inc., which have traditionally benefited from interchange fee income. Despite potential impacts on bank revenues, the settlement is a boon for merchants, offering relief from the hefty financial burden associated with accepting credit card payments.
Rob Beard, general counsel at Mastercard, and Kim Lawrence, Visa’s president of North America, both emphasized the settlement’s role in providing closure and meaningful concessions that address merchants’ concerns while maintaining the integrity and benefits of card programs.
By negotiating directly with merchants, we have reached a settlement with meaningful concessions that address true pain points small businesses have identified.
This agreement brings closure to a long-standing dispute by delivering substantial certainty and value to business owners, including flexibility in how they manage acceptance of card programmes.
