Visa, Mastercard agree to lower credit-card fees in landmark merchant settlement

By Emily Bary

Traders say the multifaceted settlement in a long-running lawsuit is one of the largest in U.S. antitrust history.

Visa Inc. and Mastercard Inc. agreed to reduce and cap credit card interchange fees as part of a landmark settlement with U.S. merchants that follows nearly two decades of litigation, the parties said Tuesday.

Through the blockbuster deal, which merchants say is one of the largest in U.S. antitrust history, Visa (V) and Mastercard (MA) will reduce published credit card interchange fees by four basis points in the United States for at least three years. The companies will also not raise interchange fees for five years above the rates in effect at the end of 2023.

While the exchange concessions are being executed behind the scenes, the companies also agreed to changes that could be more visible to consumers. For example, they have simplified surcharge rules and established new “direction” policies, through which merchants could incentivize shoppers to use specific cards.

Visa and Mastercard set interchange fees, which commercial banks pay to card-issuing banks as part of the economics of card transactions. Although Visa and Mastercard don't earn interchange fees themselves, their willingness to raise rates over the years has drawn the ire of merchants, who say the fees hurt their bottom lines, while financial services companies they make big profits.

"By negotiating directly with merchants, we have reached an agreement with significant concessions that address the real pain points that small businesses have identified," Kim Lawrence, president of Visa in North America, said in a statement.

The deal "closes a long-standing dispute by providing substantial certainty and value to business owners, including flexibility in how they manage acceptance of card programs," Mastercard Chief Legal Officer Rob Beard said in a separate statement.

The deal could mean nearly $30 billion in savings in slippage fees alone in the five years after it is approved by the courts, according to a statement issued by attorneys representing the class of traders. "Experts expect substantially larger additional savings as agreed-upon policy changes provide merchants of all sizes with new negotiating leverage against Visa and Mastercard," the statement said.

The long-standing commercial lawsuit has two components: financial damages and injunctive relief. Payment networks have largely resolved the damages component, with the exception of some merchants who opted out, but an appeals court struck down an earlier attempt to resolve the class of injunctions in 2016.

Payment networks already allowed some surcharges, but their latest agreement simplifies the rules on this and limits credit card surcharges to 1%. Consumers may already be accustomed to seeing other types of surcharges on their bills when they dine out, such as those said to cover inflation or employee health insurance.

Meanwhile, the "direction" can function as a cash inverse of the surcharge. Some gas stations, for example, have two sets of prices and offer consumers discounts for paying cash, in a practice known in the industry as steering. That phenomenon could expand in the wake of the recent agreement, which opens the door for merchants to direct users to a different card or network, although they will not be able to refuse acceptance of a customer's particular Visa or Mastercard card.

The settlement seeks to resolve a 2005 lawsuit brought by merchants who said the card networks violated antitrust rules by overcharging them for accepting credit cards.

Mastercard said in its statement that the deal is still subject to approval by the Eastern District Court of New York, and the company does not expect changes to rules and practices to take effect until the deal receives court approval, likely at late this year or early 2025.

The deal is unrelated to the Credit Card Competition Act, a bipartisan bill proposed by U.S. lawmakers that, in part, seeks to require merchants to be able to choose between at least two networks when conducting credit card transactions. While debit card transactions have more favorable economics for merchants, since debit interchange limits and routing requirements were established by the post-financial crisis Durbin amendment, more recently lawmakers have put their Look at the credit card rules.

The Credit Card Competition Act is polarizing, and some card issuers, such as airlines, say they could be forced to limit rewards to consumers if their credit card business models are upended by the new rules. Many in the financial services industry have objected. However, merchant groups say high card processing fees result in higher consumer prices for goods and services and that retailers may have to offset these costs.

-Emily Bary

This content was created by MarketWatch, operated by Dow Jones & Co. MarketWatch is published independently of Dow Jones Newswires and The Wall Street Journal.


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03-26-24 0845ET

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