Visa and Mastercard agreed to limit the so-called wire transfer fees they charge merchants who accept their credit cards, as part of a class-action settlement that could save merchants about $30 billion over five years, the latest development in nearly 20 years. -Year of legal battle.
Each time a customer uses one of your credit cards, Visa or Mastercard charges a transfer fee (also called an interchange fee) to process the transaction, which it shares with the card-issuing banks. Merchants pass those fees on to customers, a practice that effectively inflates prices (and may encourage discounts to be offered to cash-paying customers).
The settlement, which was announced Tuesday and is subject to court approval, dates back to a 2005 lawsuit filed by merchants who argued they paid excessive fees to accept Visa and Mastercard credit cards.
As consumer spending has shifted toward credit cards over the years, processing fees have also increased. To accept Visa and Mastercard, U.S. merchants paid $101 billion in total fees in 2023, including $72 billion in interchange fees, according to the Nilson Report, which tracks the payments industry. The fees also generate profits for the big banks that issue the cards and indirectly pay for credit card rewards programs, which are not expected to be affected by the deal.
In addition to capping wire transfer fees (an average of 2.26 percent of the transaction, according to Nilson), Visa and Mastercard agreed to reduce each merchant's posted wire transfer fee by at least 0.04 percentage points. for at least three years. For five years, companies will not increase rates above the rates published at the end of last year. Systemwide, the average rate must be at least 0.07 percentage points below the current average rate, a calculation that will be verified by an independent auditor.
Merchants will also be allowed to adjust their prices based on the costs associated with accepting different cards, while also informing customers why some cards (typically business cards and those with more rewards and perks) cost more than others.
“This settlement achieves our goal of eliminating anticompetitive restrictions and providing immediate and significant savings to all American merchants, small and large,” Robert Eisler, co-lead counsel for the plaintiffs, said in a statement.
But not all merchants, especially smaller ones, are as optimistic about the proposed changes. Temporary rate reductions fall short of what is needed and underscore why Congress needs to pass legislation to promote a more competitive market, the Merchant Payments Coalitiona trade group representing retailers, supermarkets, convenience stores, gas stations and online merchants.
“The agreement does nothing to get competitive market forces to enforce tariffs or change the behavior of a cartel that centrally sets tariffs and prohibits competition,” said Christopher Jones, a member of the coalition's executive committee and senior vice president of relations. governments of the National Association of Grocers. “Instead, it attempts to provide symbolic, temporary relief and then allows card companies to raise rates once again.”
Senator Richard J. Durbin, an Illinois Democrat who has long fought to keep interchange fees in check, introduced bipartisan legislation In June, that would require big credit card-issuing banks to allow cards to be processed on at least one other network besides Visa or Mastercard, in an effort to create more options for merchants beyond the two heavyweights. of the industry.
Doug Kantor, general counsel for the National Association of Convenience Stores, said provisions of the settlement that would allow merchants to charge more for credit cards that carry higher fees will be complicated to implement and will pit merchants against their customers.
“Even if they use them, that turns merchants into tax collectors, and it makes merchants the bad guys in the eyes of the consumer, when in reality it's the credit card companies that are squeezing everyone out when it comes to high rates. ”Kantor added.
Neither Visa nor Mastercard admitted any wrongdoing.
In a statement, Mastercard Chief Legal Officer and General Counsel Rob Beard said 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.
Separately, Kim Lawrence, Visa's president of North America, said the company had “reached an agreement with significant concessions that address real pain points that small businesses have identified.”
Ron Shevlin, director of research at Cornerstone Advisors, a banking consultancy, said the most significant part of the deal could be the ability for smaller traders to band together to negotiate fees as large groups.
“This is where the door has been opened,” he added, “to something they didn't have the power to do.”
