Why there's no end to Visa and Mastercard's fee battles with merchants

• Key insight: A judge approved Visa and Mastercard's interchange-fee settlement with merchants. 
• What's at stake: The settlement would lower fees and provide merchants with more options in categorizing cards, potentially enabling merchants to choose to support lower-cost cards.
• Forward look: Analysts predict the settlement may not be fully finalized until 2029 while legal cases continue. 

Visa and Mastercard made some progress this week in a battle with merchants over payment fees that has been going on for at least 21 years. But a conclusion is still far off. 

Brooklyn-based U.S. Judge Brian Cogan has given preliminary approval to the most recent attempt at a settlement, adding final approval is likely. Cogan's ruling follows an earlier court rejection of a prior 2024 settlement. 

At first glance, the new settlement and the judge's approval made the card networks happier than the merchants. 

In an email, Mastercard said "We are pleased the court granted preliminary approval and look forward to moving closer to final closure of this matter. We believe that this agreement delivers on the expectations of the court and balances the interests of all parties involved." Visa did not return a request for comment, but has expressed support for the new settlement in the past. 

Merchant lobbyists see it differently. 

"The National Retail Federation is disappointed by today's preliminary approval of the proposed Visa and Mastercard settlement. Retailers continue to face excessive and ever-increasing swipe fees in a broken payments market that lacks competition," the NRF said in a statement. "The proposed settlement offers no meaningful relief and leaves intact the underlying system that enables Visa and Mastercard to dictate the rules and costs that merchants and consumers must bear. We look forward to reviewing the court's order and participating in the next phase of the proceedings.

What's in the settlement

The card networks negotiated the settlement as part of a long-standing class action lawsuit that covers about 12 million merchants. That suit is not directly connected to the lobbyists, which are separately pushing for fee concessions. 

Visa and Mastercard have agreed to lower interchange fees by 10 basis points for a five year period, while capping consumer rates at $1.25% for eight years, a boost from the earlier settlement's four basis point cut for three years. Interchange fees vary based on card type, but are usually between $1.50 and more than $2.00 for some premium cards.

The card networks do not collect or charge interchange, but set rates that inform the fees banks charge each other for card payments to cover the cost of card issuance and processing. These fees are passed onto merchants and usually consumers. 

Under the new settlement, merchants can also choose to place cards in different categories, including commercial, premium and standard cards, which carry different costs for merchants. This is a key concession to merchants, which will no longer be bound by an "honor all cards" rule that requires stores to accept all of a card brand's cards or none. 

Merchants also get more flexibility to levy surcharges on consumers, a risky but popular option for merchants looking to offset the cost of accepting cards.

The impact of the interchange settlement as announced would be "some incremental interchange leverage" due to the loss of the honor- all-cards rule and steering of consumers to lower-cost or merchant-branded alternatives, according to KeyBanc's research.

"Surcharging could add risk to network volume leakage if successful, but will have to be balanced against consumer reactions and healthy ongoing co-brand partnerships," KeyBanc said in a research note, adding Visa and Mastercard will benefit from better certainty in their litigation outlooks.

What's next

The timeline for resolution is unclear. Keefe, Bruyette & Woods predicts a final approval and decision late in 2026 or early 2027. There will be a formal objection period for merchants and a follow-up hearing. KBW also predicts a "lengthy" appeal process will follow, driven by large merchants. This could push final implementation of the settlement's terms to 2029, assuming those terms  are in place after appeals are exhausted.

"The presiding court, which will oversee any further developments, has ruled that the concessions made by the networks are sufficient," KBW analysts said. Lobbyists slammed the judge's move.

"The National Grocers Association is disappointed that the court has chosen not to address the reasonable concerns raised by objectors and improve the proposed B2 settlement in a way that would meaningfully increase competition and reduce swipe fees for merchants and consumers," the NGA said in a statement.

The Merchant Payments Coalition said the "vast majority" of merchants opposed the proposed settlement, adding it expects more objections to be filed. Doug Kantor, who is an MPC executive committee member as well as National Association of Convenience Stores general counsel, said that the group's hope the judge doesn't grant final approval "and that merchants will have their day in court."

The Merchant Payments Coalition on Wednesday also released the results of a poll that the MPC contends show that voters want Congress to reduce swipe fees, part of a push for the Credit Card Competition Act, which would require bank-issued credit cards to offer merchants at least two credit card network options, at least one of which cannot be Visa or Mastercard. 

The lobbyist released the poll on Wednesday following the veto of a fee reduction bill in Colorado and a federal judge's rejection of a similar law in Illinois.

"In this divisive political climate, it's striking that three-quarters of American voters, including super-majorities of voters of every political persuasion, agree that Congress should stop credit card companies from picking their pockets with every swipe," Kantor said in a release.