- Key insights: Visa and Mastercard have offered new concessions in an effort to settle a long-running fee dispute with merchants.
- What's at stake: The deal could also change acceptance rules, giving merchants an opportunity to avoid higher priced cards.
- Forward look: A federal court will have to approve the new settlement.
Visa and Mastercard have been fighting with merchants over payment fees for decades, and the card networks are offering new concessions in an effort to bring the fight to a close.
This new offer will need approval from a court that rejected an earlier
"A deal would mark the end of an interchange lawsuit between the merchants and networks that has been running since 2005," KBW analysts said in a research note, noting that other parts of the battle, such as monetary damages for large merchants, are likely to be determined separately.
What the card networks are offering
Under a new proposed settlement, interchange fees will be lowered by 10 basis points for five years; and merchants will have expanded options to surcharge consumers that make credit card purchases, a practice that is
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 earlier 2024 agreement, Visa and Mastercard agreed to reduce posted fees by four basis points for at least three years, with a reduction of at least seven basis points below Dec. 31, 2023, levels for at least five years. A federal judge in June 2024 rejected that settlement, saying it was not enough.
The new offered settlement boosts the interchange reduction, and would allow merchants to choose to accept distinct categories of credit cards, including commercial, premium consumer and standard consumer, among others. This would dilute the co-called "Honor All Cards" rule which requires merchants to accept all cards from a brand, including more expensive premium and rewards cards. Visa and Mastercard will also produce a merchant education program about the costs of payment acceptance. In a research note, analysts at Jefferies said the 10 basis point proposal is less than its expectations, which were greater than 14, or double the 7 bps cuts in the rejected 2024 settlement.
"This should be viewed favorably [by Visa and Mastercard investors], and is well below expectations. It represents only a slightly bigger rollback than the initial [2024] settlement," Jefferies analysts said.
A matter of honor
By providing merchants with more choice in choosing how to support cards, the proposed settlement could give the merchants more leverage.
The abolition of the "Honor All Cards" rule (as proposed in the settlement) will weaken the Visa and Mastercard networks and favor the large issuing banks in the networks, especially JPMorganChase (the largest issuer), NYU Stern Professor Nicholas Economides said in an email to American Banker. "The banks will differentiate their cards from other [branded] cards by attempting to attract higher quality customers, and will also seek to become exclusive cards of large merchants," Economides said.
But there are limits to this strategy.
While the Honor All Cards rule has been a key sticking point in the dispute, loosening that requirement through segmentation may not have a substantial impact, according to KBW analysts. While merchants would not have to accept all cards for a given brand, most cards are now "rewards" cards, and creating categories of cards or making it harder to use premium or rewards cards could introduce friction, according to analysts. "We are hard-pressed to think that merchants would turn away a paying customer that wants to use a specific card and risk losing a sale, especially when they have the option to surcharge them to cover costs," KBW said.
What the two sides said
"We believe that this is the best resolution for all parties, delivering the clarity, flexibility and consumer protections that were sought in this effort. Smaller merchants will gain in this settlement," a spokesperson from Mastercard said in an email to American Banker. "They'll have more acceptance choices, reduced costs and simplified rules. Even more, it allows us to focus our energies on continuing to give consumers, small businesses and larger merchants what they expect from Mastercard – a better payment experience, strong value and peace of mind." Visa did not comment by deadline.
Merchant lobbyists were not happy with the proposal.
"This is the third attempt to settle this case and the card industry either just doesn't get it or just doesn't care," National Retail Federation Chief Administrative Officer and General Counsel Stephanie Martz said in a statement, calling for a law to enforce greater concessions from the card networks.
Martz said the one tenth of a percentage point reduction for "several years" is inadequate because it is a small fraction of the 2.35% average swipe fee charged to merchants in 2024 and equivalent to rolling back fees by only about one year, noting that swipe fees averaged 2.26% in 2023. Swipe fee rates have grown by three times as much since 2010, when they averaged 2.02%, according to the NRF.
"Once again, this proposal is all window dressing and no substance," Martz said. "The reduction in swipe fees doesn't begin to go far enough, and the change in the honor-all-cards rule would accomplish nothing. If the courts can't fix this, it's time for Congress to take action."
