Visa and Mastercard have agreed to cut their US transaction fees in a landmark settlement that merchants say will save them $30 billion (€27.7 billion) over five years.
The deal, announced on Tuesday, will require the payments companies to lower the so-called swipe fees they charge sellers over the next five years.
It will also allow merchants to charge different prices to consumers based on which credit card they use.
The settlement does not include a requirement for merchants to pass on the savings from lower fees to consumers.
The agreement concludes a long-running case brought by merchants, which alleged the credit card companies inflated payment processing fees.
Lawyers for the merchants called the settlement one of the largest ever for a class-action antitrust suit, although the agreement does not require Visa and Mastercard to make payments upfront.
Instead, the companies agreed to reduce sellers’ swipe fees by at least 0.04 percentage points for a minimum of three years and to hold swipe fees at or below the rates posted at the end of last year for the next five years.
Mastercard, Visa and other credit card processors had previously agreed to pay $5.6bn to US merchants under a separate settlement, which did not cap future fees.
“These are extraordinary concessions by Visa, Mastercard and the banks,” said Jaret Seiberg, an analyst at brokerage TD Cowen, who added that the settlement could represent a threat to credit card rewards and small banks as merchants gained the ability to steer customers to preferred credit cards.
Swipe fees – otherwise known as interchange fees – have long been a point of contention between merchants and credit card companies.
Fees are set by the payment network operators, Mastercard and Visa, as a percentage of each transaction and can be as high as 3 per cent. Mastercard and Visa then split the fees received with the banks that issue the cards and the tech firms that facilitate the payments.
Merchants are currently able to charge an extra fee for consumers who use American Express cards, but Visa and Mastercard have blocked sellers from doing so for their users.
Even cards from the same issuer can carry different fees for merchants based on the rewards such as airline miles or cashback that the cards offer consumers. Merchants will for the first time be able to customers different rates for all cards, rather than being able to differentiate based only on the credit card network.
“By negotiating directly with merchants, we have reached a settlement with meaningful concessions that address true pain points small businesses have identified,” said Kim Lawrence, president of Visa North America.
Rob Beard, chief legal officer, general counsel and head of global policy at Mastercard, said: “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.”
Credit card companies have come under increasing pressure by regulators to lower the rates they charge for processing transactions.
Credit card processing fees tend to be higher in the US than in the EU, where they are capped.
Last year, UK regulators proposed to reintroduce a cap on cross-border card fees, after Mastercard and Visa ramped up charges on businesses after Brexit.
In the US, lawmakers have renewed an earlier effort to pass the Credit Card Competition Act, which would give merchants more flexibility to choose their payment networks. In October, the Fed found payment card networks in the US charged nearly $32 billion in interchange fees in 2021, up almost a fifth on the previous year.
Shares in Visa and Mastercard were trading close to flat in New York on Tuesday morning. – Copyright The Financial Times Limited 2024
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