Premium credit card users and small merchants will soon feel the impact of the decades-long battle over swipe fees.
New proposed settlement agreement visa and MasterCard could reshape the fees merchants (and ultimately consumers) pay for using their payment network, while giving stores greater flexibility to treat high-end and mid-range cards differently.
If approved by the court, the payments giant will reduce interchange fees by 0.1% over the next five years and cap standard consumer credit rates at 1.25% for eight years. It would also do away with rules requiring merchants to accept all cards from a specific network. This change could open the door for stores to decline credit card tiers, e.g. Cards with higher fees and rewards Such as Chase Sapphire Reserve or Capital One Ventures X—or further pass on costs directly to consumers.
The current system has long frustrated merchants, especially small businesses, who must decide whether to absorb rising swipe fees or pass the costs on to customers. visa and MasterCard According to statistics, credit card swipe fees will reach $111.2 billion by 2024, a 10% increase from the previous year and four times the 2009 level. national retail federation.
John Cabell, managing director of payment intelligence at JD Power, said the new initiative will make it easier for merchants to selectively add surcharges to merchants who are less price-sensitive. wealth. Premium cardholders with annual fees of more than $500 spend an average of $2,736 per month, nearly three times as much as budget cardholders. JD Power data shows that only 22% of cardholders said they would choose another payment method when faced with surcharges. This compares to 33% with no-fee cards.
But while some merchants may try to cut costs by limiting which cards they accept, doing so could alienate big spenders and undermine the lucrative rewards ecosystem that spurs consumer spending.
“Over time, if premium cards become more expensive to use at the point of sale, this type of change could lead to an upward spiral of rewards and benefits that consumers increasingly appreciate,” Cabell added. “If surcharges become more common among the mid-range and high-end credit card groups, even relatively modest credit cards may reduce the services offered.”
But others believe businesses will think twice before refusing to spend big. Brian Kelly, founder of The Points Guy said wealth He doesn’t think the potential outcome of the deal will be dramatic, since businesses could lose more revenue than they save in interchange fees if they reject the top rewards cards.
“If the settlement goes ahead, merchants may continue to charge small fees on credit card transactions, which they are already allowed to do now,” Kelly added.
Mastercard said in a statement that it believes the settlement is the best solution for all parties.
“Small merchants will benefit from this settlement – more acceptance options, reduced costs and simplified rules,” the company said in a statement. “More importantly, it allows us to focus on continuing to deliver what consumers, small businesses and large merchants have come to expect from Mastercard – a better payment experience, strong value and peace of mind.” ”
Visa notification wealth The deal will “provide meaningful relief, greater flexibility and control over how they accept payments from customers.”
Trade group says deal fails to protect merchants
Many trade groups criticized the settlement, saying it did not go far enough to protect merchants.
“Once again, this proposal is window dressing and no substance,” Stephanie Martz, chief administrative officer and general counsel of the National Retail Federation, said in a statement. statement. “The reduction in swipe fees isn’t significant enough, and changes to Honor’s all-card rules won’t do anything. If the courts can’t resolve this issue, it’s time for Congress to act.”
The National Grocers Association added that the proposed settlement does not address “anticompetitive pricing issues in the credit card industry.”
“Independent grocers with net margins below 2% have been hardest hit by rising card fees, which are rising faster than inflation and cost consumers and businesses more than $100 billion annually.” wrote Chris Jones, chief government relations officer and legal counsel, NGA.
one Previous Visa-Mastercard Agreement It was rejected earlier this year, so it remains to be seen whether this new proposal will ultimately be approved.
Lawmakers also proposed reforms on both sides of the aisle Credit Card Competition Actwhich would lower swipe fees and target the “Visa-Mastercard duopoly” by requiring secondary networks for credit cards. The measure, first proposed in 2023 and backed by then-U.S. Senator J.D. Vance, could put additional pressure on the payments giant if the settlement doesn’t satisfy regulators or merchants.