Visa, MC settle antitrust lawsuit over merchant swipe fees

small business credit card swipe fees settled

By Jeff Domansky, Managing Editor

Visa and Mastercard reached a landmark antitrust settlement with US merchants, ending a protracted legal battle. The agreement aims to cap credit card fees for five years for retailers, potentially saving American merchants tens of billions of dollars.

Various merchant and retail business groups had battled in court with the credit card companies for nearly two decades. Some big retailers in the litigation included Home Depot, 7-Eleven and Starbucks.

Key elements of the agreement

Here’s how the agreement act could impact various players:

Fee reduction: The settlement will reduce credit and debit “swipe” or interchange card fees for merchants, potentially leading to lower consumer prices. It also provides a cap on increases for three to five years. This move is expected to enhance affordability and encourage more transactions.
Estimated savings: Over the next five years, the settlement could result in as much as $30 billion in retailer fee savings. This substantial reduction in transaction costs is a significant win for merchants.
Merchant empowerment: Businesses can now apply for rebates on swipe fees charged on credit card transactions dating back two decades.
Consumer impact: While the settlement doesn’t directly alter fees, it allows merchants to pass credit card fees on to customers. Starting this fall, consumers may see surcharges for credit card payments. However, this move is expected to be rare, as most merchants will likely absorb the fees.
Visa and Mastercard perspective: The settlement reflects the continued commoditization of transaction fees and increased competition for credit card giants and issuing banks. It underscores the growing importance of value-added services such as rewards programs in their business models.
Government stance: The US government has pledged to reduce credit card processing fees for small and medium-sized businesses. However, progress to date is limited.

Retail industry & advocacy response

While pleased with some elements of the agreement, merchant and consumer advocates still see the need for future government limitations on anti-competitive rate-setting practices by the credit card giants.

“The end of anti steering provisions in the Visa/Mastercard settlement will fully unlock the ability for merchants to surcharge customers. The checkout experience will become more confusing as a result, and consumers should expect extra fees for using premium rewards or points cards,” said Eric Shoykhet, CEO of Link Money. “With the true cost of expensive cards being borne by the customer, there will likely be a shift in usage toward emerging low-cost payment methods like Pay by Bank.”

“While this settlement is a step in the right direction and will provide a limited amount of short-term relief to small businesses, it does not solve the long-term anti-competitive rate-setting practices that are the root of this problem,” said Jeff Brabant, vice president of federal government relations at the National Federation of Independent Business, a small-business advocacy group. “As long as the credit card networks, Visa and Mastercard, get to set the interchange rates for every bank that issues a credit card, anti-competitive pricing will remain, and small businesses will continue to pay artificially high rates.”

The reduced swipe fees that could come from the settlement aren’t much of a game-changer for merchants, National Retail Federation’s chief administrative officer and general counsel, Stephanie Martz, said in a statement to CNN. The saving would amount “to pennies on the dollar,” Martz added.

Visa, Mastercard impact

In 2018, the two credit card leaders paid $6.2 billion to settle a lawsuit brought against them by 19 large retail merchants. Another sentiment cost the two companies $5.54 billion to resolve a dispute in favor of 18 million merchants who accepted Visa and Mastercard payments between 2004 and 2019.

According to court documents, the settlement is worth $29.79 billion, and Visa believes more than 90% of the merchants settling are small businesses. Both Visa and Mastercard denied any wrongdoing in the settlement.

“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, North America, Visa. “Importantly, we are making these concessions while also maintaining the safety, security, innovation, protections, rewards and access to credit that are so important to millions of Americans and our economy.”

“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 programs,” said Rob Beard, Chief Legal Officer, General Counsel and Head of Global Policy at Mastercard.

“As the court reviews the settlement, we will focus our energy on continuing to provide consumers, small businesses and all business owners what they expect from Mastercard – a better payments experience, strong value and peace of mind,” Beard added.

This settlement is subject to final approval by the Eastern District Court of New York, but the fight over swipe fees is far from over in the US. On March 22, American Express was hit with a Rhode Island class-action lawsuit accusing it of overcharging 5,155 US merchants and antitrust violations.

US government wants more

government regulators of credit card fees

This settlement represents a significant shift in the credit card landscape, benefiting merchants and consumers. For Visa and Mastercard it provides short-term pain relief, but long-term questions about whether the US government will continue its push for further merchant fees relief and stronger oversight and regulations.

“At a time when hard-working Americans and small business owners are struggling with higher costs of everyday essentials like gas and groceries, reducing the cost of swipe fees should be welcome news. However, I fear that this deal only provides temporary concessions negotiated by a few lawyers behind closed doors,” said Dick Durbin(D-IL), Chair of the Senate Judiciary Committee and the lead sponsor of the Credit Card Competition Act.

The Senate Judiciary Committee estimates businesses paid more than $100 billion on swipe fees for Visa and Mastercard alone in 2023.

“Today’s news solidifies that it is time to pass my bipartisan, bicameral legislation—the Credit Card Competition Act—to enhance competition between credit card networks and ultimately lower costs for small businesses and consumers. We need to bring real competition to the credit card industry. My bill ensures that the Visa-Mastercard duopoly ends their price gouging tactics that disproportionately hurt American families and small businesses,” Durbin added.

When it comes to merchant swipe fees, the payments industry is definitely not in Kansas anymore!