Visa and Mastercard Reach $30 Billion Agreement to Lower Fees for Merchants

Card payment giants, Visa and Mastercard, have reached an around $30 billion settlement that will trim credit and debit card fees for merchants.

The $30 billion is an antitrust settlement that could potentially resolve litigation claims that started in 2005. The settlement is currently awaiting court approval, and if approved, it will become among the largest antitrust settlements in US history.

JUST IN: VISA & MASTERCARD REACH $30 BILLION SWIPE-FEE DEAL.

This is one of the most significant antitrust settlements ever.

Seeking to end a legal fight that spanned almost two decades.

Visa and Mastercard have agreed to cap credit-card swipe fees.

Saving merchants at... pic.twitter.com/fmBRzstMM0

- Genevieve Roch-Decter, CFA (@GRDecter) March 26, 2024

The settlement will go towards lowering the swipe fees payable by merchants whenever customers pay with their Visa or Mastercard. The fees will be reduced by $30 billion for five years.

Tussle Between Visa, Mastercard, and Merchants

The settlement is part of a lengthy tussle between merchants, Visa and Mastercard. Merchants have accused the card payment companies of imposing high swipe fees and interchange fees whenever shoppers use credit and debit cards.

The merchants also said that Visa and Mastercard have been violating competition laws by preventing shoppers from seeking cheaper means of payment. As part of the settlement, the two card networks have agreed to make shoppers aware of other options. However, they disagreed with any wrongdoing.

The payment companies will spend around $29.79 billion on rolling back the fees. Visa and Mastercard will trim the interchange rates by four basis points, which is around 0.04 percentage points in the US, for three years. The card companies will also lower cap rates gradually for five years.

According to some reports, this settlement could be beneficial to merchants as it will increase their freedom to manage their customers using competitive prices. The initiative could also increase the savings that merchants can make substantially.

The settlement could also benefit customers in the long run, as merchants will have to set competitive prices. Such an initiative will see customers enjoying lower prices in the long run.

However, another analogy suggests that customers will still feel the pain of high fees despite the settlement.

Cardholders Will Not Necessarily Enjoy Lower Fees

Merchants have previously argued that Visa and Mastercard's anti-steering provisions and high fees have affected their ability to retain customers. However, the $30 billion settlement does not guarantee that consumers will save money with lower fees.

This settlement will give merchants more freedom over the fees charged to customers. For instance, they will have the ability to impose surcharges on consumers. Visa and Mastercard often save consumers from such charges using cashback and airline miles, but if the settlement passes, this privilege is not guaranteed.

Customers with credit card rewards and who use small banks might also be affected. As the anti-steering provisions will no longer be in place, merchants will likely urge customers to use preferred credit cards causing cardholders to forego any rewards they might have on their existing cards.

Visa and Mastercard Dominance under Scrutiny

The $30 billion settlement deal proposed by Visa and Mastercard comes as the two card companies face scrutiny from US legislators because of their market dominance. A bipartisan group of US lawmakers has proposed laws that will force the largest US banks to work with two card processors instead of a single one.

Under the proposal, banks cannot work with both Visa and Mastercard. Merchants are being urged to support this proposal despite the recent settlement deal. According to Republican Representative, Patrick McHenry, the recent settlement was a better solution than forced legislation.

This is welcome news.

Legislation isn't always as practical as commercial or private sector solutions.https://t.co/uTlV3O1J0w

- Patrick McHenry (@PatrickMcHenry) March 26, 2024

Just last year, the federal appeals court in Manhattan supported a $5.6 billion class action lawsuit targeting Visa and Mastercard. The lawsuit included around 12 million merchants, but a majority of them were displeased and opted to file individual lawsuits seeking damages.

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