NEW YORK — Visa and MasterCard announced a settlement with U.S. merchants related to swipe fees that could potentially save American shoppers tens of billions of dollars.
Swipe fees are paid to Visa, Mastercard and other credit card companies in exchange for enabling transactions. Merchants ultimately pass on those fees to consumers who use credit or debit cards. The fees are calculated as a fixed fee plus a percentage of the sales total, typically about 1% to 3%.
Increasingly in small businesses have begun posting signs near the register warning customers that they will pay more for the same item if they do not use cash.
According to the settlement announced Tuesday, Visa and Mastercard will cap the credit interchange fees into 2030, and the companies must negotiate the fees with merchant buying groups.
The law firm which announced the settlement put the value of the savings in swipe fees at close to $30 billion.
The settlement stems from a 2005 lawsuit which alleged that merchants paid excessive fees to accept Visa and Mastercard credit cards, and that Visa and Mastercard and their member banks acted in violation of antitrust laws.
In 2018 Visa and Mastercard agreed to pay $6.2 billion as part of the long-running suit filed by a group of 19 merchants. But the lawsuit then had two pieces that need to be resolved: a dispute over the rules Visa and Mastercard impose to accept their cards, and the merchants who chose not to participate in the settlement.
Visa said Tuesday that more than 90% of the merchants in Tuesday’s settlement are small businesses. $15 million of the settlement will be allocated to merchants for education on the rule changes.
Mastercard did not acknowledge any improper conduct, which was part of the settlement, and the changes will take effects after approval of the settlement, most likely in late 2024 or early 2025.
The settlement is subject to final approval by the Eastern District Court of New York.
In early trading, Visa and Mastercard shares both edged down less than 1%.
Visa and Mastercard, two of the largest payment processing companies in the world, have reached a settlement in an antitrust lawsuit with merchants over swipe fees. The lawsuit, which has been ongoing for several years, alleged that Visa and Mastercard engaged in anti-competitive practices by setting high swipe fees that merchants were required to pay every time a customer used a credit or debit card to make a purchase.
Swipe fees, also known as interchange fees, are charges that merchants pay to credit card companies every time a customer uses a credit or debit card to make a purchase. These fees can add up quickly for businesses, especially small businesses, and can eat into their profit margins.
The settlement reached between Visa, Mastercard, and the merchants involved in the lawsuit includes several key provisions. First, Visa and Mastercard have agreed to make changes to their swipe fee practices to increase transparency and give merchants more control over the fees they pay. This includes allowing merchants to offer discounts or incentives to customers who pay with cash or debit cards, which typically have lower swipe fees than credit cards.
Additionally, Visa and Mastercard have agreed to pay a total of $6.2 billion to the merchants involved in the lawsuit. This settlement is one of the largest in antitrust history and is expected to have a significant impact on the payment processing industry.
The settlement also includes provisions for Visa and Mastercard to provide more information to merchants about the fees they charge and how they are calculated. This increased transparency is designed to help merchants better understand their costs and make more informed decisions about which payment methods to accept.
Overall, the settlement between Visa, Mastercard, and the merchants involved in the lawsuit is seen as a victory for small businesses and consumers. By increasing transparency and giving merchants more control over swipe fees, businesses will be better able to manage their costs and potentially pass savings on to customers.
In conclusion, the settlement between Visa, Mastercard, and merchants regarding swipe fees is a significant development in the payment processing industry. By addressing concerns about anti-competitive practices and increasing transparency, this settlement is expected to benefit both businesses and consumers in the long run.
