Visa and Mastercard Agree to Monumental $30 Billion Settlement Over Card Fees

New York, March 26  – In a landmark decision poised to reshape the payment landscape, Visa and Mastercard have reached an estimated $30 billion settlement, aiming to lower merchant credit and debit card fees significantly. This move may also benefit consumers with lower retail prices.

Announced on Tuesday, this antitrust settlement is one of the largest in U.S. history. Pending court approval, it promises to address the bulk of claims from a sprawling litigation saga in 2005. Despite its scope, some critics question the settlement’s long-term effectiveness, fearing that the relief for merchants might be only temporary and fees could remain higher.

For years, merchants have criticized the two payment giants for their “swipe fees” or interchange fees — additional costs incurred whenever a shopper uses a credit or debit card. These fees range from 1.5% to 3.5% per transaction and are said to be inflated by anti-steering rules that prevent merchants from recommending cheaper payment alternatives to customers.

Under the new settlement terms, Visa and Mastercard have agreed to cut their swipe rates by at least four basis points (0.04 percentage points) for the next three years, ensuring an average rate seven basis points below the current for five years. This adjustment, coupled with removing anti-steering provisions, grants merchants greater freedom to offer discounts or impose surcharges on higher-fee cards — a move many businesses caution could lead to higher costs for card-using customers.

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According to court documents, this package of fee rollbacks and caps, valued at $29.79 billion, is seen as a significant win for small businesses, which Visa estimates make up more than 90% of the merchants set to benefit from the agreement. Both card networks have denied any wrongdoing in settling, with Visa’s North American president, Kim Lawrence, and Mastercard General Counsel, Rob Baird, highlighting the deal’s ability to address core concerns and provide substantial business certainty.

Despite the historic nature of the agreement, it has not been without its detractors. Following a previous $5.6 billion class-action settlement upheld by a federal appeals court, some merchants have continued to seek damages independently. Critics like Adam Levitin, a law and finance professor at Georgetown University, argue that the settlement falls short, leaving U.S. merchants with the world’s highest swipe fees. The National Association of Convenience Stores and the Retail Industry Leaders Association have also expressed scepticism, viewing the settlement as insufficient relative to the scale of merchant losses.

Moreover, the settlement has sparked discussions beyond the courtroom. TD Cowen analyst Jaret Seiberg suggested that smaller banks and credit unions might resist, fearing that significant retailers could negotiate lower-fee cards directly with larger banks. Nonetheless, Nobel Prize-winning economist Joseph Stiglitz, representing the merchants, sees the deal as a potential source of significant savings for businesses — savings that are likely to trickle down to consumers in the form of lower prices.

As part of the agreement, Visa and Mastercard will cover up to $170 million in legal fees and expenses for the plaintiffs. The settlement also intersects with legislative efforts, notably the Credit Card Competition Act, which aims to broaden the processing options for Visa and Mastercard credit cards. Analysts believe this settlement could impact the momentum behind such regulatory changes.

With U.S. District Judge Margo Brodie’s approval in Brooklyn still pending — a process not expected to conclude before late 2024 or early 2025 — and potential appeals on the horizon, the full impact of this landmark settlement remains to be seen. However, it unmistakably marks a significant step towards addressing long-standing issues within the payment processing ecosystem.

Related: UK Fraud Surges, Reaching £2.3 Billion in 2023, Reveals Report

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