Visa, Mastercard to Cut Fees, Let Retailers Reject Certain Cards

Summary

A long-running legal case involving Visa, MasterCard, and merchants is centered around the high swipe fees associated with premium cards like airline miles and cash-back cards. Merchants have historically been burdened by these fees, sometimes passing them on to consumers. A new settlement aims to give merchants more flexibility in card acceptance and potentially allow surcharges on certain cards. However, there are ongoing concerns, including objections from smaller merchants and the potential impact on American Express. With billions at stake, the deal could reshape the way card payment fees are handled in the future.

Takeaways

• 😀 The case regarding credit card swipe fees has been ongoing for over 20 years, with Visa and MasterCard facing accusations of fee-fixing that negatively impacts merchants.
• 😀 Premium credit cards, like airline miles or cash back cards, come with higher swipe fees, which are typically absorbed by merchants, leading to frustration within the industry.
• 😀 The settlement between Visa, MasterCard, and merchants aims to provide more flexibility for merchants in how they accept cards and whether they can pass on the fees to consumers.
• 😀 Some merchants, especially in New Jersey, have started offering different prices based on payment method (credit card vs. cash), with this trend spreading over the last few years.
• 😀 In states like New York, Massachusetts, and Connecticut, certain surcharges are illegal or must be clearly displayed upfront, complicating how merchants implement these fees.
• 😀 A recent settlement, announced in 2024, is attempting to address longstanding issues but faces criticism from smaller merchants and big players like Walmart who feel excluded from the process.
• 😀 The dollar amount involved in the case is massive, with Visa and MasterCard collecting $111 billion in swipe fees alone last year, accounting for 80% of the market share.
• 😀 The scope of this issue extends beyond just Visa and MasterCard, as digital wallets and other payment platforms are also increasing their market share and altering the dynamics of card payment systems.
• 😀 American Express has already settled or won similar lawsuits in the past, and its card acceptance terms differ from those of Visa and MasterCard, especially regarding surcharges.
• 😀 If the settlement goes through, it may have wider implications, potentially forcing American Express to allow surcharging if Visa and MasterCard start permitting it.
• 😀 The settlement categorizes credit cards into three types: commercial, standard customer, and premium customer cards, with the premium cards being the main focus due to their rewards and higher swipe fees.

Q & A

What is the main issue discussed in the script regarding credit card fees?

The main issue discussed is the ongoing legal case regarding swipe fees, particularly how merchants are charged for premium credit card transactions (e.g., airline miles or cash back cards), and how those fees are often passed on to consumers or absorbed by the merchants.

Why are merchants upset about the fees associated with premium credit cards?

Merchants are upset because they are required to pay high swipe fees (typically 3-4%) when customers use premium credit cards, such as those offering airline miles or cash back, and this affects their profit margins.

What changes were announced in the settlement between Visa, MasterCard, and merchants?

The settlement allows merchants more flexibility. They can choose to accept lower-tier Visa or MasterCard options, reject premium cards, or pass the higher fees on to consumers at the register.

Why is there confusion or disagreement about surcharging practices, especially in New York?

In New York, surcharging fees on credit card payments are illegal unless disclosed upfront. However, some merchants bypass this by offering discounts for cash payments instead of adding surcharges for credit card usage, creating confusion over enforcement of the law.

What happened to the settlement last year, and why did it fail?

Last year’s settlement attempt failed because smaller merchants pushed for specific terms that were not acceptable to larger retailers like Walmart. This led to disagreements over the fee structures and the overall terms of the deal.

What are the concerns raised by the National Retail Federation regarding the current settlement?

The National Retail Federation raised concerns about the new terms, particularly the lack of flexibility for businesses to choose which cards to accept, and the long-term impact of the fee concessions in the settlement.

How significant is the financial impact of credit card swipe fees in the U.S.?

The financial impact is substantial. Visa and MasterCard collect around $111 billion annually in swipe fees, and together they control about 80% of the market for these fees, highlighting the massive scale of the industry.

How do digital wallets and other payment platforms fit into the debate over credit card fees?

Visa and MasterCard are diversifying into digital wallets and other payment platforms, which adds another layer of complexity to the debate, as these new technologies could shift the dynamics of payment processing and associated fees.

How does American Express factor into this legal battle over credit card fees?

American Express has already settled a similar lawsuit in the past, and its terms are different from Visa and MasterCard. American Express does not allow surcharging for its cards unless it applies universally across all card types, raising the question of whether it will need to change its policies if Visa and MasterCard’s surcharging rules change.

What impact could this settlement have on businesses that use corporate credit cards?

The settlement could impact corporate credit card usage by dividing cards into three categories: commercial, standard customer, and premium customer cards. The primary concern is how premium card fees, particularly those tied to rewards, could affect corporate transactions and universal acceptance.