Antitrust case settled! $30 billion over 5 years! Visa, Mastercard agree to lower fees, US merchants impacted

Visa and Mastercard reached a settlement agreement with plaintiff merchants on Tuesday, agreeing to limit credit card swipe fees. U.S. merchants stated that this would save them at least $30 billion over the next five years.

Credit card swipe fees, also known as interchange fees, are a major driver of profits for credit card issuers and a key mechanism to support credit card reward programs.

The lawsuit has been ongoing for nearly 20 years and is one of the largest antitrust settlements in recent years. As part of the settlement agreement, Visa and Mastercard have agreed to reduce the swipe fees they charge each merchant by at least 4 basis points for a minimum of three years. Additionally, over a five-year period, the average swipe fees for both credit card networks must be at least 7 basis points lower than the current average and be subject to review by an independent auditor.

Furthermore, the settlement agreement will allow retailers to charge additional fees to consumers using Visa or Mastercard at checkout, enabling merchants to adjust charges based on the cost of accepting different credit cards and use pricing strategies to encourage customers to use payment cards with lower merchant costs.

For example, consumers holding a Visa Infinite card with higher swipe fees, such as the Chase Sapphire Reserve card, may be charged more at checkout than customers using the Chase Freedom Unlimited card. Additionally, merchants will now be allowed to offer discounts to consumers using certain bank credit cards.

In recent years, opposition from merchants to swipe fees has been increasing, with these fees typically accounting for around 2% of the purchase amount, totaling over $100 billion last year. While Visa and Mastercard set these fee levels, the majority of the revenue is actually collected by the banks issuing the credit cards.

This means that banks issuing Visa and Mastercard, including JPMorgan Chase, Bank of America, and Citigroup, may be impacted by these concessions. For example, JPMorgan Chase collected $31 billion in swipe fees and merchant processing revenue last year, with total revenue of $4.8 billion after accounting for credit card rewards, payments to partner companies, and other costs.

During Tuesday's midday trading, the stock prices of JPMorgan Chase, Bank of America, Citigroup, Visa, and Mastercard all saw slight increases.

Approximately five years ago, Visa and Mastercard agreed in another settlement agreement to pay around $6 billion to millions of merchants. While that agreement resolved financial losses related to litigation, it did not address merchants' concerns about swipe fees and other issues.

Analysts believe that this latest settlement agreement should help address the pain points of merchants who dislike Visa and Mastercard's "honor all cards" rule, which stipulates that if a merchant accepts one brand of credit card, it must accept all cards from that brand. Some retailers have indicated that these rules have been a reason for the surge in swipe fees in recent years, as Visa and Mastercard have collaborated with banks to issue more cards that run on their premium networks, often resulting in higher costs for retailers.

Mastercard subsequently released a statement saying, "This agreement brings resolution to long-standing disputes by providing merchants with tangible certainty and value, including flexibility in managing their card acceptance programs."

"We have reached a settlement with meaningful concessions that address the real pain points identified by small businesses," Visa said in another statement. "Importantly, while making these concessions, we have also maintained the ability to provide security, innovation, protection, rewards, and access to credit."