Visa, Mastercard, and the largest credit card issuing banks in the US have agreed to a settlement with merchants who had been suing them for nearly two decades over the fees charged for swiping credit cards. The settlement stipulates that the credit card networks and banks reduce the fees that merchants must pay to accept credit cards. These fees, often referred to as swipe or interchange fees, average around 2%.
The agreement would lower all rates by 0.04 percentage points for three years and the average rate across the networks by 0.07 percentage points for five years. The legal team that negotiated the deal for the merchants said this would eliminate fees worth $30 billion over five years. Last year, the networks and banks collected a total of $72 billion in interchange fees, according to the card data company Nilson Report.
The proposed agreement would create some changes to give merchants more choices in accepting cards by allowing them to steer consumers toward cards with lower fees. It would also enable small businesses to band together to negotiate swipe fees, similar to what large retailers already do.
The agreement requires approval by a federal judge in Brooklyn, N.Y. Previous agreements dragged on for years through judgments and appeals, which could also happen with this pact due to the wide range of involved traders and their different opinions.
Doug Kantor, General Counsel of the National Association of Convenience Stores, said the agreement offers only modest relief without truly addressing the core issue of the alleged fixing of swipe fees by Visa and Mastercard with the banks. "I would expect that there will be a lot of resistance from merchants against this settlement," said Kantor.
Visa announced on Tuesday that it is making significant concessions to small businesses. Mastercard said the agreement would bring closure and value to business owners. The legal team representing the plaintiff merchants said the proposed settlement would provide immediate relief from fees and help eliminate restrictions on their businesses.
Merchants filed this controversial class action against Visa, Mastercard, and banks in 2005. They claimed that the card network companies and banks conspired to keep interchange fees high. Interchange fees are set by the card network companies. Merchants pay these fees to the banks whenever consumers use credit cards to purchase goods and services. Although individually small, they add up to billions of dollars annually.
The merchants wanted the ability to negotiate fees directly with the banks. Visa, Mastercard, and the banks have already settled part of the lawsuit and agreed to pay the merchants nearly $6 billion. Last year, an appeals court confirmed this settlement. The new proposed agreement aims to address the remaining aspects of the lawsuit, where retailers wanted to address what they termed the anti-competitive nature of the card networks.
Visa and Mastercard face further challenges regarding their dominance in the card industry. U.S. senators are pushing for legislation that allows merchants to process Visa and Mastercard credit cards through other payment networks.
