Visa And Mastercard Agree to Merchant Rate Cuts and Acceptance Changes in a Major Settlement

Merchant lawsuits challenging credit card interchange and payment card network rules that began nearly two decades ago may finally be heading for resolution under a landmark settlement announced Tuesday by Visa Inc., Mastercard Inc., and lawyers for the merchants.

Merchant lawyers in the massive case estimate the settlement could save card-accepting retailers and other merchants nearly $30 billion in card-related expenses. Under the plan, Visa and Mastercard have both agreed not to increase their posted credit card interchange rates, which were effective on Dec. 31, 2023, for at least five years. The networks also agreed to lower their rates by at least four basis points, effective for no fewer than three years.

According to a legal filing, the agreement further requires each network to ensure that its average effective credit card interchange rate, including posted rates and negotiated rates, is at least seven basis points lower than the average effective credit card interchange rate for the 12-month period ending March 31, 2024. The average effective rate limit will continue for five years.

Visa and Mastercard, which did not admit to any improper conduct, also agreed to simplify their surcharging, discounting, and honor-all-cards rules, making it easier for merchants to pass on card-acceptance costs to their customers and, to some degree, choose which cards and digital wallets they’ll accept.

“At least $29.79 billion in savings will be realized in the five years following approval of the settlement from agreed-upon caps and rollbacks on credit card processing fees, or ‘swipe fees,’” says a statement from the merchant plaintiffs. “Experts expect substantially greater additional savings as the agreed-upon policy changes provide merchants of all sizes with new negotiating leverage against Visa and Mastercard. Under the proposed settlement terms, the amount of transactions eligible to be competitively priced by merchants will increase from less than 20% of transactions to 96%.”

The settlement covers millions of merchants that accepted Mastercard- and Visa-branded credit and debit cards between Dec. 18, 2020, and entry of the final judgment in court. The agreement must be approved by the U.S. District Court in Brooklyn, N.Y., where Judge Margo K. Brodie is presiding over the consolidated class-action lawsuits collectively known as MDL 1720. The networks expect court approval of the settlement either late this year or in early 2025.

“By negotiating directly with merchants, we have reached a settlement with meaningful concessions that address true pain points small businesses have identified,” Visa North America President Kim Lawrence said in a statement. “Importantly, we are making these concessions while also maintaining the safety, security, innovation, protections, rewards, and access to credit that are so important to millions of Americans and to our economy.”

Rob Beard, Mastercard’s chief legal officer and general counsel, said in a statement the “agreement brings closure to a longstanding dispute by delivering substantial certainty and value to business owners, including flexibility in how they manage acceptance of card programs.”

The agreement also will establish a $15-million fund for a program to educate merchants about the rule changes.

The settlement mostly will affect smaller merchants, which Visa says account for more than 90% of card-accepting establishments. Some large merchants opted out of the MDL 1720 negotiations and have instead pursued direct settlements with the networks over interchange and acceptance rules. In its annual report for fiscal 2023, ended Sept. 30, Visa said it had reached settlements with merchants representing approximately 72% of the Visa-branded payment card sales volume of the opt-out merchants. Mastercard said in a statement that should the new agreement be approved in court, the company “will have resolved the vast majority of all pending U.S. merchant litigations that are directed at seeking changes to the company’s interchange structure and merchant-acceptance rules.”

Some observers expressed pessimism that the settlement represents finality in a long and contentious matter between merchants and the two big card networks. “While many will breathe a sigh of relief … it’s not optimal and won’t end the forever war on payment industry fees,” notes Eric Grover, principal at Intrepid Ventures, a Minden, Nev.-based consultancy. “There will be more attempts by suits, legislation, and regulatory diktat to reduce fees and mandate terms under which payments are offered. That will suppress payments innovation and, ultimately, value.”

Details of the new settlement can be found in a lengthy document posted on the investor-relations Web sites of both Visa and Mastercard.