Visa and Mastercard Settle Antitrust Case, Signaling Lower Swipe Fees for Merchants
Visa, Mastercard, and Banks Settle a Decade-long Antitrust Case, Lowering Swipe Fees for Merchants
In a landmark development, two of the world's largest credit card networks, Visa and Mastercard, and the banks that issue cards with them have agreed to settle a protracted antitrust case initiated by merchants. The settlement, announced Tuesday morning, is poised to significantly reduce swipe fees merchants pay when customers make purchases using Visa or Mastercard, amounting to a staggering $30 billion reduction over five years.
The settlement, applicable solely to US merchants, stems from a lawsuit filed in 2005, reflecting a lengthy legal battle that has finally culminated in this agreement. However, the settlement's finalisation hinges on the US District Court's approval for the Eastern District of New York. It may still be subject to appeals, potentially prolonging the resolution process.
Swipe fees, which typically cost merchants around 2% of the total transaction and can soar up to 4% for premium rewards cards, have long been a point of contention for retailers. The settlement aims to alleviate this burden by reducing swipe fees by at least 0.04 percentage points for at least three years. For the subsequent five years, Visa and Mastercard must maintain swipe fee rates as of December 31, 2023.
Despite the significant reduction in swipe fees, the settlement does not necessarily translate into direct consumer savings. Merchants now have the authority to impose surcharges on customers using Visa or Mastercard cards that offer rewards such as cashback or airline miles. Conversely, some cardholders may benefit from discounts negotiated by merchants with banks for preferred card usage.
Visa and Mastercard have assured their cardholders that the settlement will not affect their rewards or credit access. However, industry experts like Jaret Seiberg of TD Cowen foresee potential disruptions in the credit card rewards system and the competitive balance among banks. This is because merchants may now steer customers towards preferred credit cards, potentially disadvantaging smaller financial institutions.
The settlement arrives amidst separate legislative efforts to curb Visa and Mastercard's dominance, proposing new laws requiring credit card issuers to collaborate with multiple processors. While some lawmakers support these legislative measures, others, like Republican Rep. Patrick McHenry, view the settlement as a pragmatic solution, suggesting that legislative interventions may not always be as practical as private-sector initiatives.
Tuesday's announcement coincides with recent industry developments, including a proposed merger between Discover and Capital One, which, according to analysts, may face increased scrutiny in light of the settlement's implications for the credit card landscape.
Shares of Visa and Mastercard experienced slight upticks following the settlement's announcement, reflecting market optimism regarding the agreement's potential impact on the financial sector.