Visa and Mastercard reach US$30b fee deal with merchants
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The news: Card giants Visa and Mastercard have agreed to cap their credit-card swipe fees in a move that could save USD30 billion ($45.85 billion) for US merchants over the next five years.
The numbers: Merchants have grown increasingly frustrated with interchange fees which can amount to around 2% of a purchase, and totalled over USD100 billion in 2023.
The context: The settlement announced on Tuesday ends a long running antitrust case that has seen the payments giants and merchants battle over interchange fees since 2005.
Visa and Mastercard typically set the interchange fees, but banks tend to collect most of the revenue. The settlement means that the large banks including Bank of America, JP Morgan and Citi who issue cards through Visa and Mastercard are likely to incur a sizeable loss. In 2023 JP Morgan collected USD31 billion of interchange fees, which saw the bank reap USD4.8 billion in total card income after costs.
The settlement provides clarity around a number of areas of contention between the payments players, including the reduction of interchange rates (by at least four basis points for at least three years), a five-year rate cap and simplified surcharge and discounting rules.
What they said: Kim Lawrence, president, North America, at Visa said: “By negotiating directly with merchants, we have reached a settlement with meaningful concessions that address true pain points small businesses have identified. 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, chief legal officer, general counsel and head of global policy at Mastercard added: “This agreement brings closure to a long-standing dispute by delivering substantial certainty and value to business owners, including flexibility in how they manage acceptance of card programs.”
The sources: Visa press release, Mastercard press release, Bloomberg
