Read the complete article from USA Today, Visa, Mastercard reach $200 billion deal over swipe fees. Will you see savings?

According to the article, Visa and Mastercard are offering to lower the fees they charge merchants to accept their credit cards to settle 20 years of litigation, but some merchant groups say it's all "smoke and mirrors" and nothing in the plan will save anyone money.

Under the $200 billion proposal, Visa and Mastercard would lower credit-card interchange fees charged to merchants to process credit cards. The fees, usually between 2 percent and 2.5 percent, would drop by 0.1 percentage point, on average, over five years while standard credit card fees would drop to 1.25 percent for eight years. Merchants would gain surcharge flexibility and those that accept one of a network’s credit cards would no longer have to accept all of them. A court still must approve the settlement.

Visa and Mastercard said the deal would lower costs for merchants and consumers, but retail trade groups scoffed, saying consumers and merchants would end up paying more.

“No one should be fooled by the credit card industry’s smoke and mirrors,” said Lyle Beckwith, senior vice president of government relations at trade group National Association of Convenience Stores. 

“This proposed settlement endorses business as usual, including by letting Visa and Mastercard increase their own fees without any restraints.”

What are Interchange Fees?

Whenever you use your credit card to make a purchase, the store must pay a behind-the-scenes interchange fee (also known as credit card fee or swipe fee) to process that payment. Most of that fee goes to the bank issuing the card, but companies like Visa and Mastercard also receive a smaller fee for processing the payment through their networks.   

Fees are charged as a percentage of the total sales amount in each transaction, but the percentage charged to each merchant, whether at a physical store or online, varies. Factors that determine what percentage the merchant is charged include: type of merchant (department store, convenience store, gas station); type of payment technology used by the merchant; whether the purchase is online or in person; and the type of card.   

Total credit and debit card swipe fees hit a record $187.2 billion last year, according to the trade group the Merchant Payments Coalition.

What Would This Deal Mean for Consumers?

The deal would save nothing for consumers, said trade groups like National Retail Federation, Merchant Payments Coalition, National Association of Convenience Stores and Retail Industry Leaders Association.

“The plan to limit interchange fees by only a small fraction does not offset the increases that have occurred over the past several years – let alone the last two decades,” said Austen Jensen, RILA’s senior vice president of public affairs.

“The miniscule reduction proposed in the settlement on bank fees could still allow Visa and Mastercard to be able to raise their own fees without any limits,” said Jennifer Hatcher, Food Industry Association chief public policy officer. “All of the supposed merchant and consumer savings could easily be canceled by Visa and Mastercard increasing their fees.”

Theoretically, consumers could also face confusion and chaos at checkouts. The deal would allow merchants to decide whether to accept credit cards in three distinct categories – commercial, premium consumer and standard consumer. If merchants choose only to accept a certain class of Visa card such as the standard, non-premium that have lower fees, customers with a rewards Visa card would be turned away.

Why Has the Dispute Lasted for 20 Years?

Litigation began in 2005 when merchants sued Visa and Mastercard over alleged antitrust violations. They accused the two largest credit card processing firms, which set interchange rates, of being a duopoly.

Merchant groups want Congress to pass the Credit Card Competition Act, which would require the largest banks to offer at least two credit card network processing options on their cards, which they said would lower fees for merchants and, ultimately, consumers. But Congress has not reintroduced the legislation this year.

Meanwhile, Visa and Mastercard have been trying to hammer out a deal with merchants in the lawsuit. 

The latest proposal is its third in two decades. The last two were:

  1. In 2016, an appeals court overturned a $7.25 billion settlement because lawyers representing the merchants had conflicts of interest.
  2. In 2024, a judge rejected a $30 billion settlement plan that would have lowered swipe fees by about 0.07 percentage points over five years and given merchants leeway to impose surcharges. The judge said fees would remain too high, and the $6 billion of annual savings for merchants was “paltry” relative to how much Visa and Mastercard could still charge. The proposal also did not eliminate the “Honor All Cards” rule requiring merchants to accept all Visa and Mastercard cards, or none.

Is the Third Time a Charm?

The settlement still needs court approval.

“It could be four months or so before we find out” whether the court accepts the settlement, said Richard Hunt, executive chairman of the Electronics Payments Coalition, whose members include Visa, Mastercard and large issuers such as Bank of America, Capital One, Chase and Citibank that support the settlement.

But he likes the chances. “Not everyone’s happy so it’s probably a great deal,” he said. “It’s very compelling,” noting merchants would save an estimated $200 billion over the term of this agreement.

“The last number a year ago was $30 billion” in savings, he said.

Discussion Questions

  1. What is a credit card “swipe” fee?
    A credit card swipe fee is a charge merchants pay every time a customer uses a credit card to make a purchase. These fees, also called interchange fees, are deducted from the transaction amount and go to the banks and credit card networks that process the payment.
  2. As indicated in the article, the proposed settlement still requires court approval. This is a settlement between two large corporations (Visa and Mastercard) and merchants. In your reasoned opinion, should a settlement between business entities require court review and approval, or should a court simply recognize the settlement based on the terms agreed to by the parties to the litigation? Explain your response.
    This is an opinion question, so student responses may vary. 
    In civil litigation, judges must approve a settlement between litigants to ensure fairness of the terms, particularly considering the relative bargaining power between the parties. In the context of a settlement between Visa, Mastercard, and merchants, Visa and Mastercard obviously have the “upper hand” in negotiating the terms of the settlement, since their credit cards as so predominant in the retail industry. According to WalletHub, Visa and Mastercard together control 77.1 percent of credit card market share (American Express controls 19.5 percent, while Discover controls 3.5 percent). 
    Quite literally, many businesses could not survive unless they were able to offer Visa and/or Mastercard purchase options to their consumers.
  3. In your reasoned opinion, will the settlement (if approved) substantively benefit consumer purchasers? Why or why not?
    This is an opinion question, so student responses may vary.
    In your author’s opinion, the consumer purchaser benefit would be marginal at best. As indicated in the article, according to the terms of the settlement, Visa and Mastercard would lower credit-card interchange fees charged to merchants to process credit cards. The fees, usually between 2 percent and 2.5 percent, would drop by 0.1 percentage point, on average, over five years. 
    Consumer savings might be better represented in pennies (which, incidentally, are no longer produced by the U.S. Mint due to their perceived triviality) rather than dollars!