Visa and Mastercard reached an estimated $30 billion settlement to limit credit and debit card fees for merchants, with some savings likely to be passed on to consumers through lower prices. Two of the world’s largest credit card networks, Visa and Mastercard, as well as the banks that issue cards with them, have agreed to settle a decadeslong class action brought upon by merchants.
Visa and Mastercard antitrust settlement is one of the largest in U.S. history, and upon court approval would resolve claims in litigation that began in 2005.
Visa and Mastercard settlement
Merchants have long accused Visa and Mastercard of charging inflated swipe fees, or interchange fees, when shoppers used credit or debit cards. Also barring shoppers through “anti-steering” rules from directing customers toward cheaper means of payment.
Under the settlement announced on Tuesday, Visa and Mastercard will reduce interchange rates by four basis points (0.04% points) in the U.S. for three years, and cap rates for five years.
Both card networks also agreed to remove anti-steering provisions. They denied wrongdoing in agreeing to do a settlement.
The fee rollbacks and caps alone are worth $29.79 billion, according to court papers, and Visa estimated that small businesses comprise more than 90% of the settling merchants.
Saving for merchants
Joseph Stiglitz, a Nobel Prize-winning economist hired by the merchants as an expert, in an affidavit said the settlement “greatly enhances merchants’ freedom to steer customers using the linchpin of competition–prices,” and could lead to “very substantial” savings for merchants.
“Competition among merchants results in these cost savings being passed on to customers in the form of lower prices,” Stiglitz added.
Last March, the federal appeals court in Manhattan upheld a related $5.6 billion class-action settlement by Visa and Mastercard and covered about 12 million merchants.
That settlement did not resolve what kinds of fees Visa and Mastercard could impose, and not all retailers were covered by it.
Settlement approval pending
However, nothing is considered finalized until it receives approval from the U.S. District Court for the Eastern District of New York. Even then, the case can also be appealed in what could be a lengthy battle.
Impact on cardholders
Although merchants have long argued that swipe fees force them to charge higher prices, the settlement would not necessarily save consumers any money.
That’s because the settlement gives merchants the ability to impose surcharges on customers, depending on what kind of Visa or Mastercard card they use. Those surcharges would likely hit cardholders who get rewards such as cash back and airline miles, since those can carry higher swipe fees.
On the other hand, some cardholders could get discounts on goods and services, since merchants would be able to make deals with banks to get them to use what they consider to be a preferred card.
Visa and Mastercard shares update
Visa shares and Mastercard shares moved slightly higher after the settlement deal was announced.
