A long-running antitrust lawsuit launched by retailers has been settled by Visa, Mastercard, and the banks that issue credit cards via them, two of the biggest credit card networks in the world.
According to a news release announcing the settlement Tuesday morning, the settlement is expected to reduce retailers’ swipe fees when customers make purchases using their Visa or Mastercard by $30 billion over five years.
Visa And Mastercard Agree To $30 Billion Settlement That Will Lower Merchant Fees
The settlement is the outcome of a lawsuit filed in 2005 and exclusively pertains to US merchants. Everything is deemed final unless the US District Court approves it for the Eastern District of New York. Even in that instance, there may be a protracted appeals process.
According to the National Retail Federation, swipe fees typically cost retailers 2% of a client’s total transaction, but they can cost as much as 4% for certain premium rewards cards. The settlement would reduce such fees by at least 0.04 percentage points for a minimum of three years.
Furthermore, the settlement calls for Visa and Mastercard to continue charging swipe fees at the same rates as of December 31, 2023, for five years.
The NRF told CNN that the trade association for retailers had “some very real concerns” about the settlement.
Stephanie Martz, the general attorney and chief administrative officer of the NRF, told CNN that the lower swipe fees that may result from the settlement won’t significantly alter the landscape for retailers. Martz continued, “The savings would amount to pennies on the dollar.”
She continued, “The fact remains that these fees are an unfair business practice that benefits banks and harms consumers and merchants.”
How the changes will affect cardholders
While retailers have long said that swipe fees compel them to raise prices, customers would not necessarily save money due to the settlement.
This is so that retailers can charge extra to clients based on the type of Visa or Mastercard they use, thanks to the settlement. Cardholders who receive benefits like cash back or airline miles would suffer as a result of those surcharges due to the potential increase in swipe costs.
Conversely, as merchants could work with banks to persuade them to use what they saw as a favored card, some cardholders might receive discounts on goods and services.
Businesses that take Visa or Mastercard must take both types of cards.
Kim Lawrence, president of Visa North America, released a statement on Tuesday morning stating that the perks that Visa cardholders enjoy will not change. Furthermore, the deal will not further restrict Americans’ access to credit.
Mastercard spokesman Seth Eisen states that the settlement will not affect rewards or credit availability.
However, TD Cowen analyst Jaret Seiberg stated in a note on Tuesday that the settlement “will represent a threat to credit card rewards and small banks.” He bases this on his suspicion that retailers will “steer customers to preferred credit cards.”
Visa And Mastercard Agree To $30 Billion Settlement That Will Lower Merchant Fees
According to Seiberg, smaller banks and credit unions are likely to oppose the settlement because it might significantly disadvantage them compared to larger banks that find it easier to negotiate with some of the biggest merchants in the country, such as Walmart.
An alternative to the recently proposed credit card legislation?
In addition to the settlement, a group of senators and representatives from both parties are advocating for new legislation that will lessen the power of Visa and Mastercard.
If the idea is approved, the biggest credit card issuers—JPMorgan Chase, Bank of America, and Citibank—would have to collaborate with two rather than just one processor. Additionally, they are unable to use both Visa and Mastercard as their processors.
Even when the settlement is finalized, NRF and other trade associations representing merchants will continue to support these rules.
However, the Republican leader of the House Financial Services Committee, Rep. Patrick McHenry, praised the settlement, calling it “welcome news.”
In a post on X on Tuesday morning, he stated that “legislation isn’t always as practical as commercial or private sector solutions.”
Visa And Mastercard Agree To $30 Billion Settlement That Will Lower Merchant Fees
The announcement on Tuesday comes just one month after Discover (DFS) and Capital One (COF) said they would merge, creating the largest credit card firm in the country if shareholders and financial regulators agreed. According to Seiberg, the settlement may make the merger more difficult to approve.
According to him, Capital One, which presently offers credit cards through Visa and Mastercard, would probably attempt to increase the number of people who use its credit cards by securing more agreements with retailers.
Following the deal’s announcement, Visa (V) and Mastercard (MA) shares slightly increased.
SOURCE – (CNN)
