Premium credit card users and small merchants could soon feel the effect of a decades-long battle over swipe fees.
TL;DR
- Visa and Mastercard settlement may alter credit card rewards and surcharges.
- Businesses might decline premium cards like Chase Sapphire Reserve or Capital One Venture X.
- Interchange fees could decrease, but surcharges may rise for consumers.
- Some argue the settlement offers little real benefit to merchants.
A potential agreement between Visa and Mastercard might alter the fees merchants and, by extension, shoppers incur for using their payment systems, while also granting businesses greater latitude to differentiate between premium and standard-tier cards.
Should the court give its approval, the payment companies would lower interchange fees by 0.1% for the coming five years and set a limit of 1.25% on standard consumer credit rates for an eight-year period. Additionally, they would eliminate a regulation that mandates merchants accept all cards from a specific network. This alteration might permit businesses to decline certain credit card tiers—such as higher-fee, high-reward cards or Capital One Venture X—or to transfer costs directly to shoppers.
Merchants, particularly small enterprises, have long been vexed by the existing system, forcing them to choose between shouldering increased swipe fees or transferring those expenses to consumers. In 2024, Visa and Mastercard amassed $111.2 billion from credit card swipe fees, a 10% rise from the previous year and four times the amount recorded in 2009, as reported by National Retail Federation.
This new development allows businesses to apply surcharges more readily to customers who are less concerned about price, according to John Cabell, managing director of payments intelligence at J.D. Power, speaking to Coins2Day. Cardholders of premium cards, which have annual fees exceeding $500, typically spend $2,736 monthly, almost triple the amount spent by those with less expensive cards. J.D. Power data indicates that a mere 22% of these premium cardholders opt for different payment methods when a surcharge is present. This contrasts with 33% of individuals holding no-fee cards.
However, some retailers may consider reducing expenses by restricting the credit cards they take, but this action might drive away high-spending customers and interfere with the profitable rewards system that encourages consumer purchases.
“Over time, if premium cards become even more expensive to use at the point of sale, this type of change might reign in the upward spiral of rewards and benefits that consumers have grown to appreciate,” Cabell added. “Even relatively modest cards might see a reduction in offerings as well if surcharges become generally more prevalent with mid-tier and premium card groupings.”
However, some contend that retailers will hesitate to reject significant purchasers. Brian Kelly, founder of The Points Guy, informed Coins2Day that he didn't anticipate the agreement's possible outcomes to be substantial, as businesses that decline premium rewards cards would probably forfeit more income than they'd save on interchange fees.
“If this settlement proceeds, merchants may continue adding small fees for credit card transactions, which they’re already allowed to do today,” Kelly added.
In a statement, Mastercard said they believe the settlement is the best solution for all parties.
“Smaller merchants will gain in this settlement – more acceptance choices, reduced costs and simplified rules,” the company said in a statement. Even more, it allows us to focus our energies on continuing to give consumers, small businesses and larger merchants what they expect from Mastercard – a better payments experience, strong value and peace of mind.”
Visa told Coins2Day the deal would “provide meaningful relief, more flexibility and options to control how they accept payments from their customers.”
The trade group contends the agreement doesn't safeguard retailers.
Many trade groups criticized the settlement, arguing it doesn’t go far enough to protect merchants.
“Once again, this proposal is all window dressing and no substance,” National Retail Federation Chief Administrative Officer and General Counsel Stephanie Martz said in a statement. “The reduction in swipe fees doesn’t begin to go far enough, and the change in the honor-all-cards rule would accomplish nothing. If the courts can’t fix this, it’s time for Congress to take action.”
The National Grocers Association added that the proposed settlement does not address the “anticompetitive price-setting in the credit card industry.”
“Independent grocers, operating on net margins of less than 2%, have been hit hardest by rising swipe fees, which grow faster than inflation and cost consumers and businesses over $100 billion annually,” wrote Chris Jones, NGA chief government relations officer and counsel.
A previous Visa-Mastercard agreement was denied earlier this year, so it remains to be seen if this new proposal will ultimately be approved.
Lawmakers have also proposed reforms via the bipartisan Credit Card Competition Act, aiming to decrease swipe fees and address the “Visa-Mastercard duopoly” by mandating secondary networks for credit cards. This proposal, initially presented in 2023 with support from then-U.S. Senator J.D. Vance, might increase pressure on payment companies if the settlement fails to appease regulators or merchants.