$30 billion agreement between Visa and Mastercard and US merchants

In one of the largest antitrust settlements ever, Visa Inc. and Mastercard Inc. agreed to restrict credit-card swipe fees after a nearly two-decade court battle. US retailers claim this agreement would save them at least $30 billion over the next five years.

According to a statement released on Tuesday by the merchants’ lawyers, the agreement, which is pending court approval, would also enable shops to charge customers more at the register if they choose to pay with a Visa or Mastercard credit card and to use pricing strategies to direct customers towards less expensive cards.

Robert Eisler, co-lead counsel for the plaintiffs, said in the statement, “This settlement achieves our goal of eliminating anti-competitive restraints and providing immediate and meaningful savings to all US merchants, small and large.”
Credit card advertising prior to revenue data
An advertisement for credit cards from Mastercard, Visa, and Discover was seen on a street cart in New York on October 17.

The dispute over credit card swipe fees began in court at least in 2005, prior to the separation of Mastercard and Visa from their parent banks to become publicly listed corporations. Interchange fees are a major source of income for the banks that issue credit cards and serve as the main source of funding for incentive programmes that are widely used.
Merchants’ objection to these fees, which amount to over $100 billion last year and generally represent approximately 2% of a transaction, has been more outspoken in recent years. The banks that issue the cards are the ones that really keep the majority of the income, even if Visa and Mastercard determine the amount of these fees.

This implies that banks that issue Visa and Mastercard cards, such as JPMorgan Chase & Co., Bank of America Corp., and Citigroup Inc., would probably suffer as a result of these concessions. The largest US bank, JPMorgan, brought in $31 billion in interchange and merchant processing revenue last year. After deducting payments to partner firms, customer incentives, and other expenses, the total card revenue was $4.8 billion.
At 12:22 p.m. in New York, shares of JPMorgan, Bank of America, Citigroup, Visa, and Mastercard were all marginally higher.

The Retail Industry Leaders Association released a statement saying, “Visa and Mastercard have used their duopoly to fleece retailers of all sizes for decades.” More than 200 merchants, producers, and suppliers make up the trade association, including Home Depot Inc., Apple Inc., Dollar Tree Inc., and Starbucks Corp. This settlement represents a very small amount of money. It demonstrates that retailers are entitled to injunctive relief; nonetheless, it is important to carefully consider whether the settlement conditions offered are enough to undo the damage done by the present interchange system.

The National Retail Federation’s Stephanie Martz, general counsel and chief administrative officer, said that her group is also examining the settlement’s conditions.
She released a statement saying, “The fact remains that these fees are an unfair business practice that harms consumers and merchants and benefits banks.”
Conditions of settlement

Lawyers for the businesses claimed that as part of the settlement, Visa and Mastercard committed to lowering the swipe fees they charge each merchant by at least 4 basis points for a minimum of three years. Additionally, subject to examination by an independent auditor, the average systemwide swipe cost for both networks must be at least 7 basis points lower than the existing average for a period of five years.

Now that they may charge customers for using a Visa or Mastercard, retailers will be able to modify their rates in accordance with the expense of taking various credit cards. This may imply, for example, that a client using a Chase Sapphire Reserve card, which has a higher interchange fee since it bears the Visa Infinite logo, would pay more at the register than a customer using a Chase Freedom Unlimited card.

That ought to ease a complaint among retailers who dislike the “honour all cards” policies of Visa and Mastercard, which state that a business must accept all of the brands’ cards if it takes one of the cards. According to several shops, the reason for the recent increase in interchange fees has been the result of Visa and Mastercard collaborating with banks to issue more cards that operate on their premium networks, which often come at a higher cost to retailers.

Rob Beard, general counsel and director of global policy at Mastercard, said in a statement that “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 programmes.”
Additionally, retailers are now permitted to provide customers who use certain bank cards with discounts.
About five years have passed since Visa and Mastercard made the largest-ever class-action settlement in a US antitrust dispute, agreeing to compensate millions of merchants around $6 billion.
The deal did not allay the retailers’ worries about interchange and other business practices, even while it resolved the lawsuit’s monetary damages.

Kim Lawrence, head of Visa for North America, said in a separate statement, “We have reached a settlement with meaningful concessions that address the true pain points small businesses have identified.”
Crucially, these compromises are being made without sacrificing innovation, safety, security, incentives, or credit availability.