Visa and Mastercard Reach $30B Settlement to Lower Merchant Fees

Visa, Mastercard, and the banks that issue cards with them agreed to pay $30 billion in a lawsuit settlement that was first brought to the courts by merchants in 2005 .

In reaching a settlement, Visa and Mastercard agree to lower credit interchange rates and cap those rates into 2030 in the US, according to a Visa press release. The settlement also gives merchants greater flexibility at the point of sale (POS), including the opportunity to steer to preferred payment methods and more optionality around surcharging. It also provides funding for new programs to educate small businesses about payment acceptance options and how to best manage costs.

The settlement still needs to be approved by the U.S. District Court for the Eastern District of New York before it's finalized, according to CNN. Even then, the case can also be appealed in what could be a lengthy battle.

Total Retail's Take: According to the National Retail Federation (NRF), when consumers use a credit or debit card to make a purchase, banks and card networks like Visa and Mastercard charge retailers a hidden “swipe fee” to process the transaction. For credit cards, the fees average about 2 percent of the transaction but can be as much as 4 percent for some premium rewards cards. Fees for debit cards from the nation’s largest banks are capped by the Federal Reserve at 21 cents per transaction plus 0.05 percent of the transaction amount, but cards from small banks are exempt. Together, credit and debit card swipe fees cost retailers and their customers more than $160 billion a year.

The settlement would reduce those swipe fees by at least .04 percent, according to CNN. However, that may not be enough to appease merchants' concerns. The NRF told CNN it has some "very real concerns" with the settlement, adding that the savings would amount to "pennies on the dollar."

The Associated Press reported that small businesses have been increasingly posting signs near the POS warning customers that they'll have to pay more for the same item because of swipe fees if they don't use cash. While attention has been brought to this issue, merchants may well feel that this settlement is just the first step to additional reform when it comes to swipe fees.