Now that a federal judge has officially rejected the $30 billion swipe-fee settlement between Mastercard, Visa, and retailers, the credit card processors will likely have to make more concessions to merchants. The case is now expected to go to trial, where retailers anticipate securing a more favorable settlement than the one recently dismissed.
The lawsuit, initiated nearly 20 years ago, has prompted this latest development. “Mastercard and Visa made a good-faith effort to resolve this longstanding issue,” said Brian Riley, Co-Head of Payments at Javelin Strategy & Research. “Unfortunately, Judge Brodie derailed the plans, which will extend this issue.”
The proposed settlement involved Mastercard and Visa reducing their credit card interchange fees by 0.04 percentage points in the U.S. over a three-year period, while also agreeing to refrain from raising these swipe fees for the next five years. The card companies denied any wrongdoing but agreed to remove anti-competitive restrictions, allowing merchants to promote alternative card options to customers going forward.
These changes would have saved merchants $30 billion over the next five years, according to a statement issued by their lawyers. For context, Visa and Mastercard’s swipe fees hit a record high of $100.77 billion in 2023, according to the Merchants Payments Coalition (MPC).
However, merchant groups anticipate a more favorable outcome through a trial. “Going to trial is what we expect and what we absolutely want,” Doug Kantor, General Counsel for the National Association of Convenience Stores, told Digital Transactions.
The Battles Ahead
One key concern was that the settlement required merchants who advertised acceptance of branded card to accept all cards from that brand. The National Retail Federation is hoping to free merchants from that requirement. Certain card types, particularly those offering airline miles, cashback, or other consumer rewards, impose higher swipe fees on merchants.
In return, the proposed settlement would have allowed merchants the option to impose surcharges on customers depending on the type of card used. These surcharges would likely have affected cardholders who benefit from rewards such as cashback and airline miles.
The upended settlement may also provoke a bit of a battle between large and small retailers.
“One challenge for merchants here is will the new settlement benefit large retailers at the expense of main street merchants,” said Riley. “Large merchants have market power and can easily shift future decisions to benefit their interests.”