The two card giants have been battling merchants since 2005, with their previous settlement proposals denied by a US judge to be insufficient.
Visa and Mastercard are reportedly close to agreeing a settlement with US merchants to lower their credit card interchange fees, according to the Wall Street Journal (WSJ).
People close to the matter, cited by WSJ, revealed the two card giants have proposed lowering their interchange fees by an average of a tenth of a percentage point (0.1%) over several years.
Visa and Mastercard charge between 2%-2.5% for every transaction processed.
Both companies have also committed to relax rules on merchants to only accept one network credit card method and instead, accept all forms of credit card payments.
This would mean the US credit card sector would be divided into several categories depending on how the merchant chooses to accept a payment. These categories include payments for reward and loyalty cards, non-reward and loyalty cards, and commercial cards.
Surcharging, where extra fees are attached to a transaction to cover specific costs such as credit card processing, have also been proposed as part of the settlement.
Countries such as the UK have banned surcharging in order to “protect customers from hidden fees”.
Visa and Mastercard have denied any wrongdoing as part of the settlement process.
A 20-year battle nearly finalised?
The potential settlement agreement would bring an end to a 20-year legal battle between US merchants, Visa and Mastercard.
The class-action lawsuit was first lodged against the two payment companies in 2005 by merchants and trade associations for allegedly fixing interchange fees, as well as partaking in other anti-competitive practices.
In 2018, litigation continued over certain aspects of the lawsuit pertaining to the pricing of interchange fees but Visa and Mastercard offered a substantial settlement fee. This $30bn settlement was later announced in March 2024, with Visa and Mastercard also proposing to lower the interchange fees, cap rates, and enable merchants to attach surcharges onto credit card payments.
However, the proposed settlement was rejected by US federal judge Margo Brodie, citing that more money could be saved by US merchants beyond the $30bn Visa and Mastercard were offering.
Brodie was also not satisfied with both companies’ attempts to reduce the alleged anti-steering techniques used to steer merchants away from smaller, cheaper payment methods.
While the 2005 lawsuit has yet to be currently settled, Mastercard have settled other cases related to its handling over its interchange fees.
In February, representative Walter Merricks CBE settled with Mastercard for £200m for European merchants after the company was found to have breached the European Union’s Article 101 of its Treaty, which prohibits direct or indirect fixing of prices of trading conditions.
What the new settlement means for US merchants
Under the new proposed changes, for example, a $100 payment would charge $1.90, saving just $0.10 for the merchant. However, for larger payments, merchants stand to save more money.
For payments as much as $10,000, merchants can save $10 over the next several years if interchange fees are reduced to 1.9%.
While on the surface this may not seem like merchants are saving a substantial amount than previously, the long-term benefits could help small and medium-sized businesses scale in the next several years.
To put this into context, a mid-sized e-commerce merchant generating $25m in card sales annually would save upwards of $25,000 per-year if the interchange fee is reduced from 2.25% to 2.15%, with annual card fees being reduced from $562,500 to $537,500.
Other proposals such as the categorisation of credit card payments may also provide merchants the ability to view great insight into consumer behaviour and preferences, which could help them strategise new consumer rewards and loyalty offerings.
