Visa and Mastercard Settle for $30 Billion Over Card Fees
In a landmark decision, Visa (V.N) and Mastercard (MA.N) have agreed to a monumental $30 billion settlement, marking a significant shift in the credit and debit card fee structure for merchants. This agreement is poised to introduce a wave of savings that could potentially trickle down to consumers, manifesting in reduced prices for goods and services.
The settlement, which stands as one of the largest antitrust agreements in U.S. history, aims to put an end to a long-standing legal battle that commenced in 2005. Merchants have consistently argued that both Visa and Mastercard have been imposing excessively high swipe fees, also known as interchange fees, whenever consumers opted to pay using their credit or debit cards. Additionally, merchants were restricted by “anti-steering” rules that prevented them from guiding customers towards alternative payment methods that incurred lower fees.
As part of the settlement disclosed on Tuesday, Visa and Mastercard have consented to a reduction in interchange rates by four basis points (0.04 percentage points) across the United States for a duration of three years. Furthermore, they have agreed to implement a cap on these rates for five years. In a move to foster greater competition, both card networks will also eliminate anti-steering provisions. Despite settling, Visa and Mastercard have not admitted to any form of wrongdoing.
The fee reductions and caps are estimated to be valued at $29.79 billion, as per the court documents. Visa has highlighted that small businesses represent the majority of the merchants involved in the settlement, accounting for over 90 percent. Nobel Prize-winning economist Joseph Stiglitz, who was brought in as an expert by the merchants, stated in his affidavit that the settlement would significantly increase merchants’ ability to competitively price their products, potentially resulting in “very substantial” savings.
Stiglitz further emphasized that competitive dynamics among merchants typically lead to cost savings being extended to customers through lower pricing. This sentiment echoes the outcome of last year’s federal appeals court ruling in Manhattan, which upheld a separate $5.6 billion class-action settlement involving Visa and Mastercard that included approximately 12 million merchants. That particular settlement, however, did not address the specific fee structures imposed by the card networks nor did it encompass all retailers.
