Visa and Mastercard settle swipe fees with merchants

Visa and Mastercard Settle Swipe Fee Dispute

Visa and Mastercard have come to an agreement to end a prolonged conflict concerning “swipe fees.” However, retailers and restaurants are expressing concerns that the deal falls short of what is needed.

Scott Detrow, host, mentions that Visa and Mastercard have a settlement regarding the swipe fees, which businesses pay each time a customer makes a purchase with a card. While these fees can start at around $1, they can quickly accumulate. NPR’s Scott Horsley joins the conversation.

Horsley shares insight into the fees involved. Whenever someone uses a credit card at places like coffee shops or gas stations, part of that payment goes to the bank that issued the card, as well as to Visa and Mastercard, which operate the payment systems. Typically, these swipe fees hover around 2.3%. It may not seem significant, but collectively, businesses incurred well over $100 billion in such fees last year—especially burdensome for many since the pandemic shifted consumer habits toward using cards for smaller purchases.

Horsley recalls talking to Victor Garcia, who runs an ice cream shop in Fort Worth, Texas. Although many customers initially paid with cash, credit card usage has been increasing, pushing those swipe fees higher.

Garcia remarked that customers are often surprised when they realize their cashless choices lead to higher costs, often associating it with rewards points rather than the real implications of swipe fees.

Detrow asks for clarity on the settlement’s purpose, to which Horsley responds that it seeks to settle a 20-year-old lawsuit alleging anti-competitive behavior by credit card companies. However, the settlement is not guaranteed to pass, as previous attempts have fallen through. Beyond the lawsuit, the deal does not fundamentally address the ongoing economic conflict. Retailers believe the proposed fee reduction is minimal and only slightly expands their ability to choose which credit cards to accept.

Detrow is curious about the rationale behind wanting that flexibility. Horsley explains that different cards come with varying swipe fees, often influenced by the rewards they offer. Various cards might provide cash back or travel points, but those rewards typically increase swipe fees. Consequently, a high-reward card could incur fees that are double those of a regular card, potentially forcing businesses to adjust their prices to cover those costs.

In response to the settlement, merchants could refuse certain high-fee cards, but it’s uncertain if businesses will take that risk, possibly risking lost sales.

Detrow wonders about alternative solutions. Horsley notes that some businesses are now adding extra fees for credit card payments to encourage customers to opt for debit cards instead, which carry regulated, lower swipe fees. Moreover, some lawmakers are advocating for more competition in this area, though card companies have so far maintained their competitive edge.

Horsley shares a personal experience about a recent car repair, where he opted to pay by check, knowing about swipe fees. The mechanic typically doesn’t accept checks but made an exception to avoid the fee.