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Visa and Mastercard have agreed to settle a lawsuit aimed at lowering merchant fees.
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CNN
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Visa and Mastercard, two of the world’s largest credit card networks, and the banks that issue them have agreed to settle a decades-old antitrust lawsuit brought by their merchants.
The settlement will reduce the swipe fees merchants pay when customers make purchases using Visa or Mastercard by $30 billion over five years, according to a press release announcing the settlement Tuesday morning.
The settlement applies only to U.S. distributors and is the result of a lawsuit filed in 2005. However, nothing is considered final until approved by the United States District Court for the Eastern District of New York. Still, the case is subject to appeal, which could be a long battle.
Typically, merchants pay a swipe fee of 2% of the total transaction amount made by their customers. However, it can be up to 4% on some premium points cards, according to the National Retail Federation. The settlement will reduce these fees by at least 0.04 percentage points for at least three years.
Additionally, the settlement requires Visa and Mastercard to maintain the swipe fee rates that existed as of December 31, 2023, for five years.
NRF, a trade group representing retailers, told CNN there are “very real concerns” about the settlement.
NRF Chief Administrative Officer and General Counsel Stephanie Mertz said in a statement to CNN that the potential lower swipe fees from the settlement would not be game-changing for merchants. Mertz added that the savings “equate to pennies on the dollar.”
“The fact remains that these fees are unfair commercial practices that harm merchants and consumers and benefit banks,” she added.
Merchants have long argued that swipe fees force them to charge higher fees, but the settlement doesn’t necessarily mean consumers will save money.
The settlement allows merchants to charge additional fees based on the type of Visa or Mastercard card a customer uses. These additional fees are likely to hurt cardholders who receive benefits such as cash back and air miles. That’s because card swipe fees can be high.
On the other hand, merchants can work with banks to use what is considered a priority card, allowing some cardholders to receive discounts on goods and services.
Currently, merchants that accept Visa or Mastercard must accept all formats of both companies’ cards.
Kim Lawrence, Visa’s president of North America, said in a statement Tuesday morning that the benefits Visa cardholders currently receive will not be affected. Additionally, Americans’ access to credit will not be further restricted as a result of the settlement, she said.
Mastercard spokesman Seth Eisen told CNN that access to benefits and credit will also not be affected by the settlement.
But TD Cowen analyst Jarrett Seiberg said in a note Tuesday that the settlement “will pose a threat to credit card benefits and small banks.” That’s because he believes merchants “drive customers to the credit card of their choice.”
Smaller banks and credit unions are likely to oppose the settlement because it could put them at a significant disadvantage to larger banks, which have an easier time doing business with the nation’s largest retailers like Walmart. Seiberg added.
Separately from the settlement, a bipartisan group of lawmakers in both the House and Senate is pushing for a series of new laws aimed at curbing Visa and Mastercard’s dominance.
If the proposal passes, the largest credit card issuers, including JPMorgan Chase, Bank of America and Citibank, would work with two credit card processors instead of one. Also, the two processors he uses cannot be both Visa and Mastercard.
NRF and other trade associations representing retailers will continue to support these laws even if the settlement is completed.
But Republican Rep. Patrick McHenry, chairman of the House Financial Services Committee, hailed the settlement as “welcome news.”
“Laws are not always as practical as commercial or private sector solutions,” he wrote in his paper. post X Tuesday morning.
Tuesday’s news comes just a month after Discover (DFS) and Capital One (C.O.F.) announced merger If it is approved by financial regulators and shareholders… Japan’s largest credit card company. Seiberg said the settlement could hurt the chances of approval of the merger.
Capital One, which currently issues Visa and Mastercard cards, will likely seek to further expand its credit card customer base by connecting more transactions with merchants, he said. Ta.
visa stock (V) and mastercard (MA) The stock rose slightly after the deal was announced.
