Visa and Mastercard have unveiled a new $38 billion settlement aimed at ending a two-decade-long battle with merchants over swipe fees for credit card transactions. The agreement is designed to address concerns about high processing fees that businesses must pay when customers use credit cards, a cost that has continued to rise year after year. The deal arrives after a previous $30 billion proposal was rejected in court for not offering enough relief to merchants.
However, the new settlement has sparked debate among retailer groups, some of whom argue it doesn’t go far enough to solve the core issues. While it promises reduced fees and new options for merchants, critics worry that the changes won’t provide sustained relief or genuine competition in the payments industry. Supporters, on the other hand, believe the move could save billions for merchants and potentially benefit everyday consumers as well.
Understanding the Settlement: What Is the Swipe Fee Battle?
Swipe fees, also known as interchange fees, are charges that merchants pay to banks every time a customer pays with a credit or debit card. Over the years, these fees have become a huge expense for businesses—reaching $111.2 billion in 2024, up from $100.8 billion the previous year and four times higher than in 2009. These rising costs have led merchants to challenge the practices of Visa , Mastercard , and major banks in court, leading to protracted legal battles.
What Does the New Settlement Include?
- Fee Reductions: Visa and Mastercard will lower the average swipe fee by 0.1 percentage point for five years. For context, swipe fees currently average about 2.35%, with most falling between 2% and 2.5%.
- Caps on Rates: For eight years, standard consumer card rates will be capped at 1.25%, marking a reduction of over 25% for merchants accepting these cards.
- Merchant Choice: The agreement allows merchants to decide which types of U.S. issued cards (commercial, rewards, or standard consumer) they want to accept.
- Surcharge Improvements: Merchants can now charge up to 3% extra when customers choose to pay with credit cards, giving them greater leverage to offset processing fees.
Impact on Merchants
Some of the largest retail groups, like the National Retail Federation and the Merchants Payments Coalition, are skeptical. They argue that while the settlement lowers some costs, rewards cards—which are more expensive for merchants—still dominate consumer spending. There is also concern about continued rules that force merchants to accept all cards from a network or none at all.
Court’s Response and Merchant Opposition
The original $30 billion settlement was rejected by a federal judge for being too small and not addressing deeper competition issues. The judge called the proposed savings “paltry” compared to what Visa and Mastercard could still collect from merchants. Many merchant groups believe that the revised settlement still fails to offer genuine negotiation power or price flexibility.
Who Supports the Settlement?
Banking groups, like the Electronic Payments Coalition—which includes large issuers such as Bank of America, Capital One, Chase , and Citibank support the agreement. They claim the deal will lower fees more effectively than current legislative proposals in the US Senate and will maintain stability in the payment system.
Expert Perspectives
According to economic experts hired by the merchants, this agreement could potentially save $38 billion by 2031 and lead to a total of $224 billion in efficiency improvements over time. These savings might eventually make their way to consumers in the form of lower prices or better services.
Key Points Table
| Feature | Details |
|---|---|
| Total Settlement Amount | $38 billion |
| Swipe Fee Reduction | 0.1 percentage point for 5 years |
| Capped Standard Rate | 1.25% for 8 years |
| Surcharge Flexibility | Up to 3% surcharge allowed |
| Potential Savings | $38 billion by 2031; $224 billion possible overall |
| Main Supporters | Bank groups, Electronic Payments Coalition |
| Main Opponents | Retail groups, Merchants Payments Coalition |
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