Visa, Mastercard reach $30 bn deal with US retailers
Settlement over swipe fees set to end a two-decade-long legal battle
Visa Inc and Mastercard Inc agreed to cap credit-card swipe fees — a deal that US merchants say will save them at least $30 billion over five years — in one of the most significant antitrust settlements ever as they seek to end a legal fight that spanned almost two decades.
The deal, which is subject to court approval, also would allow retailers to charge consumers extra at checkout for using Visa or Mastercard credit cards and use pricing tactics to steer customers to lower-cost cards, according to a statement on Tuesday from attorneys representing the merchants.
“This settlement achieves our goal of eliminating anti-competitive restraints and providing immediate and meaningful savings to all US merchants, small and large,” Robert Eisler, co-lead counsel for the plaintiffs, said in the statement.
The legal fight over credit card swipe fees dates back to at least 2005 — before both Visa and Mastercard were spun off from the banks that owned them to become publicly traded companies. The fees, also known as interchange, are a key driver of profit for cardissuing banks and they are the primary mechanism used to fund popular rewards programs.
In recent years, merchants have grown increasingly vocal about their opposition to these fees, which typically amount to about 2 per cent of a purchase and totalled more than $100 billion last year. While Visa and Mastercard set the level of these fees, it’s the banks that issue the cards that actually collect most of that revenue.
That means banks including Jpmorgan Chase & Co, Bank of America Corp and Citigroup Inc that issue cards with Visa and Mastercard are likely to take a hit with these concessions. Jpmorgan, the biggest US bank, collected $31 billion of interchange and merchant processing income last year, leading to total card income of $4.8 billion after it accounted for customer rewards, payments to partner companies and other costs.
Terms of settlement
As part of the settlement, Visa and Mastercard agreed to reduce the swipe fees they charge each merchant by at least 4 basis points for at least three years, lawyers for the retailers said. And, for a period of five years, the average systemwide swipe fee for both networks must be at least 7 basis points below the current average, subject to review by an independent auditor.