Visa and Mastercard agree to $30 billion settlement that will lower merchant fees

New York (CNN) — Two of the world’s largest credit card networks, Visa and Mastercard, as well as the banks that issue cards with them, have agreed to settle a decadeslong antitrust case brought upon by merchants.

The settlement is set to lower swipe fees merchants pay when customers make purchases using their Visa or Mastercard by $30 billion over five years, according to a press release announcing the settlement Tuesday morning.

The settlement, which only applies to US merchants, is the result of a lawsuit filed in 2005. However, nothing is considered finalized until it receives approval from the US District Court for the Eastern District of New York. Even then, the case can also be appealed in what could be a lengthy battle.

Typically, swipe fees cost merchants 2% of the total transaction a customer makes — but can be as much as 4% for some premium rewards cards, according to the National Retail Federation. The settlement would lower those fees by at least 0.04 percentage point for a minimum of three years.

Additionally, the settlement would require 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 it has “some very real concerns” with the settlement.

The reduced swipe fees that could come from the settlement aren’t much of a game-changer for merchants, NRF’s chief administrative officer and general counsel, Stephanie Martz, said in a statement to CNN. The saving would amount “to pennies on the dollar,” Martz added.

“The fact remains that these fees are an unfair business practice that harms merchants and consumers and benefits banks,” she added.

How cardholders will be impacted

Although merchants have long argued that swipe fees force them to charge higher prices, the settlement would not necessarily save consumers any money.

That’s because the settlement gives merchants the ability to impose surcharges on customers, depending on what kind of Visa or Mastercard card they use. Those surcharges would likely hit cardholders who get rewards such as cash back and airline miles, since those can carry higher swipe fees.

On the other hand, some cardholders could get discounts on goods and services, since merchants would be able to make deals with banks to get them to use what they consider to be a preferred card.

Currently, merchants who accept Visa or Mastercard have to accept all forms of the companies’ cards.

The rewards that Visa cardholders currently receive won’t be impacted, Kim Lawrence, Visa’s North America president, said in a statement Tuesday morning. Additionally, Americans’ access to credit won’t be more restricted as a result of the settlement, she said.

Seth Eisen, a spokesman for Mastercard, told CNN that rewards and credit access also would not be impacted by the settlement.

However, Jaret Seiberg, a TD Cowen analyst, said in a Tuesday note that the settlement “will represent a threat to credit card rewards and small banks.” That’s because he believes merchants will “steer customers to preferred credit cards.”

Small banks and credit unions are likely to fight the settlement since it could put them at a major disadvantage to larger banks that have an easier time making deals with some of the nation’s largest retailers, like Walmart, Seiberg added.

A substitute for recently proposed credit card laws?

Separate from the settlement, a bipartisan group of lawmakers in the House and Senate are pushing for a set of new laws aimed at curbing Visa’s and Mastercard’s dominance.

If the proposal passes, the largest credit card issuers, which includes JPMorgan Chase, Bank of America and Citibank, would have to work with two credit card processors instead of one. And the two processors they work with can’t be both Visa and Mastercard.

NRF and other trade organizations representing merchants continue to support these laws even if the settlement is finalized.

But Republican Rep. Patrick McHenry, who heads the House Financial Services Committee, applauded the settlement, saying it’s “welcome news.”

“Legislation isn’t always as practical as commercial or private sector solutions,” he said in a post on X Tuesday morning.

Tuesday’s news comes just one month after Discover (DFS) and Capital One (COF) announced a merger that — if approved by financial regulators and shareholders — would create the nation’s largest credit card company. Seiberg said the settlement could hurt the chances of the merger getting approved.

Capital One, which currently issues cards with Visa and Mastercard, would likely try to grow its credit card customer base even more now by locking in more deals with merchants, he said.

Shares of Visa (V) and Mastercard (MA) moved slightly higher after the deal was announced.

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