Visa and Mastercard settle long-standing 20-year legal dispute with merchants.

Visa Inc. and Mastercard Inc. have reached a significant agreement to reduce some fees they impose on merchants, concluding a lengthy legal battle that has spanned over two decades. This settlement aims to alleviate ongoing tensions related to interchange rates and associated business practices that retailers have long criticized.

Under the terms of the agreement, the two major credit card networks will lower the average effective interchange rate for U.S. credit card transactions by 10 basis points over the next five years. Specifically, the standard interchange fees for U.S. consumer credit transactions will be capped at 125 basis points, as revealed in recent regulatory filings. This move is anticipated to provide some financial relief to merchants faced with ever-increasing transactional costs.

Mastercard emphasized that this settlement would benefit smaller retailers by offering more choice in payment acceptance, lower costs, and modified operational rules. The shift comes at a time when total credit and debit card swipe fees reached a record 7.2 billion in the previous year, according to the Merchant Payments Coalition, highlighting the increasing burden of these fees on businesses.

Despite the potential advantages of the agreement, criticisms have emerged from retail advocates. The Merchant Payments Coalition expressed discontent with the decision, arguing that the modifications primarily limit the fees passed on to lenders while not sufficiently addressing the fees retained by Visa and Mastercard. They voiced concerns that the modest reductions could allow the card networks the latitude to raise their own fees without constraints, potentially nullifying any savings for merchants.

The current agreement follows a previous proposal that aimed to save merchants at least billion over five years but was ultimately rejected by U.S. District Judge Margo Brodie in June 2024. At that time, she raised alarms regarding the controversial “honor all cards” rule, which mandates that retailers accepting any Visa or Mastercard also accept all cards from those brands. This regulation has been a point of contention for merchants, particularly as consumers increasingly opt for premium credit cards that incur higher interchange fees.

The newly proposed settlement allows merchants to selectively accept U.S. credit cards from three distinct categories: commercial, premium consumer, and standard consumer. The ramifications of this adjustment could reshape transaction dynamics in retail environments nationwide, potentially enabling merchants to refuse certain high-fee premium cards while welcoming standard consumer options.

Additionally, the agreement permits merchants to impose surcharges on customers using Mastercard and Visa products. This move represents a notable change in the landscape of payment processing, offering retailers increased leverage in managing card acceptance costs. Visa articulated that the settlement aims to provide meaningful relief, enhanced flexibility, and more control for merchants of every size in how they accept payments.

As the agreement unfolds, its implications for the retail sector and consumers will likely attract scrutiny from various stakeholders, signaling a shifting dynamic in the long-standing relationship between credit card companies and merchants.

This development underscores a pivotal moment in the ongoing discourse surrounding payment processing fees and their impact on the broader economic landscape.