What's Happening?
Visa and Mastercard have announced a settlement agreement with U.S. merchants, ending the 'honor all cards' rule and temporarily lowering interchange fees. This settlement concludes 20 years of litigation over the fees merchants pay to card networks and banks.
Merchants will now have the right to decline certain higher-cost Visa and Mastercard-branded credit cards and can add surcharges for accepting some cards. The agreement caps posted credit interchange rates for five years, maintaining rates for standard consumer cards at 1.25% through the pact's eight-year term. Additionally, Visa and Mastercard will lower the combined average effective credit interchange rate by ten basis points for five years. A $21 million merchant education program is included to inform merchants about payment acceptance and cost management.
Why It's Important?
The settlement is significant as it provides merchants with more flexibility in managing payment acceptance costs, potentially reducing the financial burden of high interchange fees. This could lead to increased competition among card issuers and benefit smaller merchants by offering more acceptance choices and reduced costs. However, some merchant groups criticize the deal, arguing it allows Visa and Mastercard to increase fees without restraint, potentially negating the benefits. The agreement is seen as preferable to federal intervention, which has been considered in the form of the Credit Card Competition Act.
What's Next?
The settlement is subject to approval by a federal judge, expected in late 2026 or early 2027. If approved, it could reshape the landscape of credit card fee structures and merchant payment options. Merchants may begin to implement surcharges and decline higher-cost cards, impacting consumer payment choices. The settlement could also influence future legislative actions regarding credit card fee regulations.
Beyond the Headlines
The agreement highlights ongoing tensions between card networks and merchants over interchange fees, reflecting broader issues of antitrust and market competition. It underscores the need for balance between consumer benefits from premium cards and merchant cost management. The settlement may prompt further scrutiny of card network practices and influence future regulatory approaches.
