Global credit card networks Visa and Mastercard have reached a landmark settlement with merchants in the United States that could save merchants $30 billion over the next five years.
The settlement, which is among the largest in U.S. antitrust history, comes after a legal fight that spanned almost two decades. The move is a step towards ending decades-long antitrust litigation against the credit card issuers.
“The Settlement Agreement opens competitive doors that have been closed for decades, while providing rate relief to every merchant that accepts Visa or Mastercard credit cards,” said Nobel laureate economist Dr. Joseph Stiglitz, who submitted a declaration on the settlement and its effects.
“This settlement is the culmination of eight years of hard-fought litigation and detailed, painstaking negotiations,” Steve Shadowen of Hilliard Shadowen LLP, co-lead counsel, said in the release. “It provides comprehensive market-based solutions to too-high swipe fees, while providing immediate fee relief to merchants as they make these new competitive tools work for them.”
Visa and Mastercard agree to lower swipe fees
The recently announced landmark class action settlement is set to lower swipe fees merchants pay when customers make purchases using their Visa or Mastercard.
Swipe fees, averaging 1.5% to 3.5% per transaction, typically include small fixed fees and a percentage of total sale amounts. Under the proposed settlement for US merchants resulting from a 2005 lawsuit, Visa and Mastercard would reduce swipe rates by at least four basis points, 0.04 percentage points for three years, and ensure an average rate seven basis points below the current average for five years.
The settlement, addressing excessive fees, is pending approval from the U.S. District Court for the Eastern District of New York.
The settlement, which only applies to US merchants, is the result of a lawsuit filed in 2005 which “alleged that merchants paid excessive fees to accept Visa and Mastercard credit cards, and that Visa and Mastercard and their member banks acted in violation of antitrust laws,” according to firm Hilliard Shadowen, which represented the merchants involved in the case.
The proposed settlement is pending approval from the U.S. District Court for the Eastern District of New York.
Big Number – $30 Billion
Credit card companies charge merchants a fee every time you tap, insert or swipe. With Visa and Mastercard agreeing to cap those fees, the agreement may offer relief for smaller retailers and consumers who have been squeezed by rising costs. The settlelment could potentially save merchants $29.79 billion over the next five years. hich could save retailers around $30 billion.
Visa-Mastercard duopoly
Visa and Mastercard together make up for more than 80% of credit cards in circulation in the United States, totalling more than 576 million cards, according to the Credit Card Competition Act of 2023, a legislation aimed at slashing the “duopoly” created by the companies. The bills “ensures that the Visa-Mastercard duopoly ends their price gouging tactics that disproportionately hurt American families and small businesses.”
Experts have expressed hope that the settlement and legislations could help enhance competition and choice in the credit card network market which is currently dominated by the Visa-Mastercard duopoly.
‘A drop in the bucket’
The Retail Industry Leaders Association, which represents businesses that employ more than 42 million Americans and account for $2.7 trillion in annual sale, said the settlement required closer review but amounted to “a mere drop in the bucket”. Their statement added that “This settlement in no way removes the responsibility of Congress to fix an anticompetitive credit card market. Congress should complete the mission and pass the Credit Card Competition Act to bring true competition to a broken market.”
Jeff Brabant, vice president of federal government relations at the National Federation of Independent Business, a small-business advocacy group, said in a statement: “While this settlement is a step in the right direction and will provide a limited amount of short-term relief to small businesses, it does not solve the long-term anti-competitive rate-setting practices that are the root of this problem”. He called for competition in the credit card marketplace to allow rates to be set by market forces, which he said “will only happen with the passage of the Credit Card Competition Act.”
