Q&A of the Day – Visa & Mastercard Settle Case – What it Means to You

Q&A of the Day – Visa & Mastercard Settle Merchant Fees Case – What it Means to You 

Each day I feature a listener question sent by one of these methods.    

Email: brianmudd@iheartmedia.com   

Social: @brianmuddradio   

iHeartRadio: Use the Talkback feature – the microphone button on our station page in the iHeart app.         

Today’s entry: Would you categorize merchant fees a 3% give or take tax on all goods and services? Why or why not? 

Bottom Line: On Monday a landmark settlement was announced with Visa and Mastercard pertaining to a multi-decade debate and legal battle over what are known as merchant fees, or interchange fees, following a 2024 ruling that a proposed settlement offered by the two payment processing companies was inadequate. The settlement was probably the biggest recent news most people aren’t familiar with as 65% of all transactions are made with credit or debit cards and 73% of all spending is handled through payment processors that impose fees on the merchants who accept their services.  

Typically, consumers aren’t familiar with the impact of merchant fees unless they’re transacting with a business, or government (almost all of which impose merchant fees) that pass them along to consumers. That is a number that’s been rising in recent years as 41% of all businesses have passed on the merchant fees imposed on them by processors most recently. With that in mind, let’s look at the Visa and Mastercard settlement to see what the impact may be. 

Key terms of the new settlement: 

• Swipe fees will be cut by at least 0.1 percentage point for five years. 
• Standard consumer card rates will be capped at 1.25% (a 25%+ reduction) for eight years. 
• Merchants gain flexibility to accept or decline specific card categories (e.g., premium rewards cards, commercial cards) without having to take all Visa/Mastercard products. 
• More options to impose surcharges on card payments 
• Total value likely exceeds $30 billion 

Visa and Mastercard say it gives merchants relief, flexibility, and lower costs, especially for small businesses. The National Retail Federation and Merchants Payments Coalition oppose it, calling it insufficient, while arguing that it still fails to address the judge’s concerns, keeps fees too high, and still forces businesses to accept expensive rewards cards or risk losing customers.  

For their part banking/payment industry groups represented by the Electronic Payments Coalition support it, stating the 25%+ rate cut for eight years is larger than pending Senate legislation proposed to address merchant fees. The deal still requires approval from U.S. District Judge Margo Brodie in Brooklyn.  

Should the settlement be ratified, total savings is expected to be approximately $6.3 billion annually. The average business currently accepting Visa and Mastercard would save approximately $1,900 annually – though that number would vary massively with small savings for low transaction/volume businesses and savings into the millions annually for the largest high-volume retailers.  

There’s no direct savings that’s guaranteed to consumers, although if businesses were to pass on merchant fee savings the average family (household) would expect to see savings averaging $154 per year.   

As for the question as to whether I see merchant fees as a tax? I don’t for two reasons. They’re not imposed by governments but rather private companies, and related, merchants and consumers retain choice as to how they shop, where they shop and how they pay.  

As a former business owner, I’m sympathetic to businesses which effectively feel as though they’ve been trapped into having to accept and perhaps eat the costs of fees by payment processors. This is often due to the type of business and the way consumers choose to transact with those businesses. Small businesses often operate at a competitive disadvantage as fees are often imposed on a percent or per transaction fee that’s higher for low volume businesses. Also, many businesses in highly competitive situations may not be in a position to pass the costs along to customers, creating additional affordability challenges.