Have you heard about the Visa-Mastercard proposed swipe settlement that was reported this week? Fortune and the AP’s Ken Sweet provide a heads-up with the details to keep us informed as individuals and businesses.
Visa and Mastercard have proposed a settlement in their long-running legal dispute with merchants and retailers over how much they charge merchants to accept their cards.
The most important part of the settlement could directly affect how customers use their Visa- and Mastercard-issued credit cards and may result in some consumers being denied at the point of sale for purchases.
Visa and Mastercard have been in litigation with a class-action group of merchants for nearly 20 years over the costs they impose on merchants to use their payment networks, known as interchange. A previous settlement was rejected by the judge overseeing the case last year, requiring Visa and Mastercard’s lawyers to go back to the drawing board on the scope and size of the settlement.
The new part of the settlement announced Monday addresses the “honor all cards” rule, a cornerstone of how credit and debit cards work in the U.S. The “honor all cards” rule states that if a merchant accepts Visa or Mastercard as a form of payment, they are required to accept all iterations of Visa and Mastercard products, regardless of who issues it and the cost to the merchant.
Under the proposed settlement, merchants could discriminate between the different tiers of Visa and Mastercard products, meaning high-reward credit card users may be declined at checkout if the merchant has opted out of accepting the higher-tier card. A merchant may also be able to pass along the higher cost to accept the rewards cards to the customer in the form of a surcharge on their bill, under the proposed settlement.
This will place merchants in the position of making a choice: accept all cards with the higher fees or reject some of the higher-fee cards and likely upset wealthier consumers who typically enjoy earning points on routine purchases.
Like the previous settlement last year, merchants would receive a temporary reduction on swipe fees for a few years. In this settlement, it would be a 10 basis point reduction in swipe fees for five years, and standard credit card transactions would be processed at 1.25% of the purchase price for eight years.
The payment networks, who are ready to put the matter behind them after two decades of litigation, say this may be the best solution for the merchants to potentially avoid a drawn out trial-and-appeal process.
The settlement involves Visa and Mastercard only. American Express, which uses a closed-loop system where it’s both the issuing bank and payment network for its cards, is not involved in this ongoing litigation. The settlement also does not impact debit cards.
If approved by the court, the payment giants would reduce interchange fees by 0.1% over the next five years and cap standard consumer credit rates at 1.25% for eight years. It would also scrap a rule requiring merchants to accept all cards from a given network.
That change could open the door for stores to reject credit card tiers—such as higher-fee, high-reward cards like the Chase Sapphire Reserve or Capital One Venture X—or further pass fees directly to consumers.
The current system has long frustrated merchants, especially small businesses, who must decide whether to absorb rising swipe fees or pass costs to customers. Visa and Mastercard collected $111.2 billion in credit card swipe fees in 2024—up 10% from the year prior and quadruple the level from 2009, according to the National Retail Federation.
With the new move, merchants could more easily add surcharges selectively who are less price-sensitive, John Cabell, managing director of payments intelligence at J.D. Power, told Fortune. Premium cardholders, with annual fees above $500, spend an average of $2,736 a month, nearly three times as much as those with cheaper cards.
Only 22% of those cardholders report they select alternate payment methods when faced with a surcharge, according to J.D. Power data. That’s compared to 33% of holders of no-fee cards.
“Over time, if premium cards become even more expensive to use at the point of sale, this type of change might reign in the upward spiral of rewards and benefits that consumers have grown to appreciate,” Cabell added. “Even relatively modest cards might see a reduction in offerings as well if surcharges become generally more prevalent with mid-tier and premium card groupings.”
But others argue merchants will think twice before turning away big spenders. Brian Kelly, founder of The Points Guy, told Fortune he didn’t expect the deal’s potential results to be dramatic because if businesses refuse top-tier rewards cards, they’d likely lose more revenue than they save on interchange fees.
“If this settlement proceeds, merchants may continue adding small fees for credit card transactions, which they’re already allowed to do today,” Kelly added. Many trade groups criticized the settlement, arguing it doesn’t go far enough to protect merchants.
Stay Tuned
The cost of credit cards, rewards, and merchant fees has been an issue for years. We don’t know when this settlement will be approved. Stay tuned for the impact on your rewards cards and the merchants you support.
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