Visa and Mastercard Settle Decades-Long Antitrust Case: $30 Billion Savings Expected

Visa and Mastercard, the world’s two major credit card networks, and the banks that issue cards via them, have agreed to resolve a decades-long antitrust case put up by merchants.

As per the press release sent on Tuesday morning, the settlement has the potential to reduce the swipe fees that businesses have to pay when customers use their Visa or Mastercard by $30 billion over a period of five years

Visa and Mastercard Settle Decades-Long Antitrust Case $30 Billion Savings Expected

A lawsuit filed in 2005 resulted to the settlement, which is exclusively applicable to US retailers. But unless it is approved by the US District Court for the Eastern District of New York, nothing is deemed final. Even in that instance, there may be a protracted appeals process.

According to the National Retail Federation, swipe fees typically cost retailers 2% of the total transaction a client makes, but they can cost as much as 4% for certain premium rewards cards. Under the settlement, such costs would drop for a minimum of three years by at least 0.04 percentage point.

Visa and Mastercard would also have to continue charging the same swipe fees as of December 31, 2023, for a period of five years, as part of the settlement agreement.

As per Stephanie Martz, the general attorney and chief administrative officer of the NRF, the lower swipe fees that may result from the settlement won’t significantly alter the landscape for retailers. The savings would amount to pennies on the dollar.”

How Visa and Mastercard holders will be impacted

While retailers have long said that swipe fees compel them to raise prices, customers would not necessarily save money as a result of the settlement.

This is due to the settlement’s provision allowing businesses to charge customers more based on the kind of Visa or Mastercard they use. Since rewards like cash back and airline miles often have higher swipe costs, the surcharges would probably affect cards who get those benefits.

However, since retailers would be able to work with banks to persuade them to accept what they view as a preferred card, certain cardholders would be eligible for discounts on products and services.

Presently, retailers who take Mastercard or Visa are required to take both brands of cards.

Visa’s president for North America, Kim Lawrence, stated in a statement on Tuesday morning that there will be no changes to the perks that Visa members now get. She said that the deal will not further restrict Americans’ access to credit.

According to the NRF, swipe fees for visa and Mastercard typically cost retailers 2% of the total transaction a client makes, but they can cost as much as 4% for certain premium rewards cards

According to Seth Eisen, a Mastercard representative, the settlement will not affect rewards or credit availability.

But in a report published on Tuesday, TD Cowen analyst Jaret Seiberg stated that the settlement “will represent a threat to credit card rewards and small banks.” He says this because he thinks retailers would “push customers toward preferred credit cards.”

According to Seiberg, smaller banks and credit unions are likely to oppose the settlement because it might significantly disadvantage them compared to larger banks that find it easier to negotiate with some of the biggest merchants in the country, such as Walmart.

Is there a need for new laws to curb Visa and MasterCard’s power?

Apart from the agreement, a number of senators and representatives from both parties are advocating for new legislation that would limit the power of Visa and Mastercard.

The biggest credit card issuers, which include Citibank, JPMorgan Chase, and Bank of America, would have to deal with two credit card processors rather than just one if the idea is approved. They also cannot use both Visa and Mastercard as their two processors.

Even when the settlement is finalized, the NRF and other trade associations that represent businesses will still support these bills.

Representative Patrick McHenry, a Republican and the chairman of the House Financial Services Committee, praised the deal, calling it “welcome news.”

He stated in a post on X on Tuesday morning that “legislation isn’t always as practical as commercial or private sector solutions.”

Tuesday’s announcement follows the announcement one month ago of a merger between Discover (DFS) and Capital One (COF), which, if authorized by shareholders and financial authorities, would form the largest credit card firm in the country.

According to Seiberg, there may have a negative impact on the merger’s approval chances. Capital One, which now offers credit cards through Visa and Mastercard, will probably attempt to increase the number of people who use its credit cards by securing additional agreements with retailers.

Following the deal’s announcement, shares of Visa (V) and Mastercard (MA) marginally increased.

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