Visa and Mastercard agreed to cap credit card fees paid by merchants in a landmark settlement following a two-decade legal fight.
Both firms will freeze the fees businesses pay to accept credit cards for five years, often called “swipe” or interchange fees.
The ruling is one of the largest in US antitrust history and the law firm that announced the deal suggested it could save retailers $30 billion.
Robert Eisler, co-lead counsel for the plaintiffs, said in a statement: “This settlement achieves our goal of eliminating anticompetitive restrictions and providing immediate and significant savings to all American merchants, small and large.”
The pact effectively reduces fees paid by retailers by 0.04 percentage points and will keep them in place until 2030. Small businesses will also have the power to negotiate fees with corporations.
Visa and Mastercard have agreed to reduce credit card interchange fees in a landmark settlement that follows two decades of litigation.
Merchants paid about $93 billion in Visa and Mastercard fees last year, according to industry publication The Nilson Report, compared to about $33 billion in 2012.
The agreement must still be approved by the United States District Court for the Eastern District of New York.
There were previously concerns that a crackdown on so-called “wire transfer fees” could lead credit card providers to reject customer rewards programs.
United CEO Scott Kirby responded to a separate congressional bill to reduce fares in October.
He said: “This would end bounty programs.” It would no longer exist. It will kill debit card rewards programs when this happens, and I think it’s bad policy.”
However, experts insisted that today’s ruling does not go far enough to affect reward schemes.
Ted Rossman, senior industry analyst at Bankrate, said: ‘Fees are only being reduced slightly and are being capped. It’s not like they’re going to disappear completely.
“This alone is not a big enough issue for companies to change how they run rewards programs.”
Retailers have long complained that the fees they have to pay to process credit card transactions are much higher in the United States than anywhere else in the world.
Fees average 2.24 percent of the total transaction in the U.S., but can be as high as 4 percent for premium travel and rewards cards. In the EU, they were limited to 0.3 percent in 2015.
Danny Reynolds, who runs Elkhart clothing store Stephenson’s in Indiana, previously told DailyMail.com: ‘These fees could make the difference in us being able to hire someone in our community.
‘I remember about 30 years ago, when I was just starting out, I reviewed our financial statements and realized that credit card purchases had become 50 percent of our transactions. “If we fast forward to 2023, we are well above 90 percent.”
Industry publication The Nilson Report estimated that merchants paid $93 billion in Visa and Mastercard fees in 2022, up from about $33 billion in 2012.
The two credit card providers control about 83 percent of the U.S. market, meaning they have a duopoly on the usage fees retailers pay.
Danny Reynolds has run Stephenson’s of Elkhart, a clothing store in Elkhart, Indiana, for nearly 30 years.
Reynolds told DailyMail.com: “These fees could make the difference in us being able to hire someone in our community.”
Although Visa and Mastercard set the fees, it is the banks that issue the cards that collect the most revenue.
For example, JPMorgan Chase raked in $31 billion in exchange and trade processing revenue last year. After accounting for customer rewards, partner payments and other costs, it meant the bank made $4.8 billion in total card revenue.
Merchants first filed a class-action lawsuit against Visa and Mastercard in 2005 under the allegation that the two companies were colluding to keep fees high.
They had already settled part of the lawsuit, agreeing to pay nearly $6 billion to retailers.
The latest agreement aims to address the rest of the lawsuit to improve what critics say is the anti-competitive nature of the card networks.
However, Visa and Mastercard still face other challenges for their dominance in the card industry.
Senator Dick Durbin is spearheading a Credit Card Competition Act that would require banks to allow at least one payment network in addition to Visa or Mastercard to facilitate credit card transactions.
It would mean, for example, that a buyer can use a Visa card to make a purchase, but the merchant could choose Visa or another (possibly less expensive) payment network to process the transaction.
“Congress is long overdue to tear up the favorable deal that Visa, Mastercard and the big banks enjoy,” he said of last year’s bipartisan legislation.