Visa, Mastercard Reach $30 Billion Swipe-Fee Deal With Merchants

[Hansolojr]

Impact on credit card rewards TBD

Visa, Mastercard Reach $30 Billion Swipe-Fee Deal With Merchants - Bloomberg

"In recent years, merchants have grown increasingly vocal about their opposition to these fees, which typically amount to about 2% of a purchase and totaled more than $100 billion last year. While Visa and Mastercard set the level of these fees, it’s the banks that issue the cards that actually collect most of that revenue. 
That means banks including JPMorgan Chase & Co., Bank of America Corp. and Citigroup Inc. that issue cards with Visa and Mastercard are likely to take a hit with these concessions. JPMorgan, the biggest US bank, collected $31 billion of interchange and merchant processing income last year, leading to total card income of $4.8 billion after it accounted for customer rewards, payments to partner companies and other costs.

Retailers will now be able to charge consumers for using a Visa or a Mastercard card and they’ll be able to adjust their prices based on the cost of accepting different credit cards. That could mean, for instance, that a consumer with a Chase Sapphire Reserve card, which carries the Visa Infinite branding and therefore comes with a higher interchange fee, would be charged more at checkout than a customer using a Chase Freedom Unlimited card.
That should help address a pain point among those merchants who despise Visa and Mastercard’s “honor all cards” rules, which stipulate that if a merchant accepts one of the brands’ cards, then it has to accept all of the brands’ cards. Some retailers have said those rules are behind the surge in interchange fees in recent years because Visa and Mastercard have worked with banks to issue more cards that run on their premium networks, which typically cost retailers more. 

[icednightpaper]

Since the general rule is that every business wants more money (naturally), does this mean Visa Infinite/Signature and Mastercard World Elite/World cards are going to get slaughtered in benefits (either from the merchant side or the issuer side)? There's already tons of places enacting the 3+% fee for using a card in general, so it can't be good that they can now be even more discriminatory in pricing.

[Anonymalous]

I read about this in the WSJ, and the articles are so different it's almost like they're talking about different things. The WSJ just says the swipe fees are reduced by 0.04% percentage points and the fees are capped for 5 years. It doesn't mention the $30B (where ever that number comes from), and the only thing that might refer merchants charging different fees for different card tiers is a single sentence: "The proposed settlement would create some changes to give merchants more choice on accepting cards, allowing them to guide customers to cards that have lower fees." Which I initially just assumed was Amex vs. VISA, not VISA Infinite vs. Signature. Weird.

Also, the settlement isn't final. It requires approval from a federal judge in Brooklyn.

They also quote the general counsel of the National Association of Convenience Stores, who thinks there will be a lot of opposition to the deal from merchants, because it only provides "modest relief" and doesn't address the core issue, which is the allegation that VISA and MC are engaged in a price-fixing cartel with the banks.

Paywalled:

https://www.wsj.com/finance/banking/visa-mastercard-agree-to-lower-swipe-fees-settling-long-running-...

[LADave]

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@Anonymalous wrote:

I read about this in the WSJ, and the articles are so different it's almost like they're talking about different things. The WSJ just says the swipe fees are reduced by 0.04% percentage points and the fees are capped for 5 years. It doesn't mention the $30B (where ever that number comes from), and the only thing that might refer merchants charging different fees for different card tiers is a single sentence: "The proposed settlement would create some changes to give merchants more choice on accepting cards, allowing them to guide customers to cards that have lower fees." Which I initially just assumed was Amex vs. VISA, not VISA Infinite vs. Signature. Weird.

Also, the settlement isn't final. It requires approval from a federal judge in Brooklyn.

They also quote the general counsel of the National Association of Convenience Stores, who thinks there will be a lot of opposition to the deal from merchants, because it only provides "modest relief" and doesn't address the core issue, which is the allegation that VISA and MC are engaged in a price-fixing cartel with the banks.

Paywalled:

https://www.wsj.com/finance/banking/visa-mastercard-agree-to-lower-swipe-fees-settling-long-running-...

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Those are all very good points. It does sound like the current settlement would probably lead to lower swipe fees for higher-end cards so that they continue to get accepted at merchants. We'll probably see lower benefits and/or higher fees to offset that.

I have a hard time seeing premium cards like Amex Platinum and Chase Sapphire Reserve getting a much higher AF. Maybe Amex and Chase can make up for lower swipe fees it by using those cards as loss leaders for other products. (But isn't Chase already doing that?)

It seems that swipe fees are becoming a bigger issue in the news than in years past, and it could come from out of nowhere to become a bipartisan political issue, particularly in an election year. I can only imagine that Visa and MC want to get ahead of that.

[MarkintheHV]

Makes me wonder what type of impact this will have on AmEx and Discover?  They are not mentioned is the suit.

[LADave]

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@MarkintheHV wrote:

Makes me wonder what type of impact this will have on AmEx and Discover?  They are not mentioned is the suit.

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AFAIK they're not parties to the suit, so it probably wouldn't affect them directly. But if merchants start to have the ability to treat premium Visas and Mastercards differently based on their swipe fees, they'd probably also be inclined to stop accepting Amex and Discover cards because of their higher swipe fees.

[CorpCrMgr1]

@Hansolojr Thank you for sharing this information. 

[Hansolojr]

Welcome!!

More data to geek out over - interchange rates in Appendix I & J (page I-1 on):

Document (sec.gov)

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@CorpCrMgr1 wrote:

@Hansolojr Thank you for sharing this information. 

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[MarkintheHV]

Looks like AmEx is in trouble too

https://www.reuters.com/legal/transactional/american-express-sued-merchants-class-action-over-swipe-...

American Express (AXP.N), opens new tab has been hit with a proposed class action lawsuit in Rhode Island federal court accusing it of overcharging thousands of U.S. merchants for credit and debit card fees on consumer transactions.

[Anonymalous]

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@MarkintheHV wrote:

Looks like AmEx is in trouble too

https://www.reuters.com/legal/transactional/american-express-sued-merchants-class-action-over-swipe-...

American Express (AXP.N), opens new tab has been hit with a proposed class action lawsuit in Rhode Island federal court accusing it of overcharging thousands of U.S. merchants for credit and debit card fees on consumer transactions.

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The suit's also about clauses in Amex's contracts that prevent merchants from steering customers to payment methods with less overhead, for instance by charging a surcharge or saying we prefer cash. It also took a long time to reach this point, because the Amex contracts all had binding arbitration clauses, and the merchants only managed to get it into court by having over 5,000 merchants separately file cases with the arbiters, and then wait and wait until Amex finally defaulted on payments to the arbiters, which opened the door for a case in a real court.