Though there are multiple class action lawsuits in place against the card brands, the particular litigation addressed in last week’s settlement carries industry-wide implications. Per the settlement, Visa and Mastercard have agreed that interchange rates will lower rates by 4 basis points for the next 3 years. Further, over the following 5-year period, the card brands will not raise rates more than what they were in 2023 and will ensure an average rate that is 7 basis points below the current average.
What This Settlement Means for Merchants
While many headlines are already touting significant savings for merchants, this position may be misleading. “Visa and Mastercard are claiming to save the industry $30 billion in the upcoming years,” explains Erika Curtis, Lead at W. Capra, “In actuality, the $30 billion is comprised of the slight rate reduction and curb rate increases, per the settlement.” To be clear, this means that merchants will not be receiving any settlement money back from the card brands.
For those merchants that have filed lawsuits against Visa and Mastercard, either as individual entities or as a part of other class action suits, this settlement carries unwelcome implications. Curtis elaborates, “As this settlement is legally binding to adjacent litigations, it can potentially restrict payouts or further operating regulation changes from those other litigations.” For said cases, it remains unclear whether plaintiffs retain the legal grounds to proceed with damages.
What Does This Settlement Mean for the Industry?
Perhaps the most direct question that the industry faces is what will happen after the five-year period affected by the settlement. The small rate reduction for 3 years is a small loss of incremental revenue, the question must be asked as to what alternative courses they will chart to realize that revenue (notably, the settlement does not prevent the card brands from raising non-interchange fees). In addition, while the card brands have committed to ensuring a lower average rate by 7 basis points, it remains unclear as to how this will be calculated or how the card brands will achieve this commitment.
The settlement also introduces new wrinkles to the Credit Card Competition Act (CCCA). Curtis adds, “The US market already has one of the highest interchange costs worldwide. With the ongoing evolution of the CCCA, industry dialogue may begin to center around whether the government should have a direct say in rate negotiation and setting, as they do in Canada and the EU, for instance.”
On the plus side for merchants, the settlement indicates that Visa and Mastercard will begin to relax rules on payment steering and surcharging. While we await further details, the immediate takeaway is that merchants should soon have the opportunity to negotiate more flexible discounts, less surcharges, and should expect the ability to steer consumers to lower cost providers without breaking card brand regulations.
Erika Curtis leads Cost of Acceptance initiatives for W. Capra and is passionate about helping merchants save on costs. For further discussion, please contact Erika at [email protected].
