Visa and Mastercard Agree to Lower Fees for US Merchants

A Welcome Relief for American Vendors

The popularity of online card payments ensures most merchants offer this payment method to their customers. But it can be costly with merchants having to pay a fee on each transaction. However, news that major card providers VISA and Mastercard are set to reduce fees will come as welcome news to American vendors.

Transforming Retail Operations

The development of mobile devices in recent years has facilitated digital commerce to the extent that most retail operations will have an online presence where they will compete with businesses that focus solely on providing online services.

Enhanced User Experience in E-commerce

The convenience and quality of e-commerce businesses have improved dramatically with dedicated websites and apps designed for different platforms. Whether consumers are shopping for groceries, fashion, or the latest tech, are completing banking transactions or placing bets, the ability to do this quickly and safely online makes things a lot easier.

Importance of Payment Methods in Online Operations

One of the most important aspects of online operations is which payment methods merchants accept. Providing consumers with a greater choice not only improves the user experience but also allows merchants to cater to a wider market.

Variety of Payment Options

Traditional card payments are the most popular payment type, but customers can also choose from wire transfers, eWallets, and cryptocurrencies depending on the operator.

Benefits of Online Card Payments

Online gambling expert Ruth Zammit explains the benefits of online card payments, with online casinos usually accepting VISA. Using an established and popular card provider provides consumers with a widely accepted payment method with instant transactions.

VISA card payments also offer the user a high level of security and the potential to earn rewards and cashback on transactions.

Bridge Between Online and Retail Shopping

VISA and Mastercard are some of the few payment methods that bridge online and retail shopping, with in-person shopping experiences also benefitting from technological developments with people able to make payments by tapping their cards or phones.

The Shift Towards a Cashless Society

Because of this, it is in the merchant’s best interests to accept these traditional payment methods. The ability to pay quickly and easily by tapping a card or using a mobile device is helping to create a more cashless society, with some vendors actually moving to stop cash payments as a way to reduce banking needs.

Challenges for Merchants: Transaction Fees

Despite the convenience, there is a downside for merchants with most credit card transactions being subject to fees ranging from around 1.5% to 3% for every transaction.

The result of paying these fees in 2023 saw merchants losing out on more than $172 billion. The cost of covering these fees was often passed over to the customer with merchants increasing prices or having a minimum transaction amount for card payments.

While $172 billion is a staggering amount to be paid in fees, it is worth remembering that this came from a total of more than $11.2 trillion taken in card payments.

Anticipated Changes in Fees

However, things are set to change following class action litigation that dates back to 2005. Court approval for proposed changes is required, which might mean that any alterations to fees won’t be implemented until late 2024. 

The action came about following criticism from merchants who felt fees were inflated and shoppers were being limited by the major card providers. Fixed transaction fees as well as a small percentage of the sale total meant merchants were paying significant amounts.

The settlement has seen VISA and Mastercard provisionally agree to lower swipe rates by at least 0.04 percentage points and reduce the average rates to below the current average by seven basis points. This would be in place for five years where the card networks would also cap rates.

Merchants will also be granted more freedom in terms of surcharges or discounts, with many charging slightly more for card payments.

Potential Savings for Merchants

These changes should see U.S. merchants save as much as $30 billion when the changes are implemented.

Criticism and Skepticism Surrounding the Settlement

Despite the card providers agreeing to these changes, they are adamant that there has been no wrongdoing on their part in relation to the charges that were in place.

While the potential of saving as much as $30 billion might seem good on paper, there are those who see the settlement as a loss and many merchants dropped out and are pursuing their own lawsuits.

The main argument is that the relief offered to merchants is minimal at best, and only a temporary measure with card providers able to raise rates immediately after the agreement ends.

The Retail Industry Leaders Association is an advocate for retailers and is associated with businesses with more than 42 million American employees. They have described the settlement as a “drop in the bucket” and that the settlement is an acknowledgement that the card payment market has required change for decades.

Another concern regarding the settlement is that it does not specify where the fee cut will come from. This could mean that issuing banks will be forced to absorb the fee decrease and offset these losses by raising interest rates, reducing rewards, or raising card membership fees.

By failing to acknowledge any wrongdoing and passing losses to third parties, who in turn pass the losses on to consumers, the settlement looks to have little impact on the major card providers involved.

VISA and Mastercard’s hold on the credit card payment market has long seen them able to dictate terms to merchants, but this could be the catalyst for change in a system that many see as being unfair.

Long-term Implications and Uncertainties

It remains to be seen whether US District Judge Margo Brodie approves the settlement and whether this could have longer-term repercussions for the card providers as independent lawsuits are launched around the duopoly’s hold on the market.

The decision will likely have far greater importance to retail businesses that are significantly more limited in terms of payment options than online alternatives.

The Growing Popularity of Cryptocurrency

The popularity of cryptocurrency for online operators continues to grow, with the decentralised option providing security and transparency through blockchain technology, and also allowing consumers to complete international transactions without incurring currency exchange fees.

Conclusion: Potential Shifts in the Payment Landscape

This legal wrangle could further help alternatives achieve a foothold in the online market as merchants and consumers explore the best options available to them.