Visa and Mastercard’s swipe-fee settlement could lead to a rewards fallout
The plastic cap… After nearly 20 years of litigation, Visa and Mastercard announced a major settlement with US retailers this week to temporarily lower credit-card swipe fees. The charges — a small fixed fee plus a percentage (normally 1% to 3%) of every customer credit-card purchase — cost US merchants $72B last year. It might explain why your local diner has a cash discount. The settlement details:
T&Cs: Visa and Mastercard agreed to cut their swipe fees by 0.04 percentage points for three years. The payment networks also agreed to cap the average fee at 0.07 percentage points below their current rate for the next five years.
Not chipper: If the settlement’s approved, retailers — who’ve blasted the deal as too little, too temporary — could save $30B. Visa and Mastercard (80% of the credit-card market) could get legal relief without a long-term chip in their swipe-fee income.
The impact… Swipe fees indirectly fund credit-card rewards perks like cash back and airline miles. While Visa and Mastercard make $$ on every swipe, it’s really the banks that issue the credit cards that collect the bulk of swipe-fee revenue (last year JPMorgan made $31B). A major part of the settlement: merchants would be able to raise prices based on the specific card used. Visa and Mastercard premium cards typically come with higher swipe fees, meaning someone using a card like the $550/year Chase Sapphire Reserve could end up paying a premium at checkout.
Down the road, this could all influence how consumers choose their cards, how retailers pass on fees, and how banks build their rewards programs.
The first swipe isn’t the deepest… Even with this settlement, US retailers would still pay the highest swipe fees in the world (which they can pass on to customers). Last year, a bipartisan bill that aims to toughen credit-card competition (hopefully lowering fees) was intro’d in Congress, though passing it may prove tough in an election year.