After decades of litigation and negotiations, a judge has approved the latest version of the settlement between Visa, Mastercard, and merchants over interchange fees.
A previous attempt at a settlement stalled two years ago after a judge ruled that the proposed $30 billion agreement didn’t go far enough to compensate merchants, who have long complained about the fees charged on credit card transactions.
The latest version increase the settlement value to $38 billion and has received preliminary approval from a U.S. District Judge in New York. The judge said the settlement, which applies to over 12 million merchants, was “fair, reasonable, and adequate.”
Honor All Cards
Under the new deal, Visa and Mastercard agreed to lower interchange fees by 0.1 percentage points for five years. According to data from the Merchants Payments Coalition, the average swipe fee was 2.36% last year, and total fees increased year over year.
Another important aspect of the settlement is that merchants will now be able to choose whether to accept certain types of cards. In the past, merchants were generally required to honor all cards from a given network or none at all, meaning they had to accept higher-fee rewards cards alongside standard cards.
A Bird in the Hand
While Visa and Mastercard have backed the new settlement, many merchants have raised objections. After the deal was proposed in November, a Walmart-led group argued that it still didn’t go far enough to compensate merchants. However, it will be difficult to come to any agreement that appeases all parties at this point.
“The one thing that jumped out at me was the quote from Judge Cogan at the end: ‘But the question is not whether the amended settlement constitutes the best possible recovery, end stop – it’s whether the amended settlement constitutes the best possible recovery in light of what can be gained and lost through trial,’” said Don Apgar, Director of Merchant Payments at Javelin Strategy & Research,
“As we’ve seen since this suit was filed in 2005, anything short of the end of all merchant card fees will continue to draw objections from merchants and their trade associations,” he said. “The judge is setting the stage here to deflect further objections from both sides and bring this 20+ year lawsuit to a conclusion, while at the same time sending a message to merchants that a bird in hand is worth two in the bush.”
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