In a landmark class action settlement announced Tuesday, a two-decade long antitrust litigation against the credit-card issuers comes to rest as Visa and Mastercard have agreed to reduce credit card “swipe fees” for merchants which could save retailers an astounding $30 billions over next five years.
Visa’ President; Kim Lawrence released an official statement, quoting “meaningful concessions that address true pain points small businesses have identified.” Impeccable financial instruments; Visa and Mastercard have maintained strong “duopoly” in the credit card industry; accounting for 80% of the total market share.
WHAT ARE “INTERCHANGE RATES”?
What is referred as “interchange rates” is the processing fee charged by Visa and Mastercard companies for every “swipe” which takes place between a customer and a business owner. In exchange for the fee which the merchant is obligated to pay the issuers, the customers bare the eventual price in form of inflated cost of the goods. In the chart below, the credit card issuers charge $2 as swipe fee from the merchant’ per card use, jeopardizing their monthly savings.
UNFOLDING THE HISTORY OF THE DISPUTE
The historic settlement declared on Tuesday, peddles back to 2005 when an aggravated union of merchants registered a lawsuit against Visa and Mastercard deeming their practices as unconstitutional and financially sabotaging to their businesses.
Over the years, as people shifted their gears and started using credit cards as an invigorating source of monetary transactions, the credit card companies started rising the “interchange rates”; infuriating the already upset merchants. In 2023, Visa and Mastercard had accumulated a total of $72 billion from the processing fees.
Visa and Mastercard as a solution to the long-running dispute in 2018, paid $6.2 billion to a community of 19 merchants. But the dispute was not completely resolved though it was the beginning of the end for the lawsuit to finally reach its ultimate verdict. The Retail Industry Leaders Association enunciated the 2018 settlement as a “mere drop in the bucket.”
In the extraordinary event of the 2024 settlement, much relief was assured to the merchants.
Robert Eisler, the co-led counsel representing the merchant union stated, “The goal has been to eliminate the anticompetitive restraints and to provide meaningful savings to all U.S merchants in equal measures.”
This settlement not only tries to dilute the long formidable presence of the two credit-card giants but also encourages for the unseen to make their presence felt. This approach will substitute on the duopolistic nature of the credit-card industry by inviting more competition to compete and thrive.
Apart from the $30 billion savings granted to large and small businesses alike over the course of next five years, merchants under the settlement will be liberalized to guide their customers to use cards which charge lower “swipe fees”. The official statement released by the Mastercard quotes, “This agreement brings closure to a long- standing dispute by delivering substantial certainty and value to business owners.”
