Visa and Mastercard’s New Swipe Fee Settlement

For nearly two decades, merchants and credit card giants have been locked in a legal battle over interchange fees, commonly known as “swipe fees.” In early 2024, a massive development occurred when Visa and Mastercard agreed to a landmark settlement valued at roughly $30 billion. This agreement aims to lower the costs businesses pay to accept credit cards and change the rules on how merchants can surcharge customers.

However, the situation is complex. While the settlement promised relief, it faced immediate backlash from trade groups and legal challenges. Here is a specific breakdown of the proposed terms, the actual dollar-amount savings for merchants, and the current legal status of the deal.

The Core Terms of the $30 Billion Agreement

The settlement announced in March 2024 was designed to resolve antitrust litigation that began in 2005. The class-action lawsuit claimed that Visa and Mastercard used their market dominance to enforce artificially high fees. The settlement proposed three specific financial changes for the U.S. market.

1. Reduction in Interchange Rates

Visa and Mastercard agreed to reduce the published interchange rates by four basis points (0.04%) for all merchants in the United States. While this sounds small, the sheer volume of transactions makes the aggregate number large. This reduction applies specifically to the interchange fee, which is the largest component of the cost a merchant pays when you swipe a card.

2. A Five-Year Rate Cap

To prevent the card networks from immediately raising rates again, the settlement included a five-year lock. The posted interchange rates would be capped at the rates that existed as of December 31, 2023. Furthermore, the average effective rate would have to remain seven basis points (0.07%) below the 2023 average for that five-year period.

3. Changes to Surcharging and Steering

Perhaps the most significant change for daily operations involved “anti-steering” rules. Under the new terms, merchants would gain more freedom to:

• Charge specifically for credit card usage: Merchants could surcharge customers for using a credit card, provided they abide by a cap (usually 1% to 3%, depending on the card type).
• Steer toward preferred cards: Previously, contracts prevented merchants from encouraging customers to use one type of Visa card over another. The settlement would allow merchants to offer discounts if a customer uses a specific card with lower processing fees.

Calculating the Real Savings for Merchants

The headline figure of “$30 billion in savings” sounds massive, but when broken down to the individual merchant level, the impact is less dramatic.

To understand the savings, you must look at the math of “basis points.” One basis point is equal to one one-hundredth of a percentage point (0.01%). The mandated reduction is four basis points (0.04%).

The Math for a Small Business: If a local coffee shop processes $100,000 in credit card sales annually, a 0.04% reduction saves them roughly $40 per year.

The Math for a Mid-Sized Retailer: If a clothing boutique processes $1,000,000 in credit card sales annually, the savings amount to approximately $400 per year.

The Math for Large Enterprises: For a massive retailer like Target or Walmart processing billions, these savings add up to millions of dollars. However, for the average Main Street business, the reduction acts more as a freeze on price hikes rather than a significant cost-saving measure.

Why the Settlement Was Rejected

It is vital to understand that this settlement is not a done deal. In June 2024, Judge Margo Brodie of the U.S. District Court for the Eastern District of New York formally rejected the settlement.

The rejection stemmed from strong opposition by major trade groups, including the National Retail Federation (NRF) and the National Association of Convenience Stores. Their arguments against the deal included:

• Temporary Relief: The rate caps and reductions were only valid for five years. After that period, Visa and Mastercard would be free to raise rates again, potentially recouping the “lost” revenue.
• Inadequate Savings: As shown in the math above, 0.04% is a negligible amount compared to swipe fees that often average between 2% and 4%.
• Monopoly Power: Critics argued that the settlement allowed Visa and Mastercard to maintain their dominant grip on the payment ecosystem without addressing the underlying lack of competition.

Because of this rejection, the litigation is likely to continue. The card networks and the merchants must either negotiate a new, more robust settlement or proceed to a trial.

Understanding the Fees: Who Gets Paid?

To navigate this news, it helps to know exactly where the money goes when a card is swiped. The “Merchant Discount Rate” is the total fee a business pays, usually around 1.5% to 3.5% of the transaction. This fee is split into three buckets:

1. Interchange (The big portion): This goes to the bank that issued the card (e.g., Chase, Citi, Bank of America). This is the fee the settlement attempts to lower.
2. Assessment Fees: This small percentage goes directly to the network (Visa or Mastercard) for using their brand and infrastructure.
3. Processor Markup: This goes to the company that provides the card reader and handles the data (e.g., Square, Toast, Worldpay).

The settlement specifically targeted the Interchange portion, leaving assessment fees and processor markups largely untouched.

Frequently Asked Questions

Is the 0.04% fee reduction in effect right now? No. Because Judge Brodie rejected the settlement in June 2024, the proposed reduction and rate caps have not been implemented. The case is ongoing.

Can I charge my customers a fee for using a credit card? Generally, yes, but rules vary by state and card network. While the settlement sought to clarify and expand these rights, most merchants in the U.S. are already permitted to add a surcharge for credit card transactions, provided they disclose it clearly at the register and on the receipt. You cannot surcharge debit cards.

Will this settlement lower prices for consumers? It is unlikely. Even if the settlement were approved, the savings (0.04%) are too small to translate into noticeable price drops for consumer goods. The primary goal of the merchants was to stop the fees from increasing further.

What happens next? Visa and Mastercard may appeal the judge’s rejection, or they may return to the negotiating table with the merchant groups to find a compromise that offers more substantial, long-term relief. If no agreement is reached, the antitrust case could go to trial.