Visa, Mastercard to cut fees, let retailers reject certain cards

VISA and Mastercard reached a deal with retailers to reduce some of their fees and give merchants more leeway to reject customers who use certain credit cards, including the premium ones that have been surging in popularity. 

The proposed settlement - which is meant to bring more than 20 years of litigation to an end - could ultimately save merchants more than US$200 billion, according to Joseph Stiglitz and Keith Leffler, who served as expert economists in the case on behalf of the retailers.

That would make it one of the largest-ever class-action settlements of a US antitrust case.

Both networks agreed to relax their controversial “honour all cards” rules, which required merchants to accept all Visa or Mastercard credit cards if they accept any cards from the two networks.

The rule has increasingly irked merchants as more and more consumers are wielding premium credit cards, which are more costly to accept than standard card products.

Under the terms of the settlement, retailers will now be able to choose whether to accept premium consumer cards.

The deal could have a vast impact on checkout lanes across the country.

For instance, it could mean that a consumer with a Sapphire Reserve card from JPMorgan Chase & Co., which carries the Visa Infinite branding and therefore comes with a higher fee for retailers, would be turned away from using their card at checkout.

A customer using JPMorgan’s Freedom Unlimited card would be able to make their purchase.

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“This proposal represents a major concession from the networks, particularly the modification of the ‘honour all cards’ rule, which gives merchants leverage to manage their acceptance costs by steering customers away from certain higher fee premium cards,” Sanjay Sakhrani, an analyst at Keefe, Bruyette & Woods, said in a note to clients. “Though, even if given the option to turn away certain cards, we see few merchants actually doing so given the implications it would have on the customer experience and the merchants’ sales.”

Almost immediately, trade groups such as the Merchants Payments Coalition came out against the proposed settlement, arguing that premium cards like the Sapphire Reserve have become so popular in recent years that it would be impossible not to accept them. 

Settlement terms

“After more than 20 years of litigation, Visa and Mastercard have reached a proposed settlement with US merchants of all sizes that would provide meaningful relief, more flexibility and options to control how they accept payments from their customers,” Visa said in a statement. 

The new agreement will allow merchants to impose a surcharge on customers who want to use Mastercard and Visa products.

The networks also agreed to reduce the average effective interchange rate - a measure of the fees retailers pay when customers use cards at checkout - by 10 basis points for five years for US credit-card purchases, regulatory filings show. Standard US consumer credit rates will be capped at 125 basis points, according to the filings. 

As part of their opposition to the deal, the Merchant Payments Coalition said that Visa and Mastercard only agreed to limit the portion of the fees that they pass on to lenders - not the fees they keep for themselves. 

“The minuscule reduction proposed in the settlement on bank fees could still allow Visa and Mastercard to be able to raise their own fees without any limits,” said Jennifer Hatcher, an executive committee member for the MPC. “All of the supposed merchant and consumer savings could easily be canceled by Visa and Mastercard increasing their fees.”

Retailers have long bemoaned the fees. While Visa and Mastercard determine the size of interchange rates, the revenue is largely passed on to the banks that issue the cards, such as JPMorgan, Capital One Financial and Citigroup.

Earlier attempt

The new pact follows an agreement reached between the parties last year, which would have saved merchants at least US$30 billion over five years. That earlier accord - which would have been one of the most significant antitrust settlements ever - was derailed when US District Judge Margo Brodie rejected it in June 2024. 

At the time, Brodie voiced concerns about Visa and Mastercard’s “honour all cards” rule. While the reduction in interchange fees could save merchants about US$38 billion in the coming years, the vast majority of the estimated savings comes from the networks’ decision to tweak their rules for honoring all cards and surcharging, according to the analysis by Stiglitz and Leffler.

“We believe that this is the best resolution for all parties, delivering the clarity, flexibility and consumer protections that were sought in this effort,” Mastercard said in an emailed statement. “Smaller merchants will gain in this settlement – more acceptance choices, reduced costs and simplified rules.” BLOOMBERG