Visa and Mastercard Ending 20-Year Feud: Merchants May Get Interchange Relief

Visa and Mastercard are reportedly nearing a landmark agreement to settle a 20-year-old legal battle with merchants by reducing interchange fees and offering shops more control over which credit cards they accept, as per a report by the Wall Street Journal. This development may significantly reshape credit card economics in retail.

Proposed Settlement Could Lower Fees and Change Acceptance Rules

Visa and Mastercard are considering lowering average interchange fees, which usually range between 2% and 2.5%, by around 0.10% over a set period. This deal would also enable merchants to decide which types of credit cards they wish to accept, rather than being obligated to accept all cards under a network if they choose just one. For instance, a retailer could choose to accept basic Visa cards but not reward or commercial variants.

Origin and Core Issues of the Legal Battle

The lawsuit was initiated in 2005 when thousands of merchants accused the credit card giants and major banks of anti-competitive practices, especially around rigid interchange fees and forced card acceptance policies. Over the years, tensions escalated as interchange fees increased, particularly on premium cards that come with lucrative consumer rewards funded mainly by these very fees.

Impact on Retail and Consumer Experience

If approved by the court, the proposed changes will allow more pricing flexibility for retailers, including the possibility to surcharge customers based on card type. This would also empower smaller businesses to better manage margins by refusing high-fee cards. The deal may also categorise card types such as rewards, commercial, and basic cards for easier decision-making on acceptance.

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Challenges in Finalising the Agreement

While the settlement appears close, challenges remain among attorneys representing various merchant factions. Disagreements between lawyers for small merchants and representatives of larger retailers or trade groups may delay final consensus. Past deals were rejected by the court, which raises questions about how cohesive this attempt is among involved parties.

Conclusion

The Visa and Mastercard settlement, if finalised and approved by the court, may usher in a new era of flexibility for merchants in handling credit card payments. From reducing interchange burdens to allowing selective card acceptance, this may rebalance dynamics between retailers and card networks after decades of friction.

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