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Visa, Mastercard reach settlement with US retailers, agree to fee concessions worth almost 30 billion

Merchants win a significant battle against Visa and Mastercard’s fee structure, but the war on fair charges is far from over.

Payment card giants Visa and Mastercard recently reached a settlement with merchants, promising to reduce swipe rate by 0.04 percentage points for three years and ensure that the average rate remains 0.07 percentage points below the current for the next five years. According to Reuters, both companies agreed to cap rates for the next five years, remove the so-called ‘anti-steering’ provisions and allow merchants more discretion in offering discounts. The fee rollbacks and caps are believed to be worth at least $29.79 billion. This would make it one of the largest settlements in US history.

According to the New York Times, the dispute has its roots in a 2005 class action lawsuit filed by small merchants who argued that they had paid excessive fees to Visa and Mastercard. Each time a customer uses a credit card, the company charges a swipe fee (also known as an interchange fee) from the merchants, who in turn transfer it to the customers, essentially increasing the price of the item. Merchants have also accused the companies of preventing them from directing customers towards cheaper forms of payment through ‘anti-steering’ provisions.

Merchants have long argued that Visa and Mastercard charge exorbitant interchange fees that disproportionately affect small businesses. With this settlement, both companies have agreed to reduce the fee by 0.04 percentage points and not increase it for the next three years and maintain an average fee which is 0.07 percentage points less than the present average for the next five years. Merchants are also allowed to add surcharges to payments made using cards that have high platform fees.

However, this settlement has been criticised for being insufficient. Speaking to the New York Times, Christopher Jones, a member of the Merchants Payment Coalition said, “The settlement does nothing to actually bring competitive market forces to swipe fees or change the behavior of a cartel that centrally fixes rates and bars competition.”

The settlement comes one year after a federal court upheld a $5.6 billion settlement between Visa, Mastercard and more than 12 million retailers. Another payment card giant, American Express, was also sued in a separate but similar lawsuit last week.

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