On March 26, credit card giants Visa and Mastercard reached a monumental $30 billion settlement with retailers. The settlement ends a longstanding legal battle over the interchange fees that retailers must pay to banks each time a customer uses a credit card for a purchase. The lawsuit over the so-called “swipe fees” alleged that Visa and Mastercard had engaged in anticompetitive practices, leading to inflated fees. Retailers have long argued that these fees, which average around 2% of each transaction, are excessively high and a burden on their businesses. As part of the settlement, Visa and Mastercard agreed to reduce their fees, which could provide significant financial relief to retailers.
A Victory for Retailers
While the retailer class that brought the case against Visa and MasterCard did not achieve their original goal of eliminating swipe fees entirely, the settlement is viewed by many retailers as a step towards fairer competition in the payment processing industry. By addressing antitrust concerns related to swipe fees, this agreement aims to foster a more competitive market environment, offering retailers greater choice and negotiating power when it comes to payment processing solutions.
Retailers directly involved in the class-action suit are expecting significant funds to flow their way. For large retailers like Walmart, Target, and Home Depot, the settlement terms could translate into payouts of hundreds of millions of dollars or more. Smaller retailers stand to receive lesser but still meaningful sums based on their annual credit card sales volumes.
Beyond the direct payout to retailers, the settlement outlines new caps and a reduction in swipe fees over the next five years. While the exact figures have not been disclosed, analysts estimate the proposed caps could reduce overall swipe fees by 10-15% annually compared to projected rates without the settlement, resulting in a $6.8 billion decline in swipe fees for merchants annually by 2029. These savings have the potential to translate into increased profitability for businesses and lower prices for consumers.
Looking Ahead
It’s important to note that the $30 billion settlement is still pending approval by a judge. While that approval could signal a broader transformation in the credit card ecosystem, until the court’s final decision, the exact terms and timeline of implementation remain subject to change. It’s imperative that businesses that may be affected by this settlement monitor its progress and proactively strategize to mitigate potential drawbacks while capitalizing on emerging opportunities in the changing financial landscape. As always, ARB will keep an eye on this issue and provide updates as details continue to evolve. If you have questions, don’t hesitate to reach out to one of our financial professionals for more information.
Holly Ferguson is a principal at ARB and the Practice Leader of the firm’s Accounting & Attest, Manufacturing, and Credit Union Services Teams. She provides industry-specific services for manufacturers, distributors, credit unions, businesses, and nonprofit organizations. Throughout her career, Holly has provided manufacturers with financial reporting consulting services, assisted with transactional accounting and consulting related to business acquisitions/sales, and analyzed implications and strategic implementation of new accounting standards. She is the former Treasurer on the Board of Directors and Finance Committee of the Manufacturers Association of Maine.