The two largest domestic payment card network brands, Visa (V) and MasterCard (MA), will cap interchange fees until 2030 according to a new agreement reached with US merchants last week. Essentially the accord settles a 2005 lawsuit brought by US retailers over non-negotiable transaction fees for accepting payment cards at the point-of-sale. On average, the 2-4% SMB credit card swipe fees are predominantly allocated toward interchange, which are paid to the card issuing institution. In other words, on a $100 transaction at a 2% swipe fee, there is a $2 credit card processing cost to the retailer, with $1.50 (75%) of that paid to the institution that issued that card, like Bank of America, as interchange. Many retailers object to the non-negotiable interchange fee structure and opacity of how it’s determined by Mastercard and Visa. Through a historical lens, these rates have risen dramatically over the last twenty years, despite much higher transaction volumes and the implementation of more efficient payment processing platforms. Visa and Mastercard assert the upward pressure on interchange rates are necessary to combat increasingly sophisticated fraud and the rising popularity of reward programs. So what’s the upshot of the settlement? US retailers will enjoy flat credit card processing fees for the next five years, and if history is any precedent, will not pass on any perceived savings to consumers.
