skip to main content

TSG Summary: Visa, Mastercard Swipe Fee Settlement

Vma Settlement Summary

Information (and misinformation) has been prevalent in the media concerning recent developments in the Visa – Mastercard antitrust class action lawsuit. As a reminder, the lawsuit entitled In re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation was brought in 2005 with claims that merchants paid excessive fees to accept Visa and Mastercard cards because Visa and Mastercard, individually, and together with their respective member banks, violated the antitrust laws (www.paymentcardsettlement.com/en). The defendants have denied these claims. 

TSG has received countless calls from clients this week looking to understand the impact on their business. The following TSG summary hopes to provide clarity about the new developments. To discuss further, don’t hesitate to get in touch with us

Part 1 of Settlement – Cash Settlement: In March 2023, after much litigation, the court finally approved a monetary portion of a settlement involving these claims under which the defendants would fund approximately $5.54 billion to be divided among merchants accepting Visa and Mastercard cards between January 1, 2004 and January 25, 2019. Claim forms for this portion of the settlement began to be mailed to eligible claimants in January 2024 with the deadline to file a claim by May 31, 2024. Over the years, TSG has worked with numerous merchant acquirers, payment facilitators, and their partners to assist in the navigation of the claims process to maximize the recovery for their downstream partners. Read more here

Part 2 of Settlement – Injunctive Relief (Preliminary Agreement): On March 26, 2024, the parties then submitted a settlement agreement proposal to the court to resolve the prospective injunctive relief portion of the suit by requiring changes to the card rules to enforce prospective changes. The parties have proposed a timeline for the court (which it may accept, reject or alter) to approve the settlement as follows: 

  • The Court to Issue a Notice and Scheduling Order 
  • Within 30 days after the Court’s Notice and Scheduling Order, notice to class members to be completed 
  • Within 90 days after the Court’s Notice and Scheduling Order, objections to the settlement agreement would be due 
  • Within 120 days after the Court’s Notice and Scheduling Order, any replies to the objections would be due 
  • At least 150 days after the Court’s Notice and Scheduling Order, a hearing would be held for final approval of the settlement. 

Given the litigation history between the parties which includes years of rulings and appeals, it is unclear if or when this aspect of the settlement will be approved. Regardless, PSPs, Merchant Acquirers, ISVs, and ISOs may want to begin thinking about potential impacts to their businesses if certain aspects of this proposed settlement are adopted. 

Terms of Part 2 of Settlement: Injunctive Relief 

If the Court approves this portion of the settlement, Visa and Mastercard will be required to make changes to their rules and practices. These changes will remain in effect for at least five years, unless otherwise noted. The rule changes and other benefits for the Class are summarized below. [For a detailed description of the rule changes and other benefits, please refer to the Rule 23(b)(2) Class Settlement Agreement, paragraphs 16–79.]  

Surcharge Rules on Credit (not Debit) Cards 

Merchants will have an expanded ability to charge a fee to customers who pay with Visa- or Mastercard-Branded Credit Cards, at the brand or product level as follows: 

  • Brand Level Surcharge Rules on Credit (not Debit) Cards: A brand-level surcharge is one in which the merchant imposes the same surcharge on all of a particular network’s (e.g., Visa’s) credit cards regardless of the issuing bank (e.g., Chase) or the product (e.g., Visa Signature card). Under the Settlement Agreement, a merchant can surcharge all Visa-Branded Credit Cards up to 1% regardless of whether the merchant also surcharges other comparator credit cards that it accepts, e.g., American Express or Discover. Under the Settlement Agreement, a merchant can surcharge all Visa-Branded Credit Cards up to 3% (or the merchant’s cost of acceptance if it is less than 3%), if the merchant either (a) does not accept other comparator credit cards (e.g., American Express or Discover) or (b) does accept those comparator credit cards but also surcharges them in at least the same amount. The same rules apply to surcharging Mastercard-Branded Credit Cards at the brand level. 
  • Product Level Surcharge Rules on Credit (not Debit) Cards: A product-level surcharge is one in which the merchant imposes the same surcharge on all of the network’s (e.g., Visa’s) credit cards of a specific product type, e.g., Visa Signature credit cards, regardless of the issuing bank (e.g., Chase). Under the Settlement Agreement, a merchant can surcharge a particular Visa-Branded Credit Card product up to 1% regardless of whether the merchant also surcharges the comparable products of other comparator credit cards that it accepts (e.g., American Expressor Discover). Under the Settlement Agreement, a merchant can surcharge a particular Visa-Branded Credit Card product up to 3% (or the merchant’s cost of acceptance if it is less than 3%), if the merchant either (a) does not accept other comparator credit cards (e.g., American Express or Discover) or (b) does accept those comparator credit cards but also surcharges their comparable products in at least the same amount. If the merchant cannot readily determine its cost of acceptance of the Visa product at the point-of-sale, before authorization using electronic data, the merchant can consider its cost of acceptance to be 3%. The same rules apply to surcharging Mastercard-Branded Credit Cards at the product level.  
  • Surcharging Visa but not Mastercard, and Vice-Versa: The Settlement Agreement provides that, subject to the rules described above, a merchant may surcharge Visa-Branded Credit Cards(at the brand or product level) but not Mastercard-Branded Credit Cards (at the brand or product level), or surcharge Visa-Branded Credit Cards at one level (brand or product) and surcharge Mastercard-Branded Credit Cards at a different level (brand or product),and vice versa, in any combination.  
No-Discounting and Non-Discrimination Rules 

Visa and Mastercard will modify their “no discounting” and “non-discrimination” rules to clarify that merchants may offer discounts to their customers at the issuer level, i.e. discounts that vary by the issuing financial institution of the credit or debit card.  

All-Outlets and Non-Acceptance Rules 

Visa and Mastercard will continue to permit a merchant to decline acceptance of Visa- or Mastercard-Branded Cards at all outlets that operate under the same trade name or banner, even if the merchant accepts Visa- or Mastercard-Branded Cards at outlets that operate under a different trade name or banner. Visa and Mastercard will also clarify that merchants do not need to employ the same types of permissible steering (i.e., steering in a manner otherwise permitted by the rules, as modified by the Settlement Agreement) in all of their outlets.  

Non-Acceptance Experiments 

The Settlement Agreement requires the networks to modify their rules to permit merchants to run Pilot Programs. In particular, the revised rules will permit a merchant to decline acceptance of Visa- or Mastercard-Branded Credit Cards at up to 20% of its outlets that operate under the same trade name or banner, for up to 120 days.  

Honor All Wallets Requirements 

Visa and Mastercard will modify their “Honor All Cards” Rules to indicate that a merchant may: (1) accept some but not all digital wallets that are provisioned with a Visa- or Mastercard-Branded Card at brick-and-mortar locations; and (2) enable some but not all digital wallets that are provisioned with a Visa- or Mastercard-Branded Card for on-line transactions, subject to certain conditions. The Settlement Agreement also allows merchants to steer cardholders among the cards within a digital wallet under the same rules that govern steering among traditional Visa- and Mastercard-Branded Cards. 

Reductions for Merchants 

Beginning upon the district court’s approval of the Settlement Agreement and continuing for at least five years, neither Visa nor Mastercard will increase any of its posted U.S. credit card interchange rates above the rate that existed as of a certain date, (e.g. December 31, 2023). In addition to those posted-rate caps, each of Visa and Mastercard will also implement a Posted Interchange Rate Reduction of at least four basis points from the posted U.S. credit card interchange rates that existed as of a certain date (e.g. December 31, 2023). The Posted Interchange Rate Reduction will stay in effect for a period of not less than three years.

In addition to the provisions regarding posted interchange rates, each of Visa and Mastercard will also implement an Average Effective Rate Limit. The Settlement Agreement requires each of Visa and Mastercard to ensure that its average effective credit card interchange rate (including posted rates and negotiated rates) is at least seven basis points lower than the average effective credit card interchange rate for the12-month period ending on a certain date (e.g. March 31, 2024). The Average Effective Rate Limit will continue in effect for five years. An independent third-party auditor will monitor and review Visa’s and Mastercard’s compliance with the Average Effective Rate Limit and will submit annual summaries of its findings to the Court. Visa and Mastercard will implement any adjustments, including retroactive reconciliation or rebalancing, necessary to come into compliance with the Average Effective Rate Limit.  

Merchant Buying Groups 

To the extent necessary, Visa and Mastercard will modify their rules to permit merchants to form Merchant Buying Groups. Merchants that form buying groups that meet certain criteria may make proposals to Visa and Mastercard, on behalf of the group’s members, concerning interchange rates and rate categories; merchant rules; merchant fees; network practices and procedures; and any other aspect of the operation of Visa or Mastercard that impacts merchants. Visa or Mastercard is obliged to, in good faith: consider the Merchant Buying Group’s proposals; determine if the proposal sets forth commercially reasonable benefits to merchants, consumers, the network, and all other stakeholders; and conduct reasonable, bona fide negotiations with the Merchant Buying Group concerning the proposal.  

Merchant Education Program 

The Settlement Agreement establishes a fund of $15 million for a third party to set up and operate a Merchant Education Program to advise and educate merchants about the rule changes and how merchants can benefit from them. The education will include information about the benefits of and methods for forming and joining Merchant Buying Groups. It will also include specific information on permissible ways to differentiate among Visa- or Mastercard-Branded Credit Cards based on the issuing bank (i.e., issuer-level differentiation). 

Contact TSG to discuss further.


About TSG 

TSG (The Strawhecker Group) is a globally recognized analytics and consulting firm that supports the entire payments ecosystem, serving over 1,000 clients from Fortune 500 leaders to more than a dozen of the world’s most valuable brands. Trusted by industry leaders, TSG’s strategic services, market intelligence, and analytics merge to empower clients with actionable and accessible information. Please visit www.tsgpayments.com