By Teresa Rivas
Visa and Mastercard are calling a truce in the 20-year battle they've fought with the merchants who foot the bill every time a shopper uses one of their credit cards.
The agreement, according to the companies, would lower the fees that the stores pay and allow them to reject certain credit cards. The Eastern District Court of New York has to sign off on the pact; it was submitted for legal review on Monday.
While the consequences of the deal can't be fully known at this stage of the process, experts think cardholders will be affected far more than Visa and Mastercard.
At the heart of the matter are credit-card interchange fees, which merchants pony up when shoppers pay with plastic. Visa and Mastercard would lower the fees, which range generally between 2% and 2.5%, by a tenth of a percentage point for five years.
That might sound like small potatoes, but it really is big bucks. Banks and other financial institutions that issue Visa and Mastercard credit cards collected some $72 billion in interchange fees in 2023.
And it could mean overhauling those generous rewards programs, from cash back to airline points, that many cardholders love -- and use. The Consumer Financial Protection Bureau estimates that more than 90% of general purpose credit card spending in 2019 occurred on rewards cards.
Because cards with the more generous rewards tend to carry the higher interchange fees, they're usually the cards that retailers like the least.
And that comes to the second prong of the agreement: rejecting certain credit cards. Today, a merchant who takes one Visa card has to take them all. If the deal goes through and stores opt to reject certain cards, shoppers with juicy rewards could be left out in the cold.
Of course, retailers who take that route risk losing business. And take note: a court struck down a similar deal last year.
When asked for comment, a Visa spokesperson referred to the company's 8K filing: "The proposed settlement with U.S. merchants of all sizes that would provide meaningful relief, more flexibility and options to control how they accept payments from their customers."
A Mastercard spokesperson also referred Barron's to the company's 8-K filing. In a statement, the company called the agreement "the best resolution for all parties, delivering the clarity, flexibility and consumer protections that were sought in this effort."
For Visa and Mastercard, the agreement settles a 2005 lawsuit that merchants filed against the companies and issuer banks, alleging anticompetitive behavior.
It's more than fair to say that this dust-up isn't a new development that is blindsiding investors.
Wall Street analysts make that clear in their assessment of the agreement's impact.
Shareholders "are well versed in the materiality (or lack thereof) of the case to the economic and shareholder value creation at Visa and Mastercard," writes Evercore ISI's Adam Frisch. "It rarely comes up in conversation and is generally not seen as a major overhang to either stock when we talk to investors."
TD Cowen analyst Bryan Bergin was a little surprised to hear about the end of the honor-all-cards rule, but thinks merchants will simply adjust surcharges by card rather than reject any.
"Most importantly, merchants in the U.S. today can already surcharge on credit cards (though not by card type), and we believe surcharging has not been broadly adopted," he writes.
A TD Cowen survey shows about a third of respondents would still use a credit card that carries a 3% to 4% fee.
"The most material impact from this would likely be felt by issuers (and potentially major loyalty program partners) given direct interchange reduction; assuming 2% average interchange, it ultimately would be an approximately 5% hit to revenue," Bergin writes.
JPMorgan's Tien-tsin Huang calls the agreement a "manageable surprise," noting the fee reduction is less than expected. In addition, he thinks few retailers will refuse reward cards because "lower income consumers are the fastest growing cohort of reward card adopters."
Evercore's Frisch wonders if merchants will eventually be able to charge a fee for credit and offering a discount for cash at the same time -- and what that could mean for shoppers' ' preferences.
For now, though, card carriers have all the more reason to rack up rewards this holiday season before any potential changes take effect.
Write to Teresa Rivas at teresa.rivas@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
November 10, 2025 13:48 ET (18:48 GMT)
Copyright (c) 2025 Dow Jones & Company, Inc.
Comments