Why Merchants Are Still Fighting Visa and Mastercard Over Swipe Fees
U.S. merchants have been locked in a courtroom battle with the two card giants for more than a decade. The latest settlement proposal – a modest 0.1 % cut in interchange rates and limited “opt‑out” rights – has drawn sharp criticism from industry groups such as the National Restaurant Association, Walmart, and Hugo Boss. Even as the case moves forward in the Eastern District of New York, the core dispute remains: who really decides the cost of a credit‑card transaction?
The “temporary” nature of the current deal
Critics argue that an eight‑year fee cap is a band‑aid, not a cure. The proposal would lower posted credit‑card interchange rates by just ten basis points for the first five years and set a 1.25 % rate for standard consumer cards for the full eight‑year term. After that, nothing forces Visa or Mastercard to keep fees low, leaving merchants vulnerable to future hikes.
Legal immunity that keeps the status quo alive
Both networks would receive sweeping protection from future antitrust suits. As the National Association of Convenience Stores put it, the settlement “forbids nearly every merchant in the country from challenging it as an antitrust violation in future years.” In practice, this means the duopoly can continue setting fees without meaningful competition.
Emerging Trends Shaping the Future of Interchange Fees
1. Heightened Regulatory Scrutiny
After the 2023 FTC investigation into credit‑card pricing, lawmakers are drafting new legislation that could limit the size of interchange fees outright. Expect more hearings in the Senate Banking Committee and possible amendments to the Dodd‑Frank Act that specifically target “swipe fee” structures.
2. Rise of “Visa‑plus‑Mastercard” Alternatives
Fintech firms such as Stripe, Square, and PayPal are building their own network‑level solutions that bypass traditional card rails. These platforms often bundle processing, fraud protection, and data analytics into a single fee, challenging the legacy model where the network, issuer, and acquirer each take a slice of the transaction.
3. Surge in Merchant Surcharging and “Opt‑Out” Rights
Some states (e.g., California, New York) have relaxed surcharging rules, allowing merchants to pass a portion of the interchange cost onto consumers. The proposed settlement would let merchants decline high‑cost Visa and Mastercard products and add surcharges on select cards – a precedent that could become the norm if regulators endorse it.
4. Data‑Driven Fee Negotiations
Advanced analytics let merchants benchmark their true cost of acceptance. A 2024 Nilson Report shows the average interchange rate climbing to 2.35 % in 2023, up from 2.26 % the previous year. Armed with this data, large retailers are demanding more transparent fee schedules and “tiered” pricing based on transaction volume.
5. Potential Impact of Blockchain and Tokenization
While still nascent, distributed‑ledger tech promises near‑zero processing fees for peer‑to‑peer transfers. If major retailers adopt crypto‑based solutions for loyalty points or direct payments, Visa and Mastercard could lose a slice of the merchant market that currently fuels the bulk of interchange revenue.
Real‑World Cases Illustrating the Shifts
- Amazon’s Independent Settlement (2024) – The e‑commerce giant secured a deal that caps its interchange fees at 1.1 % for five years, a rate well below the industry average. This move forced competitors to renegotiate their own contracts.
- Costco’s “No‑Surcharge” Policy – By refusing to impose surcharges, Costco leverages its massive buying power to negotiate a flat 0.8 % fee with Visa, demonstrating that volume can translate into lower rates.
- GrubHub’s Upcoming Trial (2025) – The delivery service’s antitrust lawsuit could set a precedent for how “default swipe fee” rules are evaluated under the Sherman Act.
What Merchants Can Do Right Now
Negotiate Surcharge Rights
If your state permits it, ask your processor to add a surcharge clause. Even a 0.5 % pass‑through can offset the bulk of a 2 % swipe fee.
Leverage “Opt‑Out” of High‑Cost Cards
Review the card portfolio you accept. Declining premium reward cards (e.g., Visa Signature, Mastercard World Elite) can shave off 0.2–0.4 % per transaction without alienating most customers.
Explore Alternative Networks
Platforms like Stripe Connect and Square Payments offer bundled pricing that can be more predictable than traditional interchange structures.
FAQs
- What is an interchange fee?
- It’s the fee that the merchant’s bank (acquirer) pays to the cardholder’s bank (issuer) for each credit‑card transaction, typically 1.5 %–3 % of the sale amount.
- Can merchants legally surcharge credit‑card purchases?
- Yes, in most states. However, the surcharge must be disclosed to the consumer and cannot exceed the cost of acceptance (usually capped at 4 %).
- Will the proposed settlement permanently lower swipe fees?
- No. The deal offers a temporary reduction (0.1 % over eight years) and does not address the underlying “default fee” rules.
- How do fintech alternatives affect Visa/Mastercard fees?
- Fintechs can route payments through their own networks or use APIs that reduce the number of intermediaries, often resulting in lower per‑transaction costs.
- What should a small retailer do if they can’t negotiate lower fees?
- Consider joining a merchant coalition (e.g., the Electronic Payments Coalition) to gain collective bargaining power and gain access to shared data on fee benchmarks.
Looking Ahead: The Battle Over Swipe Fees Is Far From Over
Whether through legislative action, the rise of alternative payment networks, or continued litigation, the pressure on Visa and Mastercard to reform their fee structures is mounting. Merchants who stay data‑driven, embrace flexible surcharge policies, and explore new payment ecosystems will be best positioned to thrive in a landscape where “swipe fees” are increasingly under the microscope.
Join the Conversation
What’s your experience with interchange fees? Have you tried surcharging or switching to a fintech processor? Share your story in the comments below, and subscribe to our weekly newsletter for the latest updates on payment‑industry litigation and trends.
