Visa, Mastercard deal under fire

To recap: Visa and Mastercard reached a new settlement with merchants to lower fees in the US this November—another attempt to end a roughly 20-year fight in the courts, per SEC filings.

However, with merchants challenging the settlement from multiple angles, the legal battle is likely to continue.

What this means: The current agreement would lower networks’ average effective interchange rate by 0.1 percentage points for five years and cap standard US credit rates at 125 basis points.

Merchants would also have more freedom to discriminate against different categories of card—commercial, premium, and standard consumer—under laxer “honor all card” rules.

What could change? Retailers could elect to turn away rewards cards at the POS, which boast higher fees of up to 4%.

However, implementing these changes could cause mass confusion at checkout counters, as shoppers’ top-of-wallet premium cards are suddenly declined at common retailers like Walmart. This also risks alienating top US households who are more likely to use premium credit cards and who drive the lion’s share of spending growth in the US, per Moody’s.

Differing perspectives: While the proposed Visa-Mastercard settlement is being framed as a win for merchants, its benefits are far from uniform across the retail sector.

• The modest interchange reductions and new ability to steer customers away from higher-fee cards offer meaningful cost relief for small and midsize retailers that consumers may be more willing to support by using another card.
• However, those concessions are unlikely to move the needle for large national chains. They don’t materially change their economics, nor do they address the fundamental issue that networks and issuers still hold most of the pricing power.

That divide explains why not all retailers—most notably Walmart—are on board. Walmart argues that the settlement was negotiated without meaningful input from large merchants and that it does little to address their unique needs.

Rather than accept the settlement, Walmart wants broader structural change—namely, the ability to negotiate interchange directly with issuing banks and force true competition for acceptance. How this plays out will shape not just merchant costs, but the balance of power in the US payments ecosystem.