Wednesday, April 17, 2024
Richard Crone, of Crone Consulting LLC, disagrees, however. He said the settlement agreement, if approved, would be a "seismic shift" favoring merchants, who can now steer consumers to lower cost payment methods and collectively bargain for lower interchange. "This strategy isn't just for the likes of PayPal, but a tool for all merchants, big or small, to optimize their transaction costs," Crone stated.
The proposed settlement agreement, spelled out in a 160-plus page document and filed with a federal district court on March 26, 2024, includes major concessions by the card brands that are expected to save merchants more than $30 billion over five years.
The settlement stems from a lawsuit filed back in 2005 in which merchants alleged that Mastercard, Visa and card-issuing banks colluded to keep interchange high, and merchants from steering customer to lower-cost payment methods. Merchants also took issue with rules, primarily made by Visa, that discouraged surcharging and cash discounting.
Among the stated terms, Visa and Mastercard agreed to roll back all posted interchange by 4 basis points (0.04 percent) for at least three years; also, the card companies said that for five years, they would not raise interchange above the rates posted at the end of 2023.
Merchants also would be allowed to adjust prices charged their customers based on which payment card is used and explain to customers why some cards (typically rewards and business cards) cost more to use.
The proposed settlement, years in the making, still must be approved by a federal district court in New York.
Merchants aren't jubilant over the proposed settlement agreement. For example, some merchants take issue with the fact that it makes no mention of the numerous fees a merchant statement contains other than interchange. And indications are that hikes are planned for those fees, which, unlike interchange, flow directly to the card brands.
Visa and Mastercard adjust fees in April and October, and typically make these known through memoranda to acquirers and ISOs. The MPC, in a statement, asserted it had seen one such memo, from Mastercard, indicating at least one of the fees, the "acquirer brand volume fee" (which applies to all credit, debit and prepaid card payments) will rise from 0.13 percent to 0.14 percent beginning next month.
Based on Mastercard reports of handing $2.591trillion in card payments volume last year, that would amount to an annual revenue increase of $259.1 million, the MCA asserted.
Crone suggested these numbers are dwarfed by potential merchant savings under the agreement. Savings could be especially big for merchants using payment facilitators that can now collectively bargain on behalf of those merchants for lower interchange.
The card brands "made a show of 'settling' legal claims, but nothing in the settlement limits the fees that go directly to Visa and Mastercard. That left them free to continue to increase these fees and they are doing so already," said Doug Kantor, general counsel at the National Association of Convenience Stores and a member of the MPC executive committee.
Kantor suggested the move by the card brands to raise non-interchange fees lends credence to the need for the Credit Card Competition Act. That legislation, introduced by Senator Richard Durbin, D-Ill., would mandate that merchants be given a choice of at least two card processing networks, and only one of those choices can be owned by Visa or Mastercard.
Sen. Durbin threatened a hearing on the bill in February of this year and asked the chiefs of Mastercard and Visa to attend. The two executives declined, and in late March, he went to the Senate floor to publicly rebuke the two companies.
Sen. Durbin also pushed back on industry assertions that his bill, if enacted would lead to the demise of card rewards programs, adding that recent research suggests bank card profits "provide more than sufficient margin to maintain current reward levels."
The National Retail Federation, in a statement, also blasted the proposed settlement, and said it, too, would continue to seek passage of the Credit Card Competition Act. 
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