Two of the world’s dominant card networks, Visa and Mastercard, have announced a proposed agreement with merchants in the US that aims to resolve a dispute stretching back more than two decades and reduce the fees retailers pay when a consumer swipes, taps, or inserts a card.
Under the terms of the deal, the networks will reduce the average interchange fee by about 10 basis points (0.10% of a transaction) over the next five years. In addition, merchants will gain greater flexibility over which types of credit cards they accept, and specifically, they may be given the option to refuse premium or commercial cards that carry higher fees, rather than being forced to accept all cards from a given network under the longstanding “honor-all-cards” rule.
From a commercial-governance perspective the agreement is significant: it acknowledges that retailers have long argued the card networks set fees unilaterally, leaving them with little choice. The new framework signals recognition of merchant concerns and aims to put in place more transparent mechanics of cost distribution.
Competition Authorities Push for Transparency
Interchange fees, paid by merchants (via their acquiring bank) ultimately to card-issuing banks via the networks, have long been a source of tension. In the US, these typically hover around 2% of each transaction, far higher than regulated levels in other geographies such as the EU. Merchants argue that these costs erode margins and leave them exposed to rising payment-processing costs.
The legal backdrop is also key. This agreement comes after years of litigation: merchants challenged Visa and Mastercard over their interchange-fee setting and “no steering”/“honor all cards” practices. Given that backdrop, this deal is being positioned as a step towards settling that long-running conflict.
A Little Less Swipe, a Lot More Freedom
- A modest reduction in the average fee rate: minus 0.1% point over five years.
- More flexibility to choose which categories of cards to accept (standard-consumer, premium-consumer, commercial).
- Permission, in some cases, to surcharge cardholders who use higher-fee cards or to steer them toward lower-cost payment methods.
Small Discount, Big Disappointment?
The reduction is modest. A 0.10% reduction is small in relative terms, especially since many merchants pay fees of 2% or higher. Some trade groups argue the savings may be symbolic rather than transformative. Further, while merchants may have new flexibility, the networks remain dominant, and the deal still falls short of more radical reform or competition in processing.
Consumers May See Fewer Perks and More Surcharges
For merchants, even modest cost relief is welcome, especially in sectors where margins are tight and card use is ubiquitous. However, they still need to contemplate the extent to which the issuing banks or network retain a portion of the cost reduction. Additionally, when merchants have more freedom to reject premium-fee cards, the checkout payment policy could potentially become more intricate.
Consumers may experience a range of consequences. Cards that carry higher interchange fees, often premium rewards cards, may face treatment changes: merchants might decline certain high-fee cards or impose surcharges. Analysts have suggested that if interchange fees fall, issuers may trim rewards and perks tied to these cards.
From a regulatory and governance angle, the deal is notable. It signals that even large networks like Visa and Mastercard are under pressure to adjust fee structures and rules for acceptance. The fact that a tribunal in the UK recently ruled their interchange fees breached competition law adds weight to the broader global trend.
Change Is Coming—Slowly but Surely
While this agreement doesn’t overturn the payment-card economics for merchants, it does mark a meaningful shift. For anyone building out a payments infrastructure or advising retailers or card networks on strategy, it emphasizes that governance of fee-setting is now under scrutiny and subject to change. The user experience at checkout, cardholder behavior, reward card economics, and merchant acceptance policy may all evolve.
Ultimately, the devil will be in the implementation: how much of the cost relief is real and sustained, how many merchants actually exercise the new acceptance flexibility, and how the issuers and networks respond in terms of rewards, pricing, and card-type segmentation. This deal represents a significant milestone in the evolution of payment-card economics in the digital era.
