Visa and Mastercard just settled a 20-year lawsuit over swipe fees - bringing an end to "honor all cards."
A Brooklyn judge gave preliminary approval to a $38 billion deal with ~12 million merchants, a case that started in 2005 over a dispute over the fees merchants pay to accept cards. Under the settlement, Visa and Mastercard agreed to lower fees by 0.1 percentage point for five years, while standard consumer rates would be lowered to no more than 1.25% for eight years.
This was a big cloud hanging over both Visa and Mastercard, but now U.S. District Judge Brian Cogan in Brooklyn, New York, said the settlement was "fair, reasonable, and adequate," and that he was likely to eventually grant final approval. (Per Reuters)
The stocks have reacted well: @Visa +1.7%, @Mastercard +2%.
But this comes with a catch.
Honor All Cards just cracked. It's the rule that forces your corner coffee shop to take a Chase Sapphire Reserve (a Visa Infinite, one of the priciest cards to accept) at the same till as a plain no-rewards card. Interchange funds the rewards. Rewards drive the spend.
Now merchants can refuse whole card tiers: commercial, premium consumer (including many rewards cards), and standard consumer. They still can't refuse a single issuer, so no "Visa yes, Chase Visa no." The keystone bends; it doesn't break.
This chips at a fundamental promise. A network logo used to mean that card, whatever it was, would work. Now the tier decides, and at some tills it won't. A frankly horrible checkout experience waiting to happen at your local Bodega.
In practice, nearly 90% of credit card spend sits on rewards cards (Bankrate). No merchant turns away their best customers at the register.
Which is why the networks could afford to hand it over.
This is a war that's never really over.
The 2013 settlement got approved too. The appeals court threw it out in 2016.
It just seems to drag on, and merchants are never happy.
Lawfare is a reality in payments.
A Brooklyn judge gave preliminary approval to a $38 billion deal with ~12 million merchants, a case that started in 2005 over a dispute over the fees merchants pay to accept cards. Under the settlement, Visa and Mastercard agreed to lower fees by 0.1 percentage point for five years, while standard consumer rates would be lowered to no more than 1.25% for eight years.
This was a big cloud hanging over both Visa and Mastercard, but now U.S. District Judge Brian Cogan in Brooklyn, New York, said the settlement was "fair, reasonable, and adequate," and that he was likely to eventually grant final approval. (Per Reuters)
The stocks have reacted well: @Visa +1.7%, @Mastercard +2%.
But this comes with a catch.
Honor All Cards just cracked. It's the rule that forces your corner coffee shop to take a Chase Sapphire Reserve (a Visa Infinite, one of the priciest cards to accept) at the same till as a plain no-rewards card. Interchange funds the rewards. Rewards drive the spend.
Now merchants can refuse whole card tiers: commercial, premium consumer (including many rewards cards), and standard consumer. They still can't refuse a single issuer, so no "Visa yes, Chase Visa no." The keystone bends; it doesn't break.
This chips at a fundamental promise. A network logo used to mean that card, whatever it was, would work. Now the tier decides, and at some tills it won't. A frankly horrible checkout experience waiting to happen at your local Bodega.
In practice, nearly 90% of credit card spend sits on rewards cards (Bankrate). No merchant turns away their best customers at the register.
Which is why the networks could afford to hand it over.
This is a war that's never really over.
The 2013 settlement got approved too. The appeals court threw it out in 2016.
It just seems to drag on, and merchants are never happy.
Lawfare is a reality in payments.
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