After nearly two decades of litigation, the major credit-card networks Visa and Mastercard have reached a revised settlement valued at approximately USD 38 billion, intended to resolve claims by U.S. merchants that the networks — together with issuing banks — charged excessive “swipe” or interchange fees. While the deal signals a potential pivot in the retail payments ecosystem, it has drawn significant resistance from merchant advocacy groups who argue the reforms fall short of meaningful relief.
The roots of the dispute
Merchants have long argued that when consumers pay with credit cards, businesses face elevated costs in the form of interchange fees: small fixed charges plus a percentage of the transaction amount paid to issuing banks and passed through the card networks. Over time, the average fee for many credit-card transactions in the U.S. has hovered around 2 %–2.5 % — amounts that can significantly erode retail margins when aggregated across millions of transactions annually. According to a recent estimate, U.S. merchants paid about USD 111.2 billion in such fees in 2024.
The crux of the legal challenge alleged that Visa, Mastercard and major issuing banks engaged in anti-competitive behaviour by fixing interchange rates, enforcing rules that barred merchants from steering customers toward lower-cost payment methods (known as “anti-steering” rules), and obligating merchants under “honour-all-cards” mandates — meaning if a merchant accepted one card from a network, it had to accept all cards of that network, including high-fee premium or rewards cards.
In response to these and other allegations, the networks and banks have been embroiled in litigation for over 20 years. A prior settlement proposed at USD 30 billion was rejected amid concerns it would provide insufficient relief to merchants. The current USD 38 billion figure reflects the networks’ latest effort to secure judicial approval and draw the decades-long dispute to a close.
What the settlement offers
Under the revised agreement, Visa and Mastercard would reduce the average effective interchange rate by 0.10 percentage points (i.e., 10 basis points) for five years. In numerical terms, if a typical rate stood at 2.35 % in 2024, the reduction would bring it closer to 2.25 % during that period. More notably, “standard consumer” card rates would be capped for eight years at 1.25 % — a reduction exceeding 25 % compared with some recent averages.
In parallel, merchants would gain more flexibility. They would be able to opt to accept or decline card categories divided into three buckets: commercial cards, premium consumer (rewards) cards, and standard consumer cards. The agreement also permits merchants to surcharge credit-card payments up to 3 % and eases the honour-all-cards requirement, thereby granting merchants more discretion over which cards they accept.
From the networks’ perspective, Visa has emphasised that the settlement extends meaningful relief to merchants of all sizes and enhances flexibility. Mastercard has similarly said that small and medium-sized merchants stand to benefit from clearer rules, lower cost burdens and simpler acceptance frameworks.
Expert economic testimony filed in the case estimates that the combined reforms could save merchants upwards of USD 200 billion over the life of the agreement. That figure rests on modelling which assumes the lower rate caps, broadened merchant discretion, and indirect downstream benefits from increased competition in the payments supply chain.
Why merchants remain sceptical
Although the settlement includes notable concessions, the reaction from merchant groups has been sharply critical. Key trade associations such as the National Retail Federation and the Merchants Payments Coalition contend that the deal still leaves merchants paying disproportionate cost burdens, particularly for rewards-type cards that dominate consumer usage. They point out that while standard-card rates are capped, the fees for premium/rewards cards remain largely uncontrolled, and the networks retain the ability to raise other fees outside the capped categories.
Merchant advocates argue the core structural issue remains: Visa and Mastercard still set the rates that issuing banks pay, and the banks, in turn, design rewards programmes that implicitly shift cost burdens onto merchants. Critics note the settlement appears to introduce only shallow reductions in fees, and does little to disrupt the dominance of the networks in negotiating interchange and downstream card-issuance economics. One executive counsel characterised the relief as “too little, too late” given the scale of payments volume and the entrenched position of the card networks.
In rejecting the earlier USD 30 billion settlement, the presiding judge described the estimated annual savings — about USD 6 billion under that prior deal — as “paltry” compared to the roughly USD 100 billion in annual merchant fees. Observers of the current deal caution that unless the networks’ underlying pricing power is curbed, merchants may again find themselves absorbing high fees long after the formal settlement period ends.
Strategic implications for the payments ecosystem
The $38 billion settlement marks a potentially pivotal juncture in U.S. payments-processing culture. For merchants, the enhanced ability to decline certain high-fee card categories or impose surcharges could shift some negotiating power away from card networks and issuing banks. Over time, this may open the door for alternative payment methods to gain traction — including debit networks, real-time payments, or other forms of card-processing routing outside the dominant networks.
From the networks’ standpoint, the reduction in rate pressure and expanded flexibility could help stabilise their business models, especially as card-based transactions continue their long-term expansion. However, the deal arguably also signals the networks’ recognition of regulatory and litigation risks — a willingness to concede some control in order to avert further antitrust exposure.
For consumers and card-holders, the implications are less straightforward. On one hand, merchant savings could eventually translate into lower prices or better service. On the other, the relaxation of the honour-all‐cards rule and increased ability for merchants to surcharge could lead to more frequent “pay-with-cash” or “pay-with-cheap-card” prompts at checkout. That may shift cost burdens more visibly to premium card-holders, or lead to fewer rewards-card benefits as issuing banks adjust to lower interchange inflows.
Finally, regulators and legislative actors will be watching whether this settlement truly alleviates anti-competitive practices in the sector — or if structural reform (such as routing mandates or competition-opening legislation) remains necessary. Some merchants continue to urge passage of the Credit Card Competition Act to force greater payment-network openness, pointing to limits of negotiation under this settlement alone.
Timing, risks and next steps
The networks announced the revised deal in November 2025. The agreement remains subject to judicial approval and may face objections or modifications during court review. Should the court approve, implementing the fee reductions, rate caps and acceptance-choice provisions will be the next phase — likely involving issuer-network coordination, updates to merchant contracts, and changes in merchant‐acquirer relationships.
Risk remains for merchants in the interim. Even with the settlement announced, fee rates remain elevated relative to long-run competitive benchmarks and the risk of future fee increases or legacy contract terms persists. For the networks and issuers, the settlement may reduce litigation risk, but does not eliminate future regulatory scrutiny around payments economics, especially as digital payments continue to evolve globally.
Ultimately, the question is not simply whether the $38 billion deal will pass approval — but whether it genuinely reshapes the balance of power between merchants, card networks and banks, and whether the cost of card acceptance meaningfully declines over the long term.
(Source:www.cbc.ca)
The roots of the dispute
Merchants have long argued that when consumers pay with credit cards, businesses face elevated costs in the form of interchange fees: small fixed charges plus a percentage of the transaction amount paid to issuing banks and passed through the card networks. Over time, the average fee for many credit-card transactions in the U.S. has hovered around 2 %–2.5 % — amounts that can significantly erode retail margins when aggregated across millions of transactions annually. According to a recent estimate, U.S. merchants paid about USD 111.2 billion in such fees in 2024.
The crux of the legal challenge alleged that Visa, Mastercard and major issuing banks engaged in anti-competitive behaviour by fixing interchange rates, enforcing rules that barred merchants from steering customers toward lower-cost payment methods (known as “anti-steering” rules), and obligating merchants under “honour-all-cards” mandates — meaning if a merchant accepted one card from a network, it had to accept all cards of that network, including high-fee premium or rewards cards.
In response to these and other allegations, the networks and banks have been embroiled in litigation for over 20 years. A prior settlement proposed at USD 30 billion was rejected amid concerns it would provide insufficient relief to merchants. The current USD 38 billion figure reflects the networks’ latest effort to secure judicial approval and draw the decades-long dispute to a close.
What the settlement offers
Under the revised agreement, Visa and Mastercard would reduce the average effective interchange rate by 0.10 percentage points (i.e., 10 basis points) for five years. In numerical terms, if a typical rate stood at 2.35 % in 2024, the reduction would bring it closer to 2.25 % during that period. More notably, “standard consumer” card rates would be capped for eight years at 1.25 % — a reduction exceeding 25 % compared with some recent averages.
In parallel, merchants would gain more flexibility. They would be able to opt to accept or decline card categories divided into three buckets: commercial cards, premium consumer (rewards) cards, and standard consumer cards. The agreement also permits merchants to surcharge credit-card payments up to 3 % and eases the honour-all-cards requirement, thereby granting merchants more discretion over which cards they accept.
From the networks’ perspective, Visa has emphasised that the settlement extends meaningful relief to merchants of all sizes and enhances flexibility. Mastercard has similarly said that small and medium-sized merchants stand to benefit from clearer rules, lower cost burdens and simpler acceptance frameworks.
Expert economic testimony filed in the case estimates that the combined reforms could save merchants upwards of USD 200 billion over the life of the agreement. That figure rests on modelling which assumes the lower rate caps, broadened merchant discretion, and indirect downstream benefits from increased competition in the payments supply chain.
Why merchants remain sceptical
Although the settlement includes notable concessions, the reaction from merchant groups has been sharply critical. Key trade associations such as the National Retail Federation and the Merchants Payments Coalition contend that the deal still leaves merchants paying disproportionate cost burdens, particularly for rewards-type cards that dominate consumer usage. They point out that while standard-card rates are capped, the fees for premium/rewards cards remain largely uncontrolled, and the networks retain the ability to raise other fees outside the capped categories.
Merchant advocates argue the core structural issue remains: Visa and Mastercard still set the rates that issuing banks pay, and the banks, in turn, design rewards programmes that implicitly shift cost burdens onto merchants. Critics note the settlement appears to introduce only shallow reductions in fees, and does little to disrupt the dominance of the networks in negotiating interchange and downstream card-issuance economics. One executive counsel characterised the relief as “too little, too late” given the scale of payments volume and the entrenched position of the card networks.
In rejecting the earlier USD 30 billion settlement, the presiding judge described the estimated annual savings — about USD 6 billion under that prior deal — as “paltry” compared to the roughly USD 100 billion in annual merchant fees. Observers of the current deal caution that unless the networks’ underlying pricing power is curbed, merchants may again find themselves absorbing high fees long after the formal settlement period ends.
Strategic implications for the payments ecosystem
The $38 billion settlement marks a potentially pivotal juncture in U.S. payments-processing culture. For merchants, the enhanced ability to decline certain high-fee card categories or impose surcharges could shift some negotiating power away from card networks and issuing banks. Over time, this may open the door for alternative payment methods to gain traction — including debit networks, real-time payments, or other forms of card-processing routing outside the dominant networks.
From the networks’ standpoint, the reduction in rate pressure and expanded flexibility could help stabilise their business models, especially as card-based transactions continue their long-term expansion. However, the deal arguably also signals the networks’ recognition of regulatory and litigation risks — a willingness to concede some control in order to avert further antitrust exposure.
For consumers and card-holders, the implications are less straightforward. On one hand, merchant savings could eventually translate into lower prices or better service. On the other, the relaxation of the honour-all‐cards rule and increased ability for merchants to surcharge could lead to more frequent “pay-with-cash” or “pay-with-cheap-card” prompts at checkout. That may shift cost burdens more visibly to premium card-holders, or lead to fewer rewards-card benefits as issuing banks adjust to lower interchange inflows.
Finally, regulators and legislative actors will be watching whether this settlement truly alleviates anti-competitive practices in the sector — or if structural reform (such as routing mandates or competition-opening legislation) remains necessary. Some merchants continue to urge passage of the Credit Card Competition Act to force greater payment-network openness, pointing to limits of negotiation under this settlement alone.
Timing, risks and next steps
The networks announced the revised deal in November 2025. The agreement remains subject to judicial approval and may face objections or modifications during court review. Should the court approve, implementing the fee reductions, rate caps and acceptance-choice provisions will be the next phase — likely involving issuer-network coordination, updates to merchant contracts, and changes in merchant‐acquirer relationships.
Risk remains for merchants in the interim. Even with the settlement announced, fee rates remain elevated relative to long-run competitive benchmarks and the risk of future fee increases or legacy contract terms persists. For the networks and issuers, the settlement may reduce litigation risk, but does not eliminate future regulatory scrutiny around payments economics, especially as digital payments continue to evolve globally.
Ultimately, the question is not simply whether the $38 billion deal will pass approval — but whether it genuinely reshapes the balance of power between merchants, card networks and banks, and whether the cost of card acceptance meaningfully declines over the long term.
(Source:www.cbc.ca)
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