Visa and Mastercard might have a deal to lower merchant fees. Your rewards card could get hit

By Gordon Ebanks, CNN

(CNN) — Visa and Mastercard have a potential deal with retailers that would lower fees for merchants, potentially lowering prices but threatening prized consumer rewards.

The deal, which is still subject to court approval, could mean big changes for businesses and consumers. In 2024, over a third of all purchases were made with credit cards and those who use them might face new surcharges when they swipe or have to use another form of payment if businesses don’t accept their card.

And because credit card companies finance credit card rewards, lower interchange fees may mean fewer perks. “If you were to lower interchange fees, you probably have to also lower rewards,” Joanna Stavins, principal economist and policy advisor at the Federal Reserve Bank of Boston told CNN last month. That’s because “rewards are financed by interchange fees.”

The two credit card giants have been entangled in a lawsuit brought by retailers for the last 20 years that alleged the companies have fixed the price of interchange fees — a large portion of the fees merchants pay when a customer makes a purchase with a credit card. The companies were close to reaching a settlement last year, but U.S. District Judge Margo K. Brodie rejected the $30 billion proposal.

The proposal announced this morning would see the two companies bring down interchange fees by 0.1% over the next five years, give merchants the choice to add surcharges when customers pay with credit cards as well as the option to refuse premium cards, which often charge substantially higher fees.

“After more than 20 years of litigation, Visa and Mastercard have reached a proposed settlement with U.S. merchants of all sizes that would provide meaningful relief, more flexibility and options to control how they accept payments from their customers,” Visa told CNN.

Mastercard said that “smaller merchants will gain in this settlement – more acceptance choices, reduced costs and simplified rules.”

The proposal from Visa and Mastercard specifically states that the deal is not an admission of wrongdoing.

The National Retail Federation, a powerful trade group representing retailers, called the proposal “window dressing.” A press release issued in response to reports of the proposal said the reduction in interchange fees doesn’t go far enough to address the rise in interchange fees, which they say average around 2.35%.

The European Union capped credit card interchange fees at 0.3% in 2015.

Sources familiar with the matter told CNN that they believe the proposal from Visa and Mastercard, which has accumulated widespread opposition from retailers, is unlikely to be enacted.

“It’s remarkable that anyone could think a temporary 10 basis point reduction — barely more than last year’s increase — is fair compensation for allowing a credit card duopoly to maintain their pricing cartel for eight more years,” said the National Restaurant Federation.

“If the courts can’t fix this, it’s time for Congress to take action,” said the National Retail Federation’s General Counsel Stephanie Martz.

This story has been updated with additional reporting and context.

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