Visa, MasterCard Settlement & Your Business
Many large plaintiffs oppose the current Visa and MasterCard settlement, and the fight looks far from over.
Update: December 13, 2013 -- According to the Wall Street Journal, a judge cleared the swipe-fee settlement.
Earlier this month, Visa, MasterCard and several of the nation's largest banks settled an antitrust suit with a group of seven million retailers. The suit, which dates back to 2005, accuses the card networks and banks of conspiring to fix interchange fees that businesses pay to process credit and debit cards.
The settlement is seen as a victory by many fighting for interchange reform, but at least three plaintiffs in the case feel it doesn't go far enough.
What the Settlement Does
The current structure of the settlement has several components including cash, a rate reduction, merchant surcharging, and interchange negotiation.
Defendants in the case will pay $6 billion dollars in cash -- a total that may be reduced if some plaintiffs choose not to participate in the settlement. Visa has agreed to pay $4.4 billion with MasterCard picking up $800 million.
Temporary Rate Reduction
Many of the plaintiffs in the case will receive an interchange rate reduction of ten basis points (0.10%) for a period of eight months: a reduction valued at another $1.2 billion dollars. (Check out CardFellow's basis point calculator to see how basis points impact fees.)
Early reports indicate that the card networks will maintain a holding account for income generated by the 0.10% rate reduction so it is not intercepted by merchant service providers.
Allows for Surcharging
Beginning in early 2013, the settlement will allow businesses to impose a surcharge on customers paying with a credit card. Currently, Visa and MasterCard do not allow businesses to pass credit card fees to customers.
Group Negotiate of Interchange
Under the settlement, businesses would be able to band together in an effort to negotiate lower interchange rates.
Reading Between the Lines
Credit card processing fees are confusing, so it's no surprise that a multi-billion dollar lawsuit on the subject is equally complex. The settlement still needs to be approved by a judge in the Eastern District U.S. Court of New York who can accept the terms, reject the terms, or ask the parties to renegotiate.
Even in its current state the settlement leaves small businesses with a few important points to ponder.
Cash & Rate Reduction
The income a business receives from the initial cash payout and additional temporary rate reduction is relative to the amount of interchange fees the business pays. Large retailers that pay the most in fees will collect the lion's share of income generated from the cash payout and rate reduction.
Surcharging is Allowed*
Ten states, including California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma and Texas, each have a state law that prohibits surcharging credit and debit card transactions.
State law trumps the ruling in the settlement, effectively negating the benefit for many businesses.
Joining Forces for Lower Interchange
This component of the settlement has the greatest promise for small businesses. Details are sketchy at this point, but allowing small businesses to leverage the power of numbers to decrease processing expense is a true victory in this case.
Visa, MasterCard and issuing banks are in business to make money, and they don't like losing it. If the settlement takes a large enough chunk out of the card brands' bottom line, new fees may be implemented to make up the difference.
Opponents of the Settlement
Three of the largest plaintiffs in the case against Visa and MasterCard are also the most vocal opponents to the current settlement.
The Association for Convenience & Fuel Retailing (NACS) led the way against the settlement, and was joined by big-box retailer Target on July 23rd. Walmart also chimed in against the settlement on July 24th.
In an article on the NACS Web site Chairman Tom Robinson says, "Not only does the proposed settlement fail to introduce competition and transparency into a clearly broken market, it actually provides Visa and MasterCard with the tools to continue to shield swipe fees from market forces."
Target takes a similar stance in a statement on its own Web site that says, "Target believes the proposed interchange fee settlement is bad for both retailers and consumers. The proposed settlement would perpetuate a broken system, restrict retailers from any future legal action and offer no long-term relief for retailers or consumers."