In the future, which credit card American consumers choose to use at checkout may affect the final price. This week, Visa and Mastercard reached a new settlement agreement with American merchants, granting them greater power. Merchants can now set flexible pricing standards, ushering in a new era of “tiered pricing”.
This settlement stems from a twenty-year-long antitrust lawsuit, focusing on the “interchange fees” that banks charge merchants every time a customer uses a credit card. The new agreement still needs court approval to take effect. Some merchant groups may have objections to the agreement’s contents, as a similar agreement last year was rejected due to opposition from some merchant lawyers.
In the past, if a merchant accepted one type of Visa card, they had to accept all Visa cards. The new agreement may change this practice, allowing merchants to selectively accept certain types of Visa cards. However, analysts point out that these categories are too broad, making it unlikely for merchants to refuse a specific type of card.
This settlement agreement only pertains to credit cards and does not affect debit card usage. Analysts suggest that a possible change could be the universalization of surcharges for card payments, leading to increased fees for consumers. Currently, some merchants already charge small processing fees for certain credit card users, and the new agreement allows merchants to differentiate charges based on the type of credit card. For example, a regular credit card may incur a 2.5% surcharge, while a high-reward card could face a 3% surcharge.
High-reward cards offer generous benefits such as cashback, travel points accumulation, discounts at specific merchants, and other perks, attracting a large number of consumers. However, merchants must pay higher “interchange fees” to banks for these types of credit cards.
The new agreement mandates that banks clearly label credit cards to help consumers and merchants identify the card type. Analysts estimate that this update may take several years to fully implement. According to a survey by TD Cowen, about two-thirds of consumers would switch to other payment methods to reduce costs when faced with a 3% to 4% surcharge.
Sara Rathner, a credit card analyst at the personal finance website NerdWallet, mentioned, “People have gotten used to casually using credit cards for payment without much consideration. But this situation may change soon.”
The new settlement also stipulates that over the next five years, Visa and Mastercard will gradually reduce interchange fees by an average of 0.1 percentage points from the current average of 2% to 2.5%. The banking industry has long believed that a reduction in interchange fees could impact credit card reward systems. However, analysts believe that the limited decrease is unlikely to shake consumers’ pursuit of existing benefits like travel points, cashback, or VIP room perks.
In recent years, the annual fees for high-end credit cards have significantly increased to support the generous rewards they offer. Many credit cards also collaborate with merchants to provide shopping discounts, with some of the costs borne by merchants to mitigate the impact of revenue fluctuations.
Analysts predict that the new regulations may intensify competition among banks to maintain loyalty among high-spending customers, as merchants will have new incentives to steer consumers towards lower-cost payment methods.
Rathner commented, “It’s hard for me to imagine that issuing banks would be willing to eliminate popular reward programs.”