A PYMNTS Company

Credit Card Rewards Under Threat as Visa, Mastercard Settlement Impacts Swipe Fees

By  |  March 27, 2024
Fed's Data Hints at Slowing Embrace of Revolving Debt

Global payment giants Visa and Mastercard have reached a significant antitrust settlement with US retailers. This agreement, announced on Tuesday, March 26, is poised to have far-reaching consequences, potentially reshaping the realm of credit card transactions and rewards programs.

    Get the Full Story

    Complete the form to unlock this article and enjoy unlimited free access to all PYMNTS content — no additional logins required.

    yesSubscribe to our daily newsletter, PYMNTS Today.

    By completing this form, you agree to receive marketing communications from PYMNTS and to the sharing of your information with our sponsor, if applicable, in accordance with our Privacy Policy and Terms and Conditions.

    The settlement, pending approval from the presiding district court, promises to cap the fees associated with credit card swipes, which could have a profound impact on consumers, particularly those who enjoy the perks of premium credit cards like the Chase Sapphire Reserve or The Platinum Card from American Express.

    Merchants, who have long grappled with hefty interchange or “swipe” fees, stand to reap substantial savings, estimated to be nearly $30 billion over the next three years. These savings predominantly stem from the alteration of interchange fees, which typically range between 2% to 4% per transaction, depending on the card utilized. Notably, these fees play a pivotal role in funding credit card rewards programs, including cash back incentives, travel points or miles, as well as purchase protection and trip insurance.

    With Visa and Mastercard relinquishing control over interchange rates, retailers are empowered to negotiate lower transaction fees, potentially leading to a direct impact on consumers. While the specifics of such changes remain uncertain, it’s anticipated that retailers may pass on these reduced costs to customers, especially for transactions made with premium credit cards that traditionally incur higher processing expenses.

    Read more: Visa and Mastercard Reach Landmark Settlement, Slashing Transaction Fees in the US

    Michael Spelfogel, a renowned credit card loyalty expert and founder of Cardless, asserts, “It’s not a question of if, but when merchants will pass along transaction fees to consumers.” Spelfogel’s sentiment aligns with the concerns of many financial analysts, who foresee a scenario where credit card users could face heightened expenses as a consequence of this settlement.

    However, not all experts are in agreement. John Ulzheimer, a credit expert formerly associated with FICO and Equifax, offers a contrasting perspective. “Swipe and interchange fees are already being subsidized by cardholders to a great extent,” Ulzheimer notes. He believes that the reduction of these fees could potentially benefit consumers, particularly if retailers choose to pass on the savings directly.

    As the settlement progresses through the legal system toward resolution, the future implications for credit card users and rewards programs remain uncertain.

    Source: Business Insider