US Retailers May Face an Uphill Road To Challenge Visa, Mastercard Swipe Fees 

U.S. retailers, via the Merchants Payment Coalitions, have sent a letter to the Federal Trade Commission (FTC) and the Department of Justice (DoJ) on Wednesday urging regulators to investigate credit card fees. 

The letter comes after Amazon reversed its decision in the U.K. to ban Visa cards in its network due to the high fees charged by the card company. “We believe U.S. authorities should look closely at what Amazon has done in the U.K. and need to be aware that many retailers here feel the same,” said the letter. “Despite the reversal, Amazon’s move shows how frustrated even the largest retailers are over skyrocketing swipe fees, and the situation is even worse for small retailers.” 

Interchange fees charged by Visa and Mastercard to merchants have been in the antitrust spotlight for years. Most of the cases in the U.S. and in Europe have been closed via settlements. Nonetheless, the legislative and judiciary decisions in Europe and the U.K. show how difficult it will be for retailers to find a solution to this situation. 

Swipe fees in Europe have been regulated since 2015 through the Interchange Fee Regulation (IFR), which imposed caps at 0.2% for debit cards and 0.3% for credit cards. Meanwhile, in the U.S. fees can be as high as 2.22% of transactions, like the levels seen in Europe before the introduction of the IFR. Europe reviewed the IFR in 2020 and it concluded that it increases the volume of card payments and lowers costs for merchants and consumers. Thus, it decided to keep the same caps, at least until the next revision or until new forms of payments can exert enough pressure to Visa and Mastercard. 

Retailers in the U.S. have different routes open if they would like to challenge Visa and Mastercard’s fees. The first one is trying to convince regulators to adopt similar regulations to the IFR in Europe, imposing caps on swipe fees. This option has probably more chance of success in the Biden administration with Lina Khan at the helm of the FTC than before. However, it would be difficult for the FTC to justify a new norm that would transfer the benefit from one company (i.e. Visa and Mastercard) to another (i.e. merchants). In the long-term this benefit should be passed on to consumers, but these effects are more difficult to calculate and integrate in a new rule. 

The other route is to challenge the fees in court and claim damages for these high fees, but this seems even more difficult, and it won’t change the fees in the long term. Card companies have faced litigation in the U.S., and in Europe they still do, and the cases have demonstrated that these high fees may not be the result of anticompetitive conduct but simply because of market power. Proving that Visa and Mastercard engaged in anticompetitive agreements with banks to set the fees is difficult, but even if plaintiffs do — as in Europe, where regulators established that these agreements were anticompetitive before adopting the IFR — courts have not always awarded damages to plaintiffs. 

Merchants may prefer to focus their efforts now on persuading regulators rather than engaging in drawn-out legal battles. However, the solution may come from neither of them, but from new payments solutions such as real-time-payments that may force card network companies to push prices down.