Payment Networks – Visa (V) and Mastercard (MC) – March 30, 2024

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Payment Networks – Visa (V) and Mastercard (MC) – March 30, 2024

Visa and Mastercard resolved a long-standing lawsuit with a large group of merchants this week. The complaints centered around processing fees charged by the networks, which arguably resulted in unnecessary consumer inflation. As part of the settlement, the two card giants will reduce interchange rates and cap those rates for 5 years. The financial impact of this (per the associated law firms) is expected to be $30 billion for both firms through 2030, and so $30 billion in aggregate savings for merchants.

The cap will be set at least 0.07% below December 2023 fee levels. The at least item enables bargaining power from larger merchants to be flexed for greater volume-based discounts. Smaller merchants can also pool resources to emulate that bargaining power. Still, the finite period of capping rates leaves the door open for card networks to revert to old fees once the agreement has expired. This seems like a bandage vs. a permanent fix. 

As a separate part of the news, card networks will also create a more open payment ecosystem in which merchants can seamlessly point customers to lower fee transaction methods. I don’t really see this leading to cost disinflation for consumers. Merchants will likely pocket this added margin for themselves, if I had to guess

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