Visa and Mastercard have reached a settlement to end their years-long legal battle over credit card fees. This agreement will soon have a substantial impact on prices for consumers and merchants alike. Decades of conflict and unhappiness between card issuing banks and merchants have burned into this solution. From the beginning, both sides have fought tooth and nail over the financial impact of these fees.
Consumers will pay less in fees to accept Amex credit cards under the new agreement. It’s true that cards with fewer rewards usually have lower costs associated with them. This is hugely attractive to many shoppers, nudging them towards choosing their more economical choices. This increased complexity adds a layer of confusion and difficulty for merchants. Indeed, tens of thousands of merchants have established minimum spending limits for credit card purchases, with many starting at just $10. These types of policies are the result of long-fought battles against the financial burden of merchant fees.
Merchants are finally getting the opportunity to make their voices heard in this fight against credit card company price gouging. They regularly advocate for reforms to what they consider unreasonable fees. These fees are a key factor in how credit card companies design and market their partnerships with firms. Those collaborations are important because they ensure that consumers enjoy a wide array of goods, services and travel benefits.
What credit cards do well is offering rewards targeted to consumer pain points. Certain business cards even provide 1-5% back on purchases made at office supply stores. Others offer just as compelling rewards on your home internet, cable and phone bills. Alternatively, cards can provide cashback rewards at gas stations, restaurants, and other select retail channels. These incentive architectures serve to enroll consumers. They contribute to the opaque and complex fee structures that merchants have to sift through.
Smart, targeted, ongoing efforts to fight against excessive credit card fees have only helped to increase costs for the hard-working business owners. Credit card company annual membership fees increased to record highs, hurting small businesses. Plus, late payment and penalty fees add to the growing list of financial burdens. Business owners face unique upfront costs tied to fraud investigations, further complicating and hardening their liability.
When credit cards are used frequently, there is a “financing” fee to the merchant of roughly 2.5%. This new fee would push more consumers to rely on credit cards for their daily expenses. Despite the challenges posed by these fees, the average consumer owns about four credit cards, reflecting a reliance on these financial tools for managing expenses and earning rewards.
Here’s how the settlement reached recently between Visa and Mastercard will bring fees down for many consumers. It remains to be seen how this will play out for merchants in the long run. More affordable cards could drive consumers toward cards that offer less rewards. Merchants might still feel the sting of the fees they’ve fought against for the past several years.