US Visa and MasterCard Agree to Reduce Card Fees Worth 40 Trillion Won

Visa and Mastercard, two of the leading credit card companies in the United States, have agreed to lower card payment fees after about 20 years of litigation with merchants. The reduction in fees is estimated to amount to approximately $30 billion over the next five years.

[Image source=AP Yonhap News]

Visa and Mastercard announced this agreement in a press release on the morning of the 26th (local time). This is the result of ongoing legal disputes since some merchants filed a class-action lawsuit in 2005, alleging violations of antitrust laws.

According to the settlement, Visa and Mastercard will reduce the swipe fees charged to merchants by at least 0.04 percentage points over the next three years. Additionally, the overall average fees will be lowered by 0.07 percentage points from current levels over five years. Furthermore, merchants will be able to charge separate fees for cards with higher fees, encouraging customers to use other cards with lower fees.

The estimated fee savings over five years amount to $29.79 billion (approximately 40.14 trillion KRW). Kim Lawrence, President of Visa North America, stated in a press release, "By negotiating directly with merchants, we were able to reach a settlement that truly addresses the pain points of small and medium-sized businesses." According to Bankrate.com, the average card fee in the U.S. ranges from 1.5% to 3.5%.

For this agreement to take full effect, it must be approved by the U.S. District Court for the Eastern District of New York. Major foreign media outlets anticipate that the approval decision could come as early as the end of 2024 or the beginning of 2025. However, the possibility of appeals cannot be ruled out.

The Retail Industry Leaders Association (RILA) stated in a press release, "It is necessary to carefully assess whether this agreement can mitigate the damages caused by the current fee system." Adam Levitin, a professor at Georgetown University, predicted continued backlash against the settlement, saying, "If this is the result of about 20 years of litigation, it represents a huge loss for U.S. merchants."

There are also expectations that this could impact the profitability of banks issuing these credit cards, such as JP Morgan Chase and Bank of America (BoA). Regarding this, George Convoy, Chairman of Brighton Securities in the U.S., said, "There may be short-term effects, but it will not be a long-term blow to large banks with diverse revenue sources."