Visa, Mastercard to Cut Fees, Let Retailers Reject Certain Cards

It’s about to get a lot more important to look at the fine print on your credit card.

As part of a settlement they reached with retailers to end more than 20 years of litigation, Visa Inc. and Mastercard Inc. agreed this week to loosen their “honor all cards” policies. The rules required merchants to accept all types of Visa or Mastercard credit cards if they accepted any from the two networks.

The proposed deal could soon pave the way for retailers across the US to stop accepting cards that are branded as “Visa Infinite” or “Mastercard World Elite,” saving merchants a few pennies each time customers swipe their cards at checkout.

Bloomberg's Justin Teresi joins to discuss with Paul Sweeney and Scarlet Fu.

But for everyday consumers, it might mean the next time they reach for their $795-a-year Sapphire Reserve card from JPMorgan Chase & Co. at checkout, their favorite coffee shop just might send them packing.

“Longer term, we see potential for some added friction,” Dan Dolev, an analyst at Mizuho Securities USA, said in a note to clients. “However, merchants would also be risking disappointing their customers, which is a deterrent to not accepting cards or surcharging for certain types of cards.”

Economists expect the proposed settlement could ultimately save merchants more than $200 billion, making it one of the largest-ever class-action settlements of a US antitrust case. But a judge still has to sign off on the deal.

And history suggests that might not be a sure thing. An agreement reached between the parties last year, which would have saved merchants at least $30 billion over five years, was derailed when US District Judge Margo Brodie rejected it in June 2024, citing concern about the “honor all cards” rules.

Several trade groups representing merchants have already come out in opposition to the new deal, arguing it would be difficult for any retailer to stop accepting large swaths of the card networks’ products.

“Visa and Mastercard keep thinking that they can fool the court,” said Doug Kantor, general counsel at the National Association of Convenience Stores. “But there will be lots and lots of opposition explaining to the court that what Visa and Mastercard are trying to do doesn’t make sense and shouldn’t resolve the case.”

Big merchants have tried — and largely failed — to wean themselves off Visa and Mastercard’s products in the past. For instance, Amazon.com Inc., Walmart Inc. and Kroger Co. have all temporarily instituted bans on Visa credit cards in the past before they ultimately returned to accepting the products.

That’s because cash usage has dwindled rapidly in recent years and consumers now reach for their credit and debit cards more than 60% of the time when making a payment, according to a 2023 study by the Federal Reserve.

Smaller merchants have been more willing to experiment with ways to bring down their cost of accepting credit cards. About 16% of consumers have been discouraged from using their credit card at the point of sale in the last 12 months, according to a separate Fed study.

Growing Popularity

Fueled by the enduring popularity of the Sapphire Reserve and American Express Co.’s Platinum cards in recent years, other banks have been muscling into the premium credit card game.

For consumers, these cards typically offer a bevy of travel and dining benefits that can offset the hefty annual fees. For the lenders that have flocked to the space — such as Citigroup Inc. and Capital One Financial Corp. — they are more lucrative because they feature higher transaction fees at checkout.

Take a $100 purchase at a small supermarket, where profit margins are already razor thin. If a customer uses a traditional Visa card, the merchant would pay $1.27 in interchange fees. If the cardholder carries plastic branded with Visa Infinite — the network used by cards including the Sapphire Reserve — the fee would rise to $1.80 for certain transactions.

While Visa and Mastercard set those rates, it’s the bank that issues the card that takes home the bulk of the revenue.

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