Visa and Mastercard agree to $30B settlement that will lower merchant fees | Hacker News Reader

Visa and Mastercard agree to $30B settlement that will lower merchant fees

cnn.com

36 pointspeutetre21 comments

> The settlement, which only applies to US merchants, is the result of a lawsuit filed in 2005. However, nothing is considered finalized until it receives approval from the US District Court for the Eastern District of New York.

> Typically, swipe fees cost merchants 2% of the total transaction a customer makes — but can be as much as 4% for some premium rewards cards, according to the National Retail Federation. The settlement would lower those fees by at least 0.04 percentage point for a minimum of three years.

It took a 20 year antitrust lawsuit to bring a 2% fee down to 1.96% for 3 years? Am I reading that wrong? Or maybe this is more about reducing the additional fees for premium rewards cards?

> It took a 20 year antitrust lawsuit to bring a 2% fee down to 1.96% for 3 years?

It's worse than that.

See: https://www.creditslips.org/creditslips/2024/03/the-proposed...

"When the litigation began in 2005, average interchange fees were 1.75%. After the settlement, they will be at 2.19%"

"Credit card interchange fees after the settlement will be 25% higher than when the litigation began."

"When the litigation began in 2005, American merchants paid the highest interchange fees in the developed world. After the settlement, American merchants will still pay the highest interchange fees in the developed world."

When your transaction flow represents trillions of dollars, fractions of a percentage point is still huge amounts of money

>The settlement, which only applies to US merchants, is the result of a lawsuit filed in 2005. However, nothing is considered finalized until it receives approval from the US District Court for the Eastern District of New York. Even then, the case can also be appealed in what could be a lengthy battle.

You're telling me it took 20 years to settle the lawsuit and even then there might be an appeal process? That seems like an extraordinarily long time.

Waait.... the merchants pay for the rewards?

Yeah that was a surprise to me as well, and just sounds like one of the biggest grifts I've ever seen.

e.g. As Visa/MC, I market a product that literally discounts everything you buy, and make my business partners (the merchants) pay for it. That keeps my margins the same, limits my downside risk, and raises the upside ceiling...all on someone else's dime.

Yes. And that is why some places like food trucks charge 3% transaction fees instead of 1 or 2%

Essentially. Take the Visa credit card lines for example -- Visa Infinite cards have a higher transaction fee than a Visa Signature card, and the high-end travel cards will be of the Infinite variety (Chase Sapphire Reserve).

Well, ultimately, you pay for the rewards because merchants set their prices to account for what they expect to pay in payment processing, just like any other marginal cost.

Even loyalty programs like the card with stamps you might get at your local coffee shop got priced in somewhere along the way.

This is the thing that people never really seem to realize.

In the end, all costs are borne by the customer because there's really no other source of revenue.

Now since the costs are already in the price, you "give up" something by paying cash, but that's getting less and less common because more and more places are offering cash discounts (now that the feds sat on the processors).

> In the end, all costs are borne by the customer because there's really no other source of revenue.

This would be considerably more relevant if the price paid was related to the costs in any meaningful way. 50+ years of economic study demonstrates rather conclusively that it is not.

The price paid will not long be below the costs.

The best example of this is (was?) gas stations, where the ones taking cash or debit only would be cheaper, because the credit card processing is a significant cost in a low-margin product-interchangeable market.

The bigger companies try to make you THINK that there's a difference between their gallon of gas and that other gallon over there that came from the same depot, but there really isn't.

> you pay for the rewards ...

No, I don't pay for the rewards on my premium rewards credit card.

For the most part, my rewards are paid for by everyone else who doesn't have a premium rewards credit card.

Premium rewards cards cost merchants a lot more to accept than regular credit cards and debit cards.

Rewards cards: 5% to 10% of total volume with swipe fees of 2.5% to 4.0%

Regular credit cards: 30% to 40% of total volume with swipe fees of 1.5% to 2.5%

Debit cards: 50% to 60% of total volume with swipe fees of 0.5%

Yes, merchants build their payment costs into the prices of their products, but they generally don't charge different prices depending on what card the customer uses.

So the majority of the population that doesn't qualify for a premium rewards card is effectively paying more for everything to subsidize the more wealthy people at the top.

Where else would the money come from?

I was expecting that Visa/Mastercard would use a percentage of the existing fees, not add "more fees from the merchant to cover the rewards".

Ohk. The trick is that the "existing" fees are different for different cards. And merchants can't opt out of the fat cards without dropping all the cards from that network. So some refuse AmEx, but very few dare drop Visa.

Basically racketeering.

There are at LEAST four negotiations that occur.

Merchant negotiates with their payment processor (NOT Visa/MC usually, but a middleman like Stripe or their bank or whatever). Depending on this negotiation, it may be a flat percentage, a per charge fee + a smaller percentage, or even a dynamic percentage depending on card type or transaction type, or other variations - rumor has it that Costco gets 0% fees from their processing deal with the bank for their card.

Payment processor negotiates with the network, and this is much more likely to be where "you pay for the rewards" happens - Visa/MC is the other party and they pass costs along, but usually the payment processor "bundles" everything to simplify it for the merchants.

Then Visa/MC (and somewhat Amex/Discover but those are kind of special cases) negotiate with the issuing bank about what they will get (basically, the payment amount - the Visa/MC "cut").

The bank then negotiates with YOU about what rewards and other features you get with your card.

Each layer can have a negotiator decide to absorb some of the costs for certain reasons. But looking at the above, you realize why stores push their store card so hard. They can be all four of the above if they want to. And 3% is worth it.

We need national payment infra so this BS doesn't continue. I want 0% rewards and 0% merchant fees using BIP/SEPA/UPI so all this grift goes back into the economy.

The customers pay for it, through higher prices. Those paying in cash and receiving nothing in return suffer the most. But in general everyone apart from Visa & co loses.

Visa's stock price hasn't taken off the way it did for no reason, it's a genius business model since the majority of people don't even understand it. They think they get cashback, they don't understand where all those fees come from that visa earns. Credit cards the way they exist today are one of the biggest legalized scams in history.

It's getting a bit better now that they finally broke the back of the "if you take credit cards you must not provide a cash discount" which was straight up anti-trust monopoly abuse.

Now most of the smaller restaurants around here have a sign saying "prices reflect a 3% cash discount" - and the auto repair shop charges 3% to use a credit card but nothing to use debit or cash.

[dupe]

Lots of discussion a few days ago here: https://news.ycombinator.com/item?id=39828091

Reply on news.ycombinator.com