Mastercard, Visa, and Affiliated Banks Sued Over Inflated Fees

The multinational technology company Block Inc. is suing Mastercard, Visa, and their affiliated banks over the high cost of accepting credit card payments. Founded in 2009 by billionaires Jack Dorsey and Jim McKelvey, Block earned a cool $17.53 billion in 2022, and may just have enough money to stay in the fight. Here's what we know about the suit thus far.

It's all about interchange fees

If you're not familiar with the term "interchange fees," you're not alone. Interchange fees -- also called network fees -- are the fees merchants must pay Mastercard or Visa each time they accept payment with a card carrying the Mastercard or Visa logo.

On average, Mastercard charges an interchange fee of 1.5% to 2.6% each time a consumer swipes their card or uses the digital wallet on their smartphone to make a purchase. Visa charges, on average, 1.4% to 2.5%. The precise fee depends on the type and size of the merchant and which card the consumer uses.

Let's say you own an auto repair business, and after working on a customer's car, the repair bill comes to $1,500. If the customer pays with a Mastercard, you must pay the credit card company between $22.50 and $39 simply for accepting payment through Mastercard. If the customer pays using a Visa card, you'll pay between $21 and $37.50 off the top.

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In its lawsuit, Block alleges that member banks involved with each network colluded to keep network fees high and use their market power to sustain anticompetitive practices.

How merchants have been painted into a corner

Mastercard and Visa have an "Honor All Cards" policy. Under this policy, Mastercard or Visa may require merchants that accept one of its payment products to honor all of its products as payment. For example, if a business accepts Visa credit cards, the business must also accept debit and prepaid cards with the Visa logo.

To confuse the situation even more, Mastercard and Visa set different rates for credit cards, debit cards, and prepaid cards, making it that much harder for businesses to track how much is coming out of their business bank accounts to cover interchange fees each month.

Given that American's credit card debt recently surpassed $1 trillion for the first time, it's clear that credit card use is on the rise. To stay in business, nearly all businesses must accept Mastercard and Visa, thereby tying them into whatever rules the two companies set.

Since businesses are not allowed to choose which credit cards they accept, the lawsuit contends that banks issuing Mastercard and Visa cards have no incentive to compete with each other by lowering fees.

Another brick in the road

This is not the first time Mastercard and Visa have been sued over interchange fees. For example:

• Back in 2014, Walmart sued Visa for $5 billion, accusing the company of charging excessively high card swipe fees.
• In 2019, Mastercard and Visa agreed to slash fees in Europe if European Union regulators would end an antitrust probe into their interchange practice.
• In March 2023, gas station operators celebrated when an appeals court upheld a $5.6 billion settlement agreement over swipe fees.

And in January 2023, the antitrust division of the U.S. Department of Justice sought additional documentation from Visa as part of its investigation into the credit card company's fee practices.

Whether this new suit will move the needle is yet to be seen. In the meantime, you may want to ask retailers you visit regularly whether they offer a discount for cash payments.