Expert Quotes: What Visa and Mastercard's $30 Billion Deal Means for Credit Cards

Visa and Mastercard recently announced a major legal settlement with retailers that promises to reduce credit card processing fees. This deal could lead to $30 billion of cost savings for merchants during the next five years.

But what does the Visa and Mastercard deal mean for credit card customers? Could rewards credit cards get worse because of this deal? Are reward points going away? We talked with Dave Grossman, credit card rewards expert and Founder of MilesTalk (milestalk.com), to get his thoughts on the immediate future of credit cards now that Visa and Mastercard are lowering fees for merchants.

First, some good news for credit card customers: Dave Grossman does not believe that this deal is the end of anything important for your favorite credit card rewards programs. But the future of making payments with your credit cards could get more complicated.

How big of a deal is this $30 billion Visa-Mastercard deal?

Visa and Mastercard have been battling in court with national retailer organizations for almost 20 years about swipe fees. Those are the credit card processing fees that happen behind the scenes whenever you use your card to make a purchase; about 2.24% of every credit card transaction gets paid by the merchant, store, or restaurant where you're shopping.

Consumers don't usually notice swipe fees, but merchants hate them. Two-and-a-quarter percent (or more) of every transaction adds up to serious money getting diverted from your favorite restaurant's bank account. According to the Merchants Payments Coalition, as of 2023, Visa and Mastercard swipe fees reached a record level of $100 billion.

Here are two reasons why this newly announced Visa-Mastercard swipe fee deal really isn't a big deal for credit card customers:

1. $30 billion = $6 billion per year: $30 billion of fee reductions sound like a lot of money, but reductions are promised over five years, or about $6 billion per year. That's only a 6% discount from 2023's record-high $100 billion of swipe fees.
2. Fees are being reduced by 0.04%: The specific reduction in swipe fees promised by the deal is only four basis points, or 0.04%.

"I do not think this will necessarily be the beginning of a change to credit card rewards," Dave Grossman said. "The reduction in fees in the short term is only 0.04%. It's a very small amount and one that Visa and Mastercard have surely planned around for quite some time. They are also agreeing to the lower fees for five years, not forever."

The Visa and Mastercard fee-reduction deal is not likely to be a big enough deal breaker to cause most banks to stop offering credit card rewards. But the big change could come in how merchants choose to accept credit card payments -- or not.

How the Visa-Mastercard settlement could change credit card payments

One big point of contention in the long-running legal battle of retailers vs. Visa and Mastercard was the issue of "honor all cards" rules. Before this settlement, retailers were required to "honor all cards" issued by Visa or Mastercard, whether they're low-cost basic cards with no rewards, or premium credit cards with big rewards (like 5% points multipliers). Honoring all cards could cost retailers more.

But from now on, as a result of the settlement, retailers will no longer be forced to honor all cards. Instead, merchants will be free to adjust their pricing or set surcharges for different types of cards. This could lead to a complex tangle of surcharges and mental math every time you're deciding which credit card to use for a purchase. Will the retailers actually go through with this?

"We have no idea right now if merchants will actually do this for many reasons," Dave Grossman said. "One is that customers would feel put off. If the merchant has a sign that says, 'These cards have a 1% surcharge, and these other cards have a 3% surcharge,' and the customer only carries one card, which happens to be a rewards card at the higher surcharge level, what kind of damage does that do to the customer relationship?"

Retailers often feel annoyed by credit card processing fees. But do they want to risk annoying their customers even more? Time will tell.

Why premium rewards credit cards could take a hit

Now that merchants have the freedom to charge higher fees for certain credit cards, this could be bad news for premium credit cards that offer the highest rewards. This could cause a back-and-forth chess match between banks and retailers, trying to re-establish a new profitable equilibrium for the best rewards credit cards.

"If merchants really were to become very aggressive about charging significantly higher fees for rewards cards, an effect might be customers switching into cards with less rewards and lower fees," Dave Grossman said. "Of course, that could then cascade into credit card issuers reworking cards to give fewer rewards and commensurately lower the interchange fees on those cards. If this happened, it would be the fanciest cards with the highest annual fees and rewards that would get hit the most."

Bottom line

It's too soon to say for sure how the Visa-Mastercard $30 billion settlement will affect the future of credit cards. The ball is in the merchants' court now. "We will have to keep an eye out on how the merchants ultimately react," Dave Grossman said. "The status quo may in fact be the easiest path forward for merchants."

But if merchants start to charge extra fees or surcharges for premium credit cards, it's a whole new ballgame -- and credit card companies will likely respond with new fees or other changes.