Will the Mastercard/Visa Settlement Upend Your Credit Card Strategy?
By Steve Cocheo, Senior Executive Editor at The Financial Brand
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Need to Know:
- Under the proposed settlement, cards would be divided into four categories: debit, standard credit cards, premium credit cards and commercial cards.
- The settlement cuts average interchange fees and imposes a cap on standard consumer credit card fees, although not on premium cards or rewards cards. Effective interchange rates would be frozen for five years. Fees fund the rewards offered by roughly 85% of active cards in the U.S. Only 7% of U.S. cardholders carry cards that don’t earn rewards.
- To recoup their fee costs, merchants could impose surcharges on card category and brand, to a maximum of 3%.
- The settlement has the potential to upend the U.S. credit card business. By limiting fee income and allowing merchants to reject cards that are expensive to accept, premium reward card programs could be crippled.
Ted Rossman and his family have a favorite pizza place, but a little slice of what he pays doesn’t go for sauce and cheese. It covers the pizzeria’s credit card swipe costs.
“They assess a 3% credit card surcharge and I don’t love that,” says Rossman. “But I don’t tend to carry a lot of cash. I have a credit card that gives me 3% dining rewards, so it’s kind of a wash if I pay with that.”
Rossman says he liked it more when he actually pocketed the rewards, but he says it’s not really that much per purchase. “If you’re spending 20 bucks at the pizza place and get a 3% surcharge, it’s 60 cents,” he says. “It does feel like we are being nickeled and dimed, but I don’t know if the average person is that attentive to it.”
It happens that Rossman is more than a consumer with a taste for pepperoni. He’s a senior industry analyst at Bankrate, specializing in credit cards and banking. He says that depending on how events play out in year ahead, more consumers could start noticing surcharges on credit card purchases. How they will react remains to be seen.
At issue is a proposed settlement from Mastercard and Visa in a class action case that’s been running for more than 20 years. A group of merchants and associations sued Visa, Mastercard and six major banks and related payments affiliates in a federal antitrust case called “In Re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation.” Boiled down, the case hinges on merchants’ complaints that interchange fees have been too high for too long.
The pending deal could affect acceptance of credit cards, increase the potential for surcharges to become more widespread among more merchants, change rewards programs and card marketing tactics, change consumer preferences for card types, and potentially shift some usage to debit cards. There is even talk that increased freedom to surcharge would dovetail with, and perhaps hasten adoption of, agentic payments.
Even experts don’t agree, and it’s possible that the debate will be moot if the settlement isn’t approved and the lawyers start over. In the meantime, the message Americans are getting in the general media is that rewards cards now wear a bullseye.
Some Realistic Perspective on the Proposed Deal
The proposed settlement, which became public earlier in November, is the third attempt to put the case to rest. The federal judge on the case rejected the second settlement offer from the industry. This one goes deeper. Final approval, if granted, might not come until late next year, or even 2027.
News of the settlement, ironically but not coincidentally, comes after a summer when ultra-premium cards like American Express Platinum and Chase Sapphire Reserve received major upgrades in perks, as well as higher annual fees. In addition, Citi introduced its own entry, Citi Strata Elite, and Capital One stoked its own entry, Venture X.
And rewards cards overall are more popular than ever — only 7% of U.S. cardholders carry cards that don’t earn rewards of some kind, according to research by Comperemedia, a Mintel company. An industry gauge is that 85% of active cards carry incentives.
Highlights of the proposed settlement, with acknowledgement to Glenbrook Partners, LLC:
• The longstanding “honor all cards” rule, where a merchant accepting Visa or Mastercard must take all such cards, would be withdrawn. Merchants could decline to accept entire categories, but not cards from an individual issuer. Cards would be divided into four broad categories: debit, standard consumer credit cards, premium consumer credit cards, and commercial cards. Issuers would have to add identifying marks to premium and commercial cards.
A major objection of merchants has been the existing rule’s requirement that they accept all Mastercard and Visa credit cards, both those with typical interchange rates and rewards and commercial cards with interchange fees of 4% or higher.
• Interchange fees would be adjusted. For example, a 10-basis point reduction on weighted average interchange fees would be imposed, for both standard and negotiated fees. A 1.25% cap would apply to standard consumer credit card interchange fees — but not to premium cards nor rewards cards. Effective interchange rates would be frozen for five years.
• Merchants could impose surcharges both by category of card and by brand. The top surcharge would be the lesser of 3% or the merchant’s actual costs, including interchange and network fees. They would have to disclose the surcharges by category, brand and type. Merchants could also offer incentives specific to particular issuers.
Merchant groups didn’t favor the proposed settlement, on announcement.
The National Association of Convenience Stores called it more “smoke and mirrors.” The National Retail Federation called the offer “window dressing” and said that “this is the third attempt to settle this case and the card industry either just doesn’t get it or just doesn’t care.” NRF called the 10 basis point reduction “inadequate” compared to the average swipe fee of 2.35% in 2024. The Merchant Payments Coalition, in opposing the settlement, pointed out that swipe fees “are too high to absorb, leading to higher prices.”
Merchant-favored legislation pending in Congress, the Credit Card Competition Act, would require banks over $100 billion in assets to enable cards to be processed over at least one unaffiliated network, besides Visa or Mastercard, to stimulate competition in fees.
“I think the action on the honor all cards matter is a bit of a sweetener that may be in there to appease the court,” says Bankrate’s Rossman. “A 10 basis point reduction is not that much, and really not that different from the previous proposal.”
Broad Acceptance Is Expected (and Priceless)
It’s as basic as the stickers that some stores still have on the doors, and as up to date as ecommerce sites that display logos of what they’ll take in payment: For something like five decades, a Visa was a Visa was a Visa, and likewise Mastercards.
“The whole business model around bank cards has been based on certainty, the honor all cards rule. You know that you’re going to walk into an establishment and your card is going to work. It’s based on trust on all sides of the transaction,” says Andrew Davidson, SVP and chief insights officer at Comperemedia, a Mintel company. He specializes in cards and banking. Under the terms of the proposed settlement, that certainty could potentially be eroded if merchants exercise the right, say, to not accept rewards cards.
“Premium credit cards are an aspirational status symbol,” says Davidson, “but they could suddenly become a liability.”
That’s if merchants decline to accept a category of card. But that introduces an interesting dynamic. Once people discover that the Visa or Mastercard they carry — as a card, or, increasingly, as a stored card on a mobile phone’s digital wallet — they could switch to another card. Or, they could stick with their card, but switch to another merchant, one that accepts their choice of payment — and pays for their juicier rewards. (The possibility that the card will be accepted, but with a surcharge, is a third fork in the road, which we’ll come to later.)
Early coverage and social media discussions raised the specter of premium and rewards cards being rejected, but there’s disagreement about the likelihood of that.
“It’s all a bit of a red herring,” says Tony DeSanctis, senior director at Cornerstone Advisors. “I don’t think anybody really wants to put any kind of friction into their checkout process. Merchants spend most of their time trying to eliminate friction.”
Early days, maybe rejections will be seen among some merchants who want to be “pedantic,” DeSanctis adds. “Some will do it, just out of spite, but I don’t think that’s economically the right thing to do. They’ll announce it as something they’re doing, but I don’t know how long they’ll do it for.”
Some merchants also have a vested interest in acceptance, such a co-branded cards for airlines, hotel brands and physical and online retailers — including Amazon’s co-branded cards with Chase and Synchrony. Such card partners aren’t going to make it harder for their co-branded card to be used on their own goods and services, after all.
The potential for consumer pushback is strong, according to Davidson. “The credit card industry has encouraged loyalty through these rewards programs. Consumers have taken on these cards and suddenly they’re going to get penalized when they present them to pay for things?”
Questions remain about exactly which cards fall into which categories, so some of this still has to be sorted out. Amendments could be in the future, too, though DeSanctis believes Mastercard and Visa have made some of the types of concessions that the judge in the case wanted to see.
“Merchants will have a little bit of say in what they accept,” through the categorization that’s been set up under the proposal, says Bankrate’s Rossman, “but they can’t get super granular about this. They can’t say, ‘We’ll take the Chase Freedom Flex, but we won’t take the Chase Sapphire Reserve because that one costs us more.’ They can’t even say they’re not going to take those that charge fees above 3% or that they’re not going to take luxury travel cards.”
That said, Rossman doesn’t see the idea of not taking any rewards cards as a viable choice for merchants — too many of the cards out there are rewards cards.
“If they were going to do that, they would already be a cash-only business,” says Rossman.
Read more:
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Are Merchants Missing a Coup in the Settlement?
There’s a contrarian argument to the merchant groups’ dislike of the proposal, too. Richard Crone of Crone Consulting LLC considers the ability to distinguish between card categories to be an explicit avenue for merchants to “tender steer.” This refers to herding consumers towards the merchant’s preferred payment type or brand. Crone sees strong significance in this.
Merchants gain further control over the checkout experience, a critical fulcrum. “This is the single most empowering feature of the settlement, because it allows the merchants to control their destiny and lets the free market and the consumer decide what payment type they want to use,” says Crone.
Crone also believes that thoughts of merchants rejecting premium-category cards because of the interchange fees is an illusion. According to his firm’s estimates, the cream of those cardholders account for more than 12% of total card payment volume. He sees rejection as a dumb move — and therefore unlikely.
“No merchant is going to reject a particular card,” Crone says. “They will simply give the consumer the option to use that card and pay a ‘convenience fee’ for the prerogative of using that card.”
Read more: Consumers Diversify Borrowing as Credit Cards, Personal Loans and Home Equity Credit All Grow
Surcharges: A Stumbling Block or a Temporary Speed Bump?
The issue of surcharges, while not new, becomes more of a wild card should the proposal be approved.
Earlier this year J.D. Power released a study about credit card satisfaction and found that overall it had clicked up just one point out of 1,000. Among the reasons was the growing assessment of surcharges for using credit cards of any kind. Currently, it’s an all or nothing choice for merchants in the many states where surcharging is permitted, and under current Visa and Mastercard rules. LINK Sept story
Some data points from J.D. Power research among people holding cards of major issuers:
- Nearly two-thirds — 65% — have experienced being surcharged. Of that 65%, 81% say they have shifted to an alternative payment method to avoid the merchant surcharge.
- However, there is some stratification among cardholders according to the pricing of their cards. Among all cardholders who pay more than $500 a year for their card, only 22% say that they often select an alternative payment method when faced with a surcharge. Among those paying under $500 for the card annual fee, the percentage rises to 30%. And among those people with no-fee cards, 33% will often choose an alternate method to avoid the surcharge.
Now, this occurs under today’s rules of one rule for all Mastercards and Visas. And, according to a separate J.D. Power study, among small business owners, released in January, 34% of firms queried are surcharging customers for credit card purchases.
“Years ago merchants saw interchange fees as a cost of doing business,” says John Cabell, managing director, payments intelligence. Post pandemic, he says, a consensus began to develop among merchants that consumers should be paying for the privilege of using card products.
“If this settlement ends up being approved, that would fuel that fire even more,” says Cabell. “You would have more small businesses selectively implementing surcharges.”
If this happens, several shifts will take place, the experts predict.
Andrew Davidson and John Cabell think some consumers might start dropping down the hierarchy of cards, choosing to go with simpler cards that don’t carry rewards, in order to avoid surcharges. Davidson suggests that issuers might position them as surcharge avoidance cards, possibly ushering in growth for stripped-down products.
Davidson also thinks institutions might start issuing paired cards — one offering nice rewards, where surcharges aren’t being applied, one just a no-frills credit card. Banks issuing these pairs might retain volume in that way.
Rossman thinks many people aren’t aware of who is applying surcharges, not looking at bills to see if the fees have been added on, nor noticing signs on counters and such, which current rules do require. Those who do see them may grumble, and even post angrily on social media about it, he says, but they’ll probably go ahead and pay them, as they do now, for the convenience or because they aren’t carrying enough cash.
Personally, Rossman thinks merchants should just raise their prices and absorb the interchange fees, and let customers decide if that’s fair.
“But a lot of merchants seem to like tacking on the sneaky little line item,” Rossman says.
Read more from the archive: Surging Credit Card Surcharges May Push More Consumers to Cash, Debit
Points Mongers Will Insist on Their Points
Crone sees the card-using base as split. “Half of the market is what I call ‘points mongers’,” he explains. “The points mongers pursue the richest rewards, and will do all kinds of weird contortions in order to gain points.”
A special case among the points mongers are those holding the ultra-premium cards like Chase Sapphire Reserve, says Crone. The fees on such cards represent an investment. “To get the level of perks that they’ve already paid for, they have got to use the card,” says Crone.
Crone thrusts aside predictions of a P.R. nightmare if and when the settlement is approved and surcharging begins — if merchants frame the fees as convenience fees and not as surcharges. Decades ago, when using credit cards to pay utility bills became a thing, the utilities began charging people using cards instead of automated clearing house service. The attitude, he says, was that people paying with ACH shouldn’t be picking up a piece of the interchange costs the card users creating. So “convenience fee” was coined.
Over time, Crone thinks much of the issue will go away as agentic payments takes hold. Agents for the consumer will reach out to agents for the merchants and come up with the ideal instrument and a customized deal with offers and fees where needed. All of this will be executed under preferences and parameters set in advance by the agentic wallet holder.
“There are an average of 19 financial accounts in a household. Agentic wallets will interrogate them all and determine which one is the best to meet your budgetary constraints or to maximize your rewards or to minimize your surcharges,” says Crone. He says agentic wallets are advancing faster than anything he’s seen in his career, citing as one example Mastercard’s pledge to have its Mastercard Agent Pay in the field by Thanksgiving. Others think deep adoption will take some time yet.
Will Surcharges Drive People to Debit?
There’s skepticism about whether people will do the math and decide that what they pay in surcharges isn’t worth the points they’ll gain, or even whether many consumers will carry extra cash merely to avoid a surcharge at, say, a restaurant, out of sheer thrift.
“No merchant in their right mind wants to accept cash,” says Crone. “The outright cost of accepting cash is more than the cost of processing an electronic payment.”
“I think consumers will end up paying the surcharges without even noticing it, and just thinking of it as part of the cost of their meal,” says Tony DeSanctis. He doesn’t buy the majority paying out bills to avoid a fee.
But there’s an potential alternative: debit cards, which are not supposed to be surcharged, and which have much of the convenience of credit cards.
Unless there’s a separate, significant change on the regulatory front, DeSanctis doesn’t see the momentum for that. “Credit and debit card users are largely different breeds,” he says. Indeed, in many banking institutions, the two card types exist in separate silos.
Rossman agrees substantially with DeSanctis. “Debit is more about how to stay out of debt, or not having a great credit score, so you can’t get an attractive credit card,” says Rossman.
But he and Davidson both note that things are looking up for debit card rewards, which have been small compared to credit card rewards. During 2025 two airlines — United and Southwest — have started co-branded debit card programs with Galileo, SoFi’s tech platform, as processor and Sunrise Banks, N.A., a Durbin-exempt bank in Minneapolis. The latter status enables it to charge more for debit interchange. The programs tie into United’s Mileage Plus and Southwest’s Rapid Rewards programs. Galileo and the bank have a similar program with Wyndham Hotels & Resorts.
“So you’ve got a bit of a renaissance in debit rewards coming through,” says Davidson, “which might be a trend that emerges along with this because obviously those types of products would be potentially more appealing in a post-settlement environment.”
Crone adds that as agentic payments grows, it could favor debit transactions, which are favored by today’s younger consumers, who will increasingly be issuers’ main user base.
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