Visa, Mastercard Agree to Lower Swipe Fees, Settling Long-Running Lawsuit

The pact would lower all rates by 0.04 percentage point for three years, and the average rate across the networks would be lowered by 0.07 percentage point for five years.

The legal team that struck the deal for the merchants said that would amount to eliminating $30 billion in fees over five years. The networks and banks collected $72 billion in total interchange fees last year, according to card data company Nilson Report.

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The proposed settlement would create some changes to give merchants more choice on accepting cards, allowing them to guide consumers to cards that have lower fees.

It would also give small businesses the ability to form groups to negotiate swipe fees, similar to what large retailers already do today.

The settlement requires approval from a federal judge in Brooklyn, N.Y. Earlier deals have dragged through years of rulings and appeals, which could happen again with this pact given the wide range of merchants involved and their varying opinions. 

Doug Kantor, general counsel of the National Association of Convenience Stores, said the settlement provides only modest relief while failing to meaningfully address the core issue of Visa and Mastercard allegedly fixing swipe fees with the banks.

“I would expect there to be a lot of merchant opposition to this settlement,” said Kantor.

Visa said Tuesday it was making meaningful concessions to small businesses. Mastercard said the settlement will bring closure and value to business owners.

The legal team representing the merchant plaintiffs said the proposed settlement would provide immediate relief on fees and help eliminate restraints on their businesses.

Merchants first brought this contentious class-action lawsuit against Visa, Mastercard and banks in 2005. They alleged the card network companies and banks have colluded to keep interchange fees inflated. 

Interchange fees are set by the card network companies. Merchants then pay these fees to banks whenever consumers use credit cards to purchase goods and services. Though small individually, they add up to billions of dollars a year. The merchants wanted the ability to negotiate fees directly with the banks. 

Visa, Mastercard and the banks have already settled part of the suit, agreeing to pay the merchants nearly $6 billion. Last year, an appeals court affirmed that settlement. 

This new proposed settlement aims to tackle the remaining aspects of the suit, where retailers wanted to address what they said was the anticompetitive nature of the card networks. 

Visa and Mastercard face other battles over their dominance in the card industry. 

U.S. senators are pushing legislation to give merchants the ability to process Visa and Mastercard credit cards over other payment networks. 

There is also a bill aiming to cap the interchange fees on credit cards, similar to legislation that already regulates the fees on debit cards.  

The Justice Department has asked for documents about debit cards in an antitrust investigation, both companies have said.

Write to Angel Au-Yeung at angel.au-yeung@wsj.com

Corrections & Amplifications
A settlement involving credit-card networks and banks would lower all rates by 0.04 percentage point for three years, and the average rate across the networks would be lowered by 0.07 percentage point for five years. An earlier version of this article incorrectly said the settlement would lower the rates by 0.04 percentage point and keep them there for five years. (Corrected on March 26)