Visa and Mastercard's $30 Billion Settlement Hits Major Roadblock

Hey Payments Fanatic!

Visa and Mastercard's proposed $30 billion settlement, aimed at limiting credit and debit card fees for merchants, is facing potential rejection. U.S. District Judge Margo Brodie of Brooklyn indicated she is likely to disapprove the settlement, citing court records from a recent hearing.

Judge's Standpoint: Judge Brodie plans to issue an opinion explaining her reasoning for this likely decision. Both Visa and Mastercard expressed disappointment, with Mastercard describing the settlement as a "fair resolution" and Visa calling it an "appropriate resolution" to the nearly two-decade-old case.

Background:

• Announcement: The settlement was announced on March 26.
• Purpose: To resolve most claims in the nationwide litigation involving more than 90% of settling merchants, mainly small businesses.
• Complaint: Merchants have long criticized Visa and Mastercard for charging excessive swipe fees and restricting cheaper payment alternatives.

Financial Context: Swipe fees, also known as interchange fees, reached $172 billion in 2023, doubling over the last decade. The Merchants Payments Coalition, representing various retailers and grocers, highlighted these figures.

Settlement Terms:

• Swipe Fee Reduction: From an average of 1.5% to 3.5%, down by at least 0.04 percentage points for three years.
• Rate Cap: Five-year cap on rates.
• Anti-steering Provisions: Removal of these provisions.

Criticism: The National Retail Federation, the world's largest retailer trade group, is among the objectors. It deemed the settlement "manifestly insufficient," arguing it provides "meager and temporary" benefits while allowing Visa and Mastercard to continue dictating swipe fees and imposing a broad ban on future claims by merchants.

For a deeper understanding of interchange fees, check out the explainer at the bottom of this newsletter.

Cheers,

Marcel

INSIGHTS

💳 Global Payments on track to 𝗶𝗻𝗰𝗿𝗲𝗮𝘀𝗲, whilst investment 𝗱𝗲𝗰𝗿𝗲𝗮𝘀𝗲𝘀.

Let me explain (backed by recent stats):

PAYMENTS NEWS

🇵🇭 Homegrown financial technology player BayaniPay raked in $3 million from a funding round intended to support the deployment of new global payment solutions that cater to enterprises. This brings the company’s total capitalization to $9.6 million.

🇦🇪 Paytiko brings its payment management solutions to Dubai, UAE. This strategic move aims to serve merchants better and collaborate with payment processors in the Middle East. The Dubai office will serve as a hub for innovation within the region’s payments ecosystem.

🇫🇷 FinTech Stripe announces updates for businesses in France. Stripe announced a range of product and partnership updates for businesses operating in France. This represents Stripe’s largest set of new products “for the French market since launching in the country in 2016.”

🇬🇧 CAB Payments has confirmed that veteran banker Neeraj Kapur has taken over as its new Chief Executive after its previous boss quit just months after the FinTech’s disastrous London float last year. The company announced that Kapur had received the necessary regulatory approval and would immediately take over from Bhairav Trivedi, who will remain as a senior adviser to the board.

🇫🇷 BNP Paribas and BPCE have announced a strategic partnership aimed at acquiring technology for processing payments for cardholders and merchants. This collaboration is poised to handle 17 billion transactions annually, covering all card payments from BNP Paribas and Groupe BPCE in Europe.

🇦🇺 Hello Clever & Tyro to offer instant cashback rewards to Australians. The Clever’s Instant Cashback Rewards platform, coupled with Tyro’s Loyalty API, is a solution that means customers get their money back within seconds vs up to 90 days for typical rewards programs.

🇵🇾 Argentine FinTech PayGoal collaborates with Bancard for the launch of Tokefon in Paraguay. With Bancard's Tokefon, more than 70,000 establishments will be able to charge their customers directly from their mobile phones, turning them into portable points of sale (POS).

GOLDEN NUGGET

𝗪𝗵𝗮𝘁 𝗶𝘀 𝗶𝗻𝘁𝗲𝗿𝗰𝗵𝗮𝗻𝗴𝗲, 𝗮𝗻𝗱 𝘄𝗵𝗮𝘁 𝗳𝗮𝗰𝘁𝗼𝗿𝘀 𝗶𝗺𝗽𝗮𝗰𝘁 𝘁𝗵𝗲 𝗶𝗻𝘁𝗲𝗿𝗰𝗵𝗮𝗻𝗴𝗲 𝗿𝗮𝘁𝗲?

Let’s dive in:

Every time a consumer swipes a card to make a purchase, the merchant pays an interchange fee.

Revenue from the fee gets divided among parties that facilitated the transaction: the banks that send and receive the payment, the card network, the payment processor, and—more recently—fintechs and businesses that embed payments.

When you take the bird-eye view diagram below 👇 as an example:

If a user swipes a card issued by a Neobank, $1.70 (interchange fee) goes to the issuing bank and the card network, $0.50 (acquiring fee) goes to the acquiring bank.

Interchange fees are not always the same though.

𝗪𝗵𝗮𝘁 𝗳𝗮𝗰𝘁𝗼𝗿𝘀 𝗶𝗺𝗽𝗮𝗰𝘁 𝗶𝗻𝘁𝗲𝗿𝗰𝗵𝗮𝗻𝗴𝗲 𝗿𝗮𝘁𝗲?

► Credit vs. Debit

Interchange rates on credit cards are significantly higher than those on debit cards.

► Rewards programs

These benefits are financed through higher interchange rates, and have proven to be very popular with consumers.

► Online vs. Offline

Online purchases are less secure than in-person purchases.

► Consumer vs. Commercial

Cards associated with business or corporate accounts carry higher interchange rates than consumer cards.

► Merchant Category Code (MCC)

Every merchant is categorized by the major card networks according to a Merchant Category Code (MCC). This means that there are different interchange rates depending on whether someone uses a card in a supermarket, a retail store, a gas station, or with some other form of merchant.

► The Card Network

Different card networks charge different rates. Visa and Mastercard are known for charging lower rates. Other networks like AMEX are known for charging higher rates.

► Network partner programs

Visa and Mastercard’s partner programs like VPP (Visa Partner Program) and MPP (Mastercard Partner Program) often give specific retailers interchange rates that are much lower than the networks’ published interchange rates.

► Size of the issuing bank (in the US 🇺🇸)

Larger banks are subject to a regulation called the Durbin Amendment that caps interchange rates on consumer debit transactions. Smaller banks are exempt.

As a result, these smaller banks can earn more revenue from interchange rates—and that benefits the FinTechs and embedded finance businesses that partner with them.

Want your message in front of 100.000+ FinTech fanatics, founders, investors, and operators?

Shoot me a message on LinkedIn.