Visa, MasterCard Agree to $7 Billion Swipe Fee Settlement
Visa, MasterCard and banks that issue their credit cards have agreed to pay $7.3 billion to some 7 million U.S. merchants in a lawsuit over the fixing of credit card and debit card fees. The settlement, which includes $6.05 billion in payments for past damages and a temporary reduction in fees valued at $1.2 billion, is believed to be the largest antitrust settlement in U.S. history.
Two prices for cash and credit?
The settlement, which still requires judicial approval, would also allow merchants to start charging customers more for using credit cards, subject to a cap and other limitations. This means we may see more widespread use of separate prices for cash and credit, a practice that to date has primarily been limited to some gas stations. The rules allowing such surcharges, however, would likely not go into effect until early 2013.
While American Express and Discover were not part of the lawsuit, their customers will also be affected if a merchant decides to add a surcharge, as part of the settlement requires merchants to not discriminate among card brands.
Consumers in California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma, and Texas would be protected from this particular change, as those states prohibit merchants from adding surcharges to credit card transactions.
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I don’t live in one of those 10 states and a 1-3% surcharge will get me to use cash far more often. I use no annual fee cards solely for the bonus points, but if I only barely break even or lose money there is little incentive to use for everyday purchases that rack up the fees credit card companies rely on. Then again im not the consumer credit card companies want because i pay in full each month. The big money is in businesses that will still use them for major purchases, and their employees for business travel (airlines hotels etc. that are reimbursed by their employers because of necessity and ease) thatwill pay the surcharges, as well as the people who rack up huge balances because they have no other lines of credit or don’t pay in full because they don’t have the money. They will lose a lot of business but retain their most profitable customers.
I think the U.S. payments industry is confronted with the possibility of a shift away from credit card use. Our economy has grown through access to credit. In the 20’s Henry Ford first lobbied the banking industry to initiate two year purchase plan for his cars, since, our economy has flourished on an easy access to credit and as a result our GDP has out grown all other nations from our ability to purchase goods and services. This may be a step backwards because the use and value of using credit cards may promote a change in consumer behavior, who as a result, would limit purchases because of things like account balances and cash on hand things we ignore when we serve our credit cards. Will this affect our GDP? Will this seed an inflationary market? How will it affect consumer behavior?