Visa and Mastercard Could Break the Rules That Made Them Billions

This article first appeared on GuruFocus.

Visa (NYSE:V) and Mastercard (NYSE:MA) could be nearing the end of a legal saga that has stretched for two decades, as talks progress toward a landmark settlement with U.S. merchants. According to people familiar with the matter, the two payment networks are close to an agreement that would lower credit-card interchange feestypically between 2% and 2.5%by around 0.1 percentage point over several years. The deal would also relax long-standing honor all cards rules, allowing stores to reject specific types of Visa or Mastercard credit cards for the first time. If approved by the court, the agreement could mark one of the most significant shifts in the payments industry since merchants first sued the companies in 2005 for allegedly restricting competition.

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For retailers, this could be the beginning of a long-awaited reprieve. The proposal would give merchants the option to decline premium rewards cards, which have surged in popularity but carry higher processing costs. These same rewards programsfunded by the fees merchants payhave become central to banks' and card issuers' profit engines. Allowing stores to refuse such cards could alter how consumers use credit, especially for those accustomed to cashback or travel points. The risk, however, is that some stores could face slower sales if they turn away high-spending cardholders. The proposal also includes renewed flexibility for surcharging, letting merchants pass on part of these costs directly to customers at checkout.

The timing of these negotiations reflects mounting tension between merchants and payment networks as fees continue to rise. In 2023 alone, Visa and Mastercard issuers collected roughly $72 billion in interchange fees, according to the Nilson Report. A prior agreement in early 2024 that sought a smaller reductionaround 0.07 percentage pointwas rejected by the court, prompting this revised effort. Even if the new settlement is approved, it would not end all litigation, as large retailers continue to pursue separate cases seeking damages tied to fee structures. For investors, this development could signal a shift in how the multitrillion-dollar U.S. payments ecosystem balances profitability with regulatory pressure, merchant costs, and consumer rewards economics.

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