Credit Card Swipe Fees: What the Great Settlement Really Means

Credit cards are one of the most popular forms of payment in the United States. 77% of U.S. adults have at least one credit card and 36% of consumers use a physical or virtual credit card to pay for purchases. 

Even though they’re popular, credit cards are not entirely beneficial for businesses or consumers—and in many cases, they’re damaging and actually impact financial inclusion. While many assume credit cards make purchases easier, recent consumer and payment trends are showing pushback. 

Between pending legislation, a recently settled lawsuit, and record American debt, a perfect storm is brewing for merchants and consumers to move away from credit cards altogether. 

This post walks through the drama surrounding credit cards and presents a better alternative. 
‍

It all starts with interchange fees

Interchange fees or “swipe fees” are a 1-3% fee that businesses must pay to accept credit cards. Several parties get a cut of this fee, including the bank that issued that credit card used for payment, as well the card company, like Visa or Mastercard. 

Interchange fees are calculated as a flat rate plus a percentage of the sales total (including taxes). This means at a 3% rate, a merchant is paying $3 for every $100 sale. And those numbers add up quickly. 

Last year, U.S. merchants paid $101 billion in total credit card processing fees, including $72 billion in interchange fees, according to the Nilson Report. While these fees are typically considered a cost of doing business, they’re impacting the health of small businesses and raising prices for consumers. 
‍

The Credit Card Competition Act

The Credit Card Competition Act (CCCA) of 2023 is a bipartisan bill first introduced in Congress in 2022 that is designed to combat the current duopoly in the U.S. credit card network market—where Visa and Mastercard hold 80% control. 

The CCCA bill explained: 

The Board of Governors of the Federal Reserve System must prohibit certain credit card issuers with assets of over $100 billion from restricting the number of networks on which electronic credit card transactions may be processed. These transactions must be able to be processed on at least two networks and must not be restricted to networks (1) owned by or affiliated with the issuer, (2) designated as a national security risk, or (3) that have the largest market share of credit cards issued.

Essentially, proponents of the CCCA say it will benefit merchants by lowering operating costs associated with interchange fees. In theory, this will allow them to lower prices and pass savings onto consumers. 

Opponents of the bill say merchants will likely keep those savings to themselves, plus card companies will likely reduce the rewards they offer to make up for lost revenue. 

But credit card rewards are actually the single biggest reason consumers even use credit cards. A survey by GOBankingRates found nearly 1 in 4 consumers say credit card rewards and perks are their primary purpose for using a credit card. 

Takeaway: Visa and Mastercard hold too much influence over interchange rates and their stronghold has now reached the point of government intervention. Even if the CCCA bill passes, there’s no guarantee consumers will benefit, meaning credit card usage will likely decline. 
‍

Merchant settlement against Visa and Mastercard

On March 26, 2024, Visa and Mastercard announced a major settlement with U.S. merchants, potentially ending nearly two decades of litigation over the fees charged every time a credit or debit card is used.

Breakdown of the settlement: 

This deal will lower and put a cap on the fees charged by Visa and Mastercard. It will also allow smaller businesses to more easily negotiate their rates—much like what large companies are already doing. According to the settlement, Visa and Mastercard will cap credit interchange fees until 2030, and companies must negotiate the fees with merchant-buying groups.

The law firm that announced the settlement put the value of the savings in swipe fees at close to $30 billion.

Why this deal wouldn't help merchants:

1. For the first three years of the deal, swipe fees are only lowered by 0.04 percentage points. That’s a savings of 4 cents per $100 transaction. 
2. Processor middlemen like Stripe, Square, PayPal, and Toast Payfacs may capture some of these interchange savings, considering their stocks rose on the news of the settlement. 
3. Visa and Mastercard still hold a duopoly in the credit card processing space. While this settlement is meant to save face temporarily, the companies still hold tremendous power in the market.

Update: The Visa, Mastercard settlement was rejected by a U.S. judge on June 25, 2024

Judge Margo Brodie rejected the proposed $30 billion antitrust settlement involving Visa and Mastercard, which aimed to limit merchant fees. She cited that the fees would remain too high and the card companies would retain excessive control.

This decision will ultimately benefit merchants and may lead to a more favorable settlement or a trial. Critics argued that the settlement offered minimal relief and maintained anti-competitive practices.
‍

Consumer credit card debt

Not only are credit cards expensive for merchants, they’re also putting Americans into massive debt. 

According to recent data from the Federal Reserve Bank of New York, Americans are in record credit card debt of $1.079 trillion. 

While credit cards are helpful in many instances, they are easily misused. This leads to high interest rates, late payments, and revolving debt that’s only good for lenders. This hard-to-break cycle is mentally taxing and 48% of Americans with revolving credit card debt say they are stressed about it. 

Takeaway: Credit cards are bad for businesses and consumers alike. They’re putting Americans into cycles of high-stress debt and they’re not showing signs of slowing down. 

Read next! Why Account-to-Account (A2A) Payments are a Viable Credit Card Alternative
‍

A better option: Account-to-account (A2A) payments

So what’s the answer to the mounting drama around credit cards? The best course is to move away from using them as much as possible 

Alternative payment methods like account-to-account (A2A) payments check every box as a superior replacement for credit cards. 

A2A payments offer: 

• Lower fees: With A2A payments, there are no customer-facing fees and typically much lower transaction fees than credit cards.  
• Enhanced security: Pay by bank options like Aeropay enable multi-factor authentication (MFA) to secure accounts and have bank-level encryption, fraud prevention, and risk reduction measures built into every layer. 
• Speedy transactions: Pay in a single click with A2A, there’s no need to type in card information or even carry a card with you. 
• Faster settlements and refunds: For most credit card or debit card companies, it can take 3-7 days for funds to settle. With Aeropay, settlement time is the same day or next day.

While A2A is currently only used by 36% of U.S. consumers, the method has the makings to completely disrupt how people pay, potentially replacing traditional debit cards and credit cards.

As credit cards trend down, A2A will keep rising in popularity.

Takeaway: A2A payments are rising in popularity while credit cards are becoming soiled with controversy. There’s a number of clear benefits for both consumers and merchants to move away from credit cards and toward bank-to-bank transactions. 
‍

Ready to ditch the risk of credit cards? 

As a leading digital payment provider, Aeropay offers reliable instant payments for in-store and e-commerce business transactions nationwide. 

Businesses using Aeropay experience:

• 25% higher customer spend 
• 30% increase in completed online orders
• 70% increase in online customers returning at most locations
  

The simplicity, security, and efficiency of Aeropay make it an easy choice for your customers—and your business.

‍Schedule a 15-minute demo to see our full payment solution and make bank-to-bank transfers work for your business.