Visa and Mastercard May Cut Merchant Fees, But Your Rewards Could Suffer
Here’s the latest update on credit cards that could affect how we all shop and spend. Visa and Mastercard are reportedly close to a deal with retailers that would lower the fees merchants pay when we use their cards. While that sounds like it could be good news for businesses—and maybe even consumers—there’s a catch: it could mean fewer rewards for cardholders.
To give you some context, over a third of all purchases in 2024 were made with credit cards. The money that funds the rewards you love—like cash back, points, or travel perks—comes from interchange fees, which are the fees merchants pay every time a credit card is used. So, if those fees go down, economists say rewards will likely shrink as well. Joanna Stavins, an economist at the Federal Reserve Bank of Boston, recently explained that “rewards are financed by interchange fees,” meaning lower fees directly affect the perks you earn.
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The backstory here is that Visa and Mastercard have been tangled in a legal battle with retailers for nearly 20 years. Retailers accused them of fixing interchange fees, which are a significant part of the cost merchants face when accepting credit cards. A proposed settlement of $30 billion was rejected by a federal judge last year, and now a new plan is on the table. This proposal would gradually lower interchange fees by 0.1% over the next five years. It would also give merchants more options, like adding surcharges when customers pay with certain cards or refusing premium cards that carry higher fees.
Visa and Mastercard say the deal is meant to offer “meaningful relief” and more flexibility for merchants, and they insist it is not an admission of wrongdoing. Mastercard specifically noted that smaller merchants could benefit from reduced costs and simpler rules. However, major retail groups, like the National Retail Federation, have criticized the proposal. They argue that a 0.1% reduction barely scratches the surface, pointing out that U.S. fees currently average around 2.35%, while the European Union capped them at 0.3% years ago. Some industry voices are even calling it “window dressing,” claiming the deal does not truly address the problem of inflated fees.
For cardholders, this could mean adjustments to the rewards programs they’ve come to rely on. Fewer points, lower cash back, or smaller perks could be the trade-off for merchants paying less. And if some stores start adding surcharges for credit card payments, it could impact how we choose to pay for everyday purchases.
In short, a major shift is on the horizon for credit cards. While merchants might save a little money, cardholders may have to say goodbye to some of their favorite perks, making it a story worth watching closely as the court considers the proposed deal.
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