The Real Winners of the Visa/Mastercard Interchange Settlement

Like many of you, I’ve been keeping a close eye on the Visa/Mastercard interchange settlement—as it’s arguably the year’s biggest story in the world of payments.

After years of litigation, these two card network powerhouses agreed to a $5.54 billion settlement paid out to eligible merchants who accepted those cards over a 15-year period. 

But that jaw-dropping number is one small part of the story. As you’ll quickly discover, merchants accepting Visa and Mastercard are really just getting pennies compared to tech giants in the payments space. 

The $5.54 Billion Class Action Lawsuit is Just the Tip of the Iceberg

At first glance, that number sounds like it translates to big payouts. But with roughly 12 million businesses eligible to recoup funds, those billions don’t stretch as far as you might think. 

Will some businesses get a nice-sized check in the mail? Absolutely. 

But the real story here is Visa and Mastercard’s agreement to reduce rates—beginning with a four-basis-point reduction per year for the next three years and a guarantee not to raise rates through 2030. 

New network rules will also help provide merchants with more flexibility for payment acceptance while simultaneously providing businesses with options to help manage their costs. 

Some Merchants May Save Money on Processing, But Others Won’t

The rate reductions imposed at the card network level and new network rules will ultimately have a trickle-down effect on some merchants—particularly those on an interchange-plus pricing plan. 

With an interchange-plus model, the merchant pays the interchange rate set at the card network level (which Visa and Mastercard are both reducing), plus a markup to the payment processor. 

But for merchants accepting payments with a different pricing structure, there may be little (if any) savings seen from the settlement. 

Businesses accepting payments through an aggregate merchant account or through a fixed-rate processor won’t notice a difference. Instead, those processors stand to make massive profits as a result of the settlement.

PayPal, Apple, Amazon, Walmart, and Other Digital Wallet Providers Are the Real Winners of the Settlement

As a result of this settlement, digital wallets and PayFacs will cumulatively save billions over the next several years. They’re instantly getting lower interchange rates, plus the ability to route transactions through a more cost-effective path. 

Experts estimate that PayPal alone could save over $600 million in the next three years. 

Amazon’s savings could top $480 million. Apple and Walmart stand to save roughly $335 million and $260 million, respectively. 

That’s over $1.6 billion in savings from just four players. 

This is largely due to a concept known as “tender steering” that allows these companies to process certain transactions through a least-expensive route.

But PayFacs and aggregate merchant accounts still stand to make a killing based on the interchange reduction alone. 

Let’s look at PayPal as a quick example. 

Currently, PayPal charges merchants 3.49% + $0.49 for PayPal Checkout transactions. 

This fixed rate already yields substantial profits for the provider, as it’s more than a full percentage point above most Visa interchange and Mastercard interchange rates.

But with Visa and Mastercard reducing rates, PayPal and other PayFacs stand to earn even higher profits—as they haven’t agreed or committed to lowering their fixed rates. 

Merchants will still be paying 3.49% + $0.49 for a transaction that costs PayPal even less to process.

Final Thoughts

The Visa/Mastercard interchange settlement is huge news. But there’s actually no guarantee that your business will end up saving money as a result. 

While it feels like a win for the “little guy” who’s been watching these card networks rake in profits for decades, the settlement itself is chump change for those two giants—as Visa alone has more than $20 billion in cash on hand. 

Companies like PayPal, Apple, Amazon, and Walmart, along with other PayFacs and digital wallet providers, are the real winners here. They’re poised to save billions based on rate reductions and new network rules that allow for more cost-effective processing. 

What does this mean for you?

As a merchant, don’t assume that the settlement headlines will translate to more money in your bank account. Even if you’re part of the class action settlement group and you’re recouping funds from overpayments, that’s just a small percentage of money that’s potentially on the table. 

Working with a merchant consultant can provide more context and insights into your true costs of payment acceptance. That’s the only way to really find out if you stand to benefit at all from this news, and if there are other ways for your business to save money on credit card processing.