A new agreement between Visa, Mastercard, and American merchants announced could mark a new era of tiered pricing at checkout, giving businesses more power to charge fees based on the credit card consumers use, according to a report by The Wall Street Journal. The agreement comes after a two-decade antitrust battle over the fees banks charge merchants every time a customer pays with a credit card. According to the report, the agreement still requires court approval, and it is likely that several business groups will appeal it.
According to the report, U.S. merchants have always had the right to completely refuse to do business with a credit card company. The American retailer Costco, for example, only accepts Visa credit cards in its stores. But current network rules state that if a store accepts one type of Visa card, it must accept all Visa credit cards.
The settlement may change this practice by allowing American businesses to choose which categories of cards to accept from all the types offered by the credit card company. Analysts say the groups proposed in the agreement are broad enough that businesses are unlikely to refuse any of the categories, including those offering rewards. The categories will group regular cards with those considered premium. The settlement does not affect debit cards.
According to analysts, a more likely outcome is that American consumers will start seeing additional fees on their purchases. Some businesses already charge small fees when customers pay with a credit card instead of cash, but these usually apply broadly to all credit cards. According to the report, the agreement will take this a step further, allowing different add-ons depending on the card category. A basic, no-frills credit card, for example, could include an additional 2.5% of the transaction amount, compared to 3% for a rewards card.
The report states that the agreement will require U.S. banks to add clear visual markers on cards to help consumers and businesses determine which category a card belongs to, but such an update could take years. For businesses, adding the fee will help offset their costs, but it comes with the risk that customers may choose not to shop at the store. A recent survey by TD Cowen found that about two-thirds of consumers would switch payment methods if faced with an additional 3% to 4% charge.
“People have gotten used to being able to pay for the things they buy without thinking too much about which card to use,” said Sarah Rathner, a credit card analyst at personal finance site NerdWallet.
According to the report, the agreement also requires an average reduction of 0.1 percentage points in bank fees, to be implemented gradually over five years. The banking industry has long argued that limiting bank fees would threaten consumer rewards. However, analysts say the reductions detailed in the agreement are not enough to bring about sweeping changes in card rewards or annual fees. This means that points accumulated for travel, cashback bonuses, and access to airport lounges worldwide – three of the most popular benefits of various types of credit cards – are expected to remain in place.
According to the report, analysts do not expect the agreement to lead to large jumps in annual fees. If anything, the new rules may push U.S. banks to compete more to retain high-spending customers, as businesses will have new incentives to steer buyers toward cheaper payment methods.