Visa, Mastercard reach agreement to lower swipe fees — how will this impact your rewards?

After almost 20 years in court, the two largest credit card issuers have reached an agreement to lower interchange fees. Interchange fees, also known as swipe fees, are charges that retailers pay when customers use credit cards to make purchases. These fees typically average around 2% of the transaction amount but can go as high as 4% for premium credit cards.

The revenue generated from interchange fees is passed on to banks, which use it to fund rewards programs for cardholders, such as cash back, points, and miles. These fees also help cover shopping perks like purchase protection and return protection. Essentially, interchange fees are built into the cost of goods and services and contribute to the benefits that credit card users enjoy.

Visa and Mastercard, the two major credit card networks, have agreed to reduce their interchange fees over the next few years. As part of the settlement, the rates will be lowered by 0.04 percentage points for three years and an average of 0.07% over the next five years. This move is expected to save retailers billions of dollars in interchange fees. However, the agreement is still subject to approval by the U.S. District Court for the Eastern District of New York.

The settlement comes at a time when there is pressure from some senators to introduce industry-wide legislation in the form of the Credit Card Competition Act. This legislation could have significant implications for consumers and travelers who rely on credit card rewards. The Electronic Payments Coalition (EPC), a group representing various banking institutions involved in electronic payments, has welcomed the settlement and believes it diminishes the need for new legislation.

Richard Hunt, Executive Chairman of the EPC, stated that the agreement treats businesses of all sizes equally without government mandates and without compromising consumers’ data security or rewards programs. He also mentioned that the Durbin-Marshall bill, which is part of the proposed legislation, has not had proper debate or hearings and is unnecessary.

The announcement of Capital One and Discover merging further adds to the changing landscape of the credit card industry. This merger could potentially increase competition and reduce the need for legislative intervention. However, there are still uncertainties surrounding the agreement, such as whether it could lead to merchants applying different surcharges based on the type of card used for a purchase.

Overall, the agreement to lower interchange fees is seen as a positive step by industry experts, including Brian Kelly, founder of The Points Guy. The reduction in fees is expected to benefit small businesses while still providing value to consumers through rewards and protections.

As the agreement evolves, the impact on credit card consumers will become clearer. It is important to stay informed about these developments and how they may affect your credit card usage. Keep an eye on updates regarding the agreement and its implications for consumers in the future.

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