A deal between Visa and Mastercard means the companies could charge different fees for different cards. what to know

If you’ve tapped to pay by credit card, you’ve probably noticed that some merchants add a small fee for paying with credit instead of debit or cash. But what if the fee you paid depended exactly on what brand of credit card you had in your wallet?

That’s a scenario consumers could face after a deal between credit giants Visa and Mastercard and U.S. merchants was recently announced. The deal has not been approved by the courts and, according to a Wall Street Journal report, will likely be challenged by some retail industry groups (1).

The settlement is the result of a two-decade legal dispute over interchange fees, which are charges banks charge merchants when customers pay with credit cards.

The deal would give merchants the power to charge different fees for different levels of credit cards (1).

A judge rejected an earlier settlement last year, the Los Angeles Times reports. This new agreement includes a focus on the “respect all cards” rule, which is a key part of how credit and debit cards work in the U.S. This rule says that if a merchant accepts Visa or Mastercard, it must accept all versions of those cards. For example, Costco only accepts Visa for in-store purchases, but under this feature, the store must accept any Visa card.

The higher exchange rate for high rewards credit cards has been a sticking point for merchants. The Visa Infinite card, a premium product, can be 15 basis points (0.15%) more expensive for a merchant to accept than a Visa Signature, which is a mid-tier card. According to the LA Times report, the popularity of high-rewards cards, such as the Chase Sapphire Reserve Card and the Citi Strata Elite Card, has increased dramatically over the past decade.

Thanks to this ruling, merchants could “discriminate” against higher level cards that cost them more to process. However, if merchants choose not to accept higher-tier cards rather than charge a higher fee for processing them, they could risk losing customers who are accustomed to earning points on routine purchases (2).

Under the agreement, different types of cards should have “clear visual markers” so that both merchants and consumers can identify what type of card they have, according to the WSJ. These changes for physical credit cards could “take years to update,” the report says.

The agreement includes a reduction in the interchange fees that merchants must pay by an average of 0.1 percentage point over five years. While the banking industry has argued that this will affect rewards for consumers, the report notes that analysts say the reductions outlined in the settlement are not enough to have significant impacts on consumers and their precious rewards (1).

The proposed agreement does not apply to debit card purchases. American Express is also not part of the agreement, as it uses a different system and is not involved in the litigation (2).

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For now, consumers don’t have to worry about any changes. Major trade groups oppose the deal, and lobbyists and industry have been pushing for Congress to intervene and pass regulations on interchange fees (2).

While nothing will change if the deal is not finalized, consumers who rely on more expensive credit cards for rewards should consider how any future changes could affect them. They may decide they need to carry a lower-tier card in case retailers don’t accept their rewards card. And of course, there are always the options of paying with debit or cash.

Paying with debit can mean avoiding merchant fees in some cases, not to mention using it won’t cause you to rack up debt, although you will lose out on credit card rewards. And cash, for the budget-conscious, has the advantage of being a more tangible reminder that you’re spending your hard-earned money. That’s something that the touch of a card simply doesn’t capture.

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Wall Street Journal (1); Los Angeles Times (2)

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.