Lower Mastercard and Visa Swipe Fees Are Coming — Here’s How Your Credit Card Bill Might Shrink
A recent settlement between Visa, Mastercard and the largest U.S. credit card issuing banks and merchants has lowered swipe fees for the next five years, saving money on your monthly credit card bills. The fees in question are “swipe fees,” also known as interchange fees, that are charged to the merchant for every transaction with processors like Visa and Mastercard.
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The case has been in the courts since 2005, and it may soon give a bit of relief to credit card customers. Here’s a look at the fees in question, how they have changed and what that means to your wallet.
What Are Swipe Fees?
The primary way that companies like Visa and Mastercard make their money is by acting as a middleman between merchants and card-issuing companies like Chase.
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Every time a customer uses a card, Visa and/or Mastercard charge the merchant a processing fee, dubbed a swipe or interchange fee. Typically, this is passed onto the customer, unless the merchant is willing to absorb the fee and effectively accept a lower price for their goods or services.
How Have They Been Changed?
One of the most important parts of the settlement is the agreement to cap swipe fees at a maximum of 2.26% of a transaction. Additional provisions include the following:
Visa and Mastercard agreed to roll back the posted swipe fee of every merchant by at least 0.04 percentage points for at least three years
The companies agreed to not raise their fees above the posted rates at the end of the prior year for five years
The average fee systemwide must be at least 0.07 percentage points below the current average rate; an independent auditor will verify this calculation
Merchants can now also adjust their prices based on accepting different cards, and they can tell customers why certain cards – often business cards or those offering rewards – may cost more than others
Will Lower Swipe Fees Really Save You Money?
The forced reduction in swipe fees should make transactions cheaper for merchants, who in turn may be able to lower prices for consumers as well. However, there’s no mandate that merchants pass along these savings. Those who wish to retain their customers and compete better in the retail landscape will likely do so, but some may not.
It’s also important to note that the fee reduction may not even be noticeable to consumers. Currently, swipe fees average about 2% per transaction and are only lowered by “at least 0.04 percentage points.” This means on a $100 sale, the $2 fee will be reduced to a maximum of $1.96. While every penny counts, this amount might be negligible to many customers.
A final concern is that companies like Visa and Mastercard may increase the fees they charge merchants to use their cards in the first place, offsetting any reduction in swipe fee revenue they’ll lose. This too wouldn’t benefit consumers.
As with this type of settlement or legislation, some view these changes as good, while others feel they either haven’t gone far enough or won’t solve the long-term problem of consumers being at the mercy of card processing companies. But for now, these are the limits and terms of the agreement.
How To Really Lower Your Credit Card Bill
Saving a few pennies on every credit card transaction would be welcomed by most consumers, but the real way to lower the cost of your credit card is never carrying a balance. Credit card interest rates now average over 21%, according to the Federal Reserve and even small balances rapidly get out of hand. No matter what rewards or benefits your credit card offers, it can’t offset paying a 21% premium on your purchases.
Another way to avoid the entire interchange fee issue is to pay cash and never swipe a card in the first place. Some merchants give discounts if you pay in cash, avoiding interchange fees and passing the savings to consumers. This is perhaps most noticeable at gas stations, many of which give a discount of 10 cents or more per gallon for cash customers. While you won’t usually get any rewards paying by cash, you can avoid both swipe fees and the risk that you’ll carry a balance on your high-cost credit card.
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This article originally appeared on GOBankingRates.com: Lower Mastercard and Visa Swipe Fees Are Coming — Here’s How Your Credit Card Bill Might Shrink
