What to Know About the Visa and Mastercard Settlement and Rewards Credit Cards

You may have seen headlines about the $38 Billion settlement between Visa and Mastercard and small businesses.

I’ve noticed on social media that there is a LOT of confusion and I’d like to try and clear some of it up.

First of all, the settlement is not final. It’s final in the sense that the two sides have agreed to it! But it still requires the approval of U.S. District Judge Margo Brodie in Brooklyn who rejected an earlier settlement offer a year and a half ago.

I think this settlement has a good chance of being accepted, but it may not be!

Second, the settlement primarily will do two things:

1) lower swipe fees 0.1% for five years. This isn’t nothing, but it’s not going to break either payment network! and 2) Allow merchants to accept/reject certain types of cards and add surcharges of up to 3% on transactions.

I already addressed the 0.1%. Great for small businesses processing cards. Won’t affect you at all (don’t hold your breath for a 0.1% reduction in retail prices!).

Now as for the “certain types of cards” thing. The misinformation I’m seeing on social media seems to think that very specific types of cards will be able to be rejected. That’s not the case!

They will not be able to accept a Chase Freedom and decline to accept your Sapphire Reserve! They will be able to refuse ALL rewards cards, yes – that is true. But that is everything from a 1% credit union cash back card up through a Sapphire Reserve (a Visa Infinite) or Venture X (Visa Infinite) or even a Citi Strata Elite which runs on the Mastercard World Legend line of cards – even higher (and presumably costlier to accept) than a World Mastercard.

What merchant do you think will be the first one to say they will only accept non-rewards credit cards? It’s pretty well known that I have 45+ credit cards and yet I don’t think a single one isn’t a rewards credit card! So if a store told me I couldn’t use a rewards card (which, by the way, is how I get all manner of purchase protection like Extended Warranty benefits), I’d be out the door and I’m sure a great many others would as well.

Also, the airline lobby is powerful. Why am I mentioning airlines here? Because airline frequent flyer programs literally prop up airlines! Airlines would be largely unprofitable if all they did was…. fly! And the miles they sell that make the FFPs so profitable? They go to banks that issue rewards credit cards. It’s a giant flywheel.

The bottom lines? 

• This isn’t happening yet. It’s not approved by the court!
• If it happens, it’s very unlikely to upend rewards. I could be wrong! But I don’t *think* this will rewrite the world of rewards credit cards.

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Thoughts?

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