Visa and Mastercard recently settled a price-fixing lawsuit brought by retailers unhappy with so-called swipe fees that the credit card giants impose on each consumer purchase. The settlement may lead to new charges for consumers in the short run, but a pricing system that reflects the true cost of business should help both stores and shoppers — not least by opening up the market to innovative new ways of paying.
Before the agreement, Mastercard and Visa prohibited retailers who accepted their cards from imposing surcharges on credit-paying shoppers. The card companies argued that this was only fair for consumers who didn’t want to use cash. But retailers wanted the option of charging more for credit, instead of simply absorbing Visa and Mastercard’s swipe fees of up to 3 percent of a transaction. While some retailers refused to take credit altogether, most ended up swallowing the fees — and setting their prices for all customers accordingly. Under the new agreement, Visa and Mastercard will give retailers the option of passing on credit-card costs.
Merchants, especially small retailers, will have more money in their pockets. The diminishing number of merchants who refuse credit cards now have one fewer reason not to take them. While card-using consumers might seem likely to lose out in the short run, making the real cost of using credit cards transparent in the price of goods may yield benefits in the long run. If a card company charges too much for the convenience it offers, it will lose business to cards with lower fees, to cash sales, and — perhaps most crucially — to new payment methods involving smartphones.
The discontent among retailers isn’t completely resolved, as convenience stores and others are holding out for better terms. Moreover, the effects of the new settlement may become apparent only slowly, and perhaps only indirectly in the 10 states, including Massachusetts, that ban credit-card surcharges. Yet the settlement should embolden more electronic-payment companies to challenge the dominance of a few big brand names, and consumers can only benefit if a technological battle erupts in their wallets.