Credit Card Rewards Shake-Up: Visa and Mastercard Agree to Lower Swipe Fees (2024)

High-end credit cardholders could soon pay more for each time they tap their cards -- and may even have to grapple with higher card fees or diminished rewards.

Visa and Mastercard, the two largest card payment processors, reached a settlement with merchants on March 26 that limits swipe fees they can charge US merchants. That settlement could allow stores to use dynamic pricing for purchases made with higher-tier credit cards. That means your transaction might cost you more -- or less -- depending on your card type.

Visa and Mastercard both offer three different tiers of credit cards. The higher the tier, the better the card perks it has.

To use a credit card at their store, merchants pay a fee to the card’s payment processing network -- Visa, Mastercard, American Express or Discover. These fees are called interchange fees or swipe fees and average from 1.5% to 3.5%. Issuers use the interchange fees to fund credit card reward programs. Higher end credit cards with premium rewards tend to have higher interchange fees.

Currently, payment processing networks require merchants to accept all tiers of cards, despite premium card tiers charging higher swipe fees to facilitate purchases.

If approved, this deal would likely benefit merchants and could result in lower profits for both banks and networks. But how it could impact credit cardholders is less clear. Let’s unpack it.

What the swipe fee settlement means for cardholders

As part of the settlement, merchants can impose a surcharge on consumers depending on the type of credit card they’re shopping with. Visa and Mastercard each offer three tiers of credit cards. Visa has a Standard Visa, Visa Signature and Visa Infinite. Mastercard offers a Standard Mastercard, Mastercard World and Mastercard World Elite cards.

The higher the tier, the better the card perks you receive. For example, a World Elite Mastercard has greater identity theft protections, a more robust concierge service and access to exclusive events compared with a World Mastercard. Higher card tiers also tend to charge an annual fee.

The Chase Sapphire Preferred® Card is a Visa Signature, while its upgraded version, the Chase Sapphire Reserve®, is a Visa Infinite card. Compared with a Visa Signature card, Visa Infinite credit cards have better perks including a Global Entry or TSA PreCheck application fee credit, a more advanced concierge service and greater protections.

If this settlement is approved, cardholders who have the Chase Sapphire Reserve, for example, could be forced to pay more than those with a Chase Sapphire Preferred, depending on the merchant. It’s meant to address the financial burden merchants have absorbed due to swipe fees.

However, merchants would also have the option to lower consumer surcharges for credit cards that charge the merchant lower swipe fees, giving them more choice in the kinds of credit cards they want to accept at their business.

“The settlement agreement opens competitive doors that have been closed for decades, while providing rate relief to every merchant that accepts Visa or Mastercard credit cards,” economist Joseph Stiglitz said in the press release.

It could also mean your card will soon offer fewer rewards or perks. The interchange fees that credit card issuers receive are part of what funds a card’s rewards program. So, lower swipe fees might translate into less-lucrative rewards or benefits programs.

But credit card issuers have other ways of making money. And considering rewards and perks are how most issuers entice people into applying, card providers have a big incentive to keep rewards programs competitive.

“I’ve heard this argument about how rewards are going to be impacted, but haven’t seen any evidence that clearly ties changes in rewards programs to a reduction in processing income,” said John Ulzheimer, formerly of FICO, Equifax and Credit.com.

“Most, if not all, surveys exploring why consumers choose the cards they choose list rewards at or near the top of the list,” he said. “So, it doesn’t make sense from an acquisition perspective to touch rewards programs when the loss of card processing revenue can easily be made up elsewhere from other banking footprints.”

Unfortunately, that might mean your card’s interest rate and other fees could increase to make up the difference.

What about the other card networks?

Along with Visa and Mastercard, there are two other card networks -- American Express and Discover. The difference is, Amex and Discover also operate as credit card issuers, whereas Visa and Mastercard partner with a bank to issue credit cards.

Amex typically charges a higher merchant fee than Visa and Discover, which is why Amex cards might not be accepted at certain businesses. If the settlement is approved, the acceptance rate of Amex cards could decrease.

And with Capital One potentially acquiring Discover, it could put the company in a position to offer lower merchant fees to increase its adoption rates.

When will things change?

Things won’t change for some time, if at all. The settlement still needs to be approved by the US District Court for the Eastern District of New York, which means you shouldn’t expect your shopping bill to increase (or decrease) until next year or beyond.

In the meantime, if you’re concerned about how much transaction costs will change, you could ask your issuer to downgrade your card or apply for a lower tier credit card. Though, credit expert Jason Steele said you probably won’t need to.

“It would be difficult for retailers to implement [a price change] and would aggravate the high-value customers who have these cards,” Steele said. “I think you’ll see it occasionally with some specialty retailers and merchants, but I don’t think the airlines, hotels and major retailers will do this.”

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