The Fallout From a Credit Card Shake-Up

A new class-action settlement between Visa, Mastercard and merchants could affect the economics behind premium credit cards.Credit…Tamir Kalifa for The New York Times

A settlement that could scramble the credit card business

A long-running fight between the credit card giants Visa and Mastercard and retailers in the United States is nearing an end, with the promise of lower fees for merchants.

But the proposed class-action settlement could have wider consequences, including for the lucrative business of high-end credit cards — and for retailers.

What’s in the settlement: Visa and Mastercard said on Tuesday that they had agreed to reduce swipe fees, costs associated with the use of a credit card, for about five years. Lawyers for merchants who had brought the case estimate that this could save about $30 billion worth of fees.

Perhaps more important, merchants will be able to raise their prices based on the kind of card. For example, buying groceries with a higher-fee card — typically a premium card like the Chase Sapphire Reserve — could become more expensive than paying with a lower-end one.

Why it matters: Swipe fees, also known as interchange fees, are a big business; the Nilson Report, which tracks the payments industry, estimates that Visa, Mastercard and card-issuing banks collected $72 billion last year alone.

For card issuers, much of that money is then funneled into rewards associated with high-end cards, which entice consumers to spend more, racking up more fees for the banks (and, potentially, interest on unpaid balances).