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Insights and Expertise

Visa and Mastercard The victors

Here's the upside. Processors, acquirers and payfacs stand
landmark settlement to benefit, especially those with single rate merchants.
Interchange decrease and stability will benefit these
players directly as they can take 100 percent of the
lessening in interchange costs. Merchants too will benefit,
at least those on a pass-through pricing methodology.
Pass-through merchants will receive 100 percent of the
benefits of lower priced interchange.

What about the card networks? Visa and Mastercard are a
duopoly. Since both players are agreeing to the same terms,
neither will benefit over the other and, with the removal
of the litigation uncertainty, they bring a measure of relief
to shareholders. This is a major win for the card networks.
The vanquished
Issuing banks are harmed the most. Even though it was
Visa and Mastercard settling the case, issuers are the direct
beneficiaries of interchange. These are the constituents
Ken Musante who will seek relief from Visa and Mastercard. I can't say
for sure if they will find it, but I did think it coincidental
Napa Payments and Consulting that within a week of the settlement announcement,
Mastercard announced an increase in its brand volume
awsuits suck. The cost, the uncertainty, the dis- (assessment) fees from 0.13 percent to 0.14 percent.
traction and the time contribute nothing to new
business or satisfying customers. I understand This represents a 7.7 percent increase in this non-interchange
L why both Visa and Mastercard were pleased pass through fees (NIPTF) category. Mastercard will
to settle their 20-year dispute with retailers and agree to directly benefit from every dollar processed. I do get the
some constraints on interchange modifications over the investment needed within the network, but volume is
next five years. already providing that lift. According to the Nilsen Report,
Visa and Mastercard volume has grown 12 percent in 2022
Overall, I think the settlement is great for merchants, (see https://rb.gy/voz2aq).
acquirers, payfacs, consumers and the card brands. Each
of these will benefit in business certainty and lower costs. The cynic
Interchange is the single largest expense component
associated with card processing. Consequently, it is The cynical side of me reasons that the increase is not
interesting to see the parallel yet uncorrelated increase in coincidental. Mastercard is taking some of the windfall
assessments that Mastercard also announced. which will fall to processors, acquirers, merchants and
payfacs and redistributing it to the issuers. It will use
How do you spell relief? those funds to cut deals with issuers and placate them for
the settlement.
The settlement will provide for three measures of relief:
My cynicism is more likely the rantings of an old man.
1. Lower interchange rates: The settlement will reduce I'm sure the card networks would never engage in such
credit interchange by at least four basis points for three manipulations and in full view of lawmakers, merchants
years and ensure an average rate that is seven basis and their acquirer members. After all, it would be too
points below the current average for five years, obvious.

2. Interchange rates will not go up: The agreement
will cap the reduced credit interchange rates for five As founder of Humboldt Merchant Services, co-founder of Eureka
years, Payments, and a former executive for such payments innovators as
WePay, a division of JPMorgan Chase, Ken Musante has experience in
3. Surcharge Flexibility: While we await judicial all aspects of successful ISO building. He currently provides consulting
approval and clarity, the settlement allows for greater services and expert witness testimony as founder of Napa Payments and
merchant discretion and should bring welcome clarity Consulting, www.napapaymentsandconsulting.com. Contact him at
to surcharge rules. kenm@napapaymentsandconsulting.com 707-601-7656 or www.linke-
din.com/in/ken-musante-us.

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