By Ken Musante
Napa Payments and Consulting
Lawsuits suck. The cost, the uncertainty, the distraction and the time contribute nothing to new business or satisfying customers. I understand why both Visa and Mastercard were pleased to settle their 20-year dispute with retailers and agree to some constraints on interchange modifications over the next five years.
Overall, I think the settlement is great for merchants, acquirers, payfacs, consumers and the card brands. Each of these will benefit in business certainty and lower costs. Interchange is the single largest expense component associated with card processing. Consequently, it is interesting to see the parallel yet uncorrelated increase in assessments that Mastercard also announced.
The settlement will provide for three measures of relief:
Here's the upside. Processors, acquirers and payfacs stand 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.
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 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 that within a week of the settlement announcement, Mastercard announced an increase in its brand volume (assessment) fees from 0.13 percent to 0.14 percent.
This represents a 7.7 percent increase in this non-interchange pass through fees (NIPTF) category. Mastercard will directly benefit from every dollar processed. I do get the investment needed within the network, but volume is already providing that lift. According to the Nilsen Report, Visa and Mastercard volume has grown 12 percent in 2022 (see rb.gy/voz2aq).
The cynical side of me reasons that the increase is not coincidental. Mastercard is taking some of the windfall which will fall to processors, acquirers, merchants and payfacs and redistributing it to the issuers. It will use those funds to cut deals with issuers and placate them for the settlement.
My cynicism is more likely the rantings of an old man. I'm sure the card networks would never engage in such manipulations and in full view of lawmakers, merchants and their acquirer members. After all, it would be too obvious. 
As founder of Humboldt Merchant Services, co-founder of Eureka Payments, and a former executive for such payments innovators as WePay, a division of JPMorgan Chase, Ken Musante has experience in all aspects of successful ISO building. He currently provides consulting services and expert witness testimony as founder of Napa Payments and Consulting, www.napapaymentsandconsulting.com. Contact him at kenm@napapaymentsandconsulting.com 707-601-7656 or www.linkedin.com/in/ken-musante-us.
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