Visa and Mastercard Are Lowering Their Swipe Fees. Is Lower Revenue on the Way?

Credit card processing networks (NYSE: V) and Mastercard (NYSE: MA) announced bombshell news last week that could significantly affect their businesses. They agreed to settle a lawsuit with merchants, almost 20 years in the making, to lower their swipe fees, the amount they charge merchants for processing credit and debit card transactions. Let's go through the details to see how it could affect investors.

Visa and Mastercard agreed to lower all of their swipe fees (or interchange rates) by 0.04 percentage point for three years and lower the average rate by 0.07 percentage point for the next five years. The merchants' legal team said this would save their clients $30 billion over that time. Visa and Mastercard together generated about $58 billion in revenue over the trailing 12 months, and losing those fees could make a substantial dent in sales.

Another part of the settlement allows merchants to help shoppers choose the best or cheapest payment option, getting around previous requirements that merchants had to follow to be able to accept Visa and Mastercard. For example, participating merchants are currently required to honor all cards of each network and can't choose to accept certain ones that could end up being cheaper for the merchant.

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Source Fool.com