Visa and Mastercard agree to merchant shake-up

Key points

• Visa and Mastercard bend, not break: A long-awaited settlement trims interchange fees and lets merchants reject costly rewards cards — but doesn’t kill rewards.
• Merchants gain leverage: Looser surcharging rules and choice over which cards to accept shift power toward retailers after two decades of litigation.
• Networks evolve, not retreat: Visa and Mastercard are pivoting from interchange to infrastructure — investing in tokenisation, data, and real-time payment rails.

After almost 20 years of litigation, Visa and Mastercard have reached a settlement with US merchants that will broadly: 

• Trim interchange (typically 2–2.5%) by about 0.1 percentage point over several years 

• Let merchants reject high-fee premium rewards cards 

• Loosen rules around surcharging and steering 

• Formally weaken the long-standing “honour all cards” rule for the first time 

On the face of it, this might look like a direct attack on the economics of rewards and co-brand programmes. 

But step back, and that doesn’t seem to be the case. 

The story here, as has been widely reported so far, is not “rewards are dead”. 

It’s “what comes next”? 

The economics

First – why the fight? 

Merchants pay a ‘merchant discount’ or service fee to their acquirer when customers use a Visa or Mastercard payment product. That fee includes the interchange rate set by the network, which the merchant’s bank (acquirer) transfers to the cardholder’s bank (issuer). The interchange helps fund cardholder benefits (such as rewards) and other value-adds. In effect, part of what the merchant pays helps finance those benefits.  

Now, merchants have to accept all card types – they cannot choose between a regular card with lower fees or a premium rewards card with higher fees. This is for consumer protection – if you accept Visa, for example, you accept all Visa cards. It’s part of the brand promise. But that means merchants have no choice but to pay more money if they want to accept cards. 

So, there is a cost with acceptance. The friction lies in what is fair and who should bear the cost.  A few percentage points might not seem like much, but they add up. Even small businesses can spend thousands per month. 

In 2005, a group of merchants took the card networks to court, claiming anticompetitive practices. 

The merchants argue that the card networks are charging too much.

The card networks argue: What’s too much? 

The anticompetitive nature has never been definitively proven or acknowledged in court. But it’s been powerful enough to drive two decades of antitrust scrutiny. 

What could change?

Now, a proposed settlement could segment cards into three buckets: standard consumer, premium consumer, and commercial. Merchants could decide which cards they’d like to accept, meaning they no longer have to take high-rewards card fees. Interchange fees would be reduced by 0.1% over several years, and surcharging rules would be loosened. 

For merchants, this is a big win. But not so much for the card networks. Card revenues are one of the most profitable revenue streams for banks. If premium cards are not accepted by many merchants, customers cannot collect rewards, thus disincentivizing them to spend. The less they spend, the less revenue – and the whole business model starts to get a bit shaky. 

Or does it? 

A few things to consider

There are a few nuances that tend to get lost in the noise. 

1. Everyone actually uses – and benefits from – the network

The role of Visa and Mastercard in modern commerce can’t really be overstated. 

Cards are one of the few pieces of financial infrastructure that genuinely benefit all sides: 

• Consumers get credit, protections, chargebacks, rewards, and global acceptance. 

• Merchants get guaranteed funds, higher conversion, larger baskets, and reduced fraud risk versus cash or unmanaged A2A schemes. 

• Banks monetize lending and spend, funding the entire distribution and risk apparatus. 

• Governments gain visibility, tax compliance, and the digitization of the economy.

In markets where interchange is heavily regulated (the EU, Australia, the UK), cards still thrive. In some cases, when networks have been forced to loosen rules like “no excessive surcharging,” consumers have actually been harmed: airlines and other large merchants have happily added “convenience fees” well above true acceptance costs. Qantas in Australia is a textbook example. 

So the story has never really been “networks win, everyone else loses.” It’s a messy, multi-sided bargain that most participants still choose to make. 

2. Interchange ≠ network profit

Interchange is widely misunderstood and often conflated with network profits. 

• Networks do not directly profit from interchange. They set rate structures, collect the money, and remit it. Functionally, they look more like a clearing authority than a rent-extracting owner of that line item. 

• Issuer economics sit on top of interchange. To justify higher interchange tiers, card issuers must comply with rules and obligations: customer service standards, processing rules, liability allocation, fraud controls, consumer protections, and, yes, funding rewards. 

There is a real cost to this, just as there is a cost to extending unsecured credit to a consumer. The merchant benefits from that risk being taken and managed without having to underwrite the customer themselves. 

This is not about defending any specific rate. It’s about recognising that interchange pays for a bundle of services and protections, not just network profit. 

3. (Large) merchants are not powerless price takers

Another misconception: that merchants are simply forced to pay whatever the networks demand. 

In reality: 

• Large merchants are sophisticated and politically powerful. 

• They often negotiate bespoke deals and incentive structures; they rarely pay the headline “rack rate” for acceptance. 

• The antitrust narrative is the public stance. The commercial reality is more like a tense but functional partnership between powerful actors who know they need each other. 

This settlement is potentially transformative. But it is not the downfall of the networks. 

Hit where it hurts

Where this settlement bites hardest is not at the networks themselves, but in the middle of the value chain: issuers and co-brand partners whose economics rely on high interchange. 

US airlines, for example, derive a huge share of loyalty value from co-branded cards. A significant portion of profitability is now entangled with card spend. Premium rewards – 3x–5x travel multipliers, lounge access, metal cards – are particularly exposed; they depend on richer interchange to work. 

 If merchants start rejecting those premium products or surcharging them, the perceived value of rewards cards deteriorates quickly. 

But this is still more “evolution” than “extinction event.” Rewards will get re-priced and re-tiered, not erased. That means fewer ultra-generous, uncapped offers and more targeted, data-driven economics. Closed-loop ecosystems (large retailers, platforms, super-apps) will gain relative power, re-routing value internally instead of through interchange. Issuers will pivot to fee-based value – bundled services, insurance, subscriptions – where economics are less tied to a single basis point on a card transaction. 

This happens just as new rails mature

The timing is notable: regulators and merchants are relying on card economics at the exact moment alternative rails are gaining traction. Instant payment schemes and open banking ACH variants are showing that you can move money without a card brand in the loop. Networks and fintechs are experimenting with stablecoin settlement and tokenised deposits, with card-like UX on top. Big tech and large merchants keep pushing closed wallets and on-us flows to reduce their reliance on traditional acquiring. 

The risk for the networks isn’t that this settlement alone destroys them. It’s that each incremental regulatory nudge makes it easier for merchants to try “good enough” alternatives at scale. 

From interchange to infrastructure

Most analysts still expect Visa and Mastercard to thrive rather than dive. They are successful because they are the transaction fabric – not because they cream off the top of card spend.  

You can already see the pivot in three directions: 

1. Tokenised, programmable payments

Both networks are leaning into tokenisation, real-time settlement, and programmable money: 

• Visa with Visa Direct, B2B Connect, and stablecoin settlement. 

• Mastercard with stablecoin wallet programmes, on-chain identity (“Crypto Credential”), and card-grade protections for non-card rails.
  If money moves on new rails, they plan to be the routing, risk, and rules layer on top. 

2. Value-added services (VAS)

Mastercard, especially, is a VAS-led growth story: 

• Cyber & fraud, identity, open banking, consulting, and analytics are growing faster than core card volumes. 

• Visa is building a similar portfolio: AI fraud hubs, unified checkout, advisory, tokenisation services.
  This is where they can grow without relying on ever-higher interchange – and where their scale and data compound hardest. 

3. Embedded and white-label infrastructure

From co-branded cards to embedded credit to real-time payouts, both networks are increasingly the invisible engine behind fintechs, neobanks, and platforms. Revolut may own the app. Your SaaS provider may own the checkout. A stablecoin might be doing some of the heavy lifting. But somewhere in the stack, the networks’ rules, rails, or risk systems are still in play. 

So, what do we think?

You can credibly hold two positions at once. 

 As a merchant, you can feel that fees are painful and that lowering them is unambiguously good for small businesses. As a payments practitioner, you can see that the networks’ role is critical, their economics are more nuanced and that cards have created massive value for consumers, merchants, and governments. 

The line where “market pricing” becomes “unfair pricing power” is exactly what regulators and courts are trying (messily) to draw. That’s the rub. 

 This settlement is potentially transformative – especially in how it validates merchant steering and opens the door for alternative rails. But it is not the downfall of Visa and Mastercard. 

Even as regulators push on interchange and merchants win more flexibility, the core networks remain remarkably resilient. They have trust, earned over decades of dealing with fraud, disputes, and outages. Ubiquity, with near-universal acceptance and deep integration into banks and fintechs. And a mature framework for liability, data, and consumer protection that doesn’t magically appear on new rails. 

So no, this is not the end of rewards, or cards, or the networks. It’s a forced rebalance. Rewards will become more economically rational. Networks shift more value into services, data, tokenization, and fraud/identity – where their advantages deepen. Regulation trims margins at the edges, but the global digital payments engine they’ve built keeps spinning. 

 In short: they’ll adapt, not retreat. 

The moat is wide. This is not a sign it’s about to be drained.