The Visa-Mastercard Settlement and the Hidden Cost of Paying by Card

If businesses pay swipe fees, why do consumers end up dealing with the cost? 

Photo by CardMapr.nl on Unsplash

A Lawsuit Two Decades in the Making

Most consumers never think about what happens after they tap a credit card. The transaction takes only a few seconds, but behind the scenes, a percentage of every purchase is collected as a processing fee known as an interchange fee, or more commonly, a "swipe fee." These fees are paid by merchants and ultimately distributed among issuing banks and payment processors.

For years, retailers argued that these costs had steadily increased while their ability to avoid them had virtually disappeared. That dispute eventually grew into one of the largest antitrust lawsuits in American history. Filed in 2005 on behalf of millions of merchants, the case accused Visa and Mastercard, which together process the vast majority of U.S. credit card transactions, of maintaining rules that prevented meaningful competition over swipe fees.

After more than two decades of litigation, a federal judge granted preliminary approval to a revised $38 billion settlement on June 9th, 2026. The agreement followed the collapse of an earlier settlement that many merchant groups argued did not provide enough relief. Under the revised proposal, Visa and Mastercard agreed to reduce certain interchange fees, cap some consumer card rates for several years, and provide merchants with greater flexibility in how they accept cards and communicate payment costs to consumers. The case was based on claims that businesses were forced to accept expensive premium rewards cards and faced restrictions when encouraging customers to use lower-cost payment methods. While Visa and Mastercard denied wrongdoing, the settlement reflects growing concerns about the power that a small number of payment networks hold over a system that has become essential to modern commerce.

The Consumer Side of the Debate

The most disputed part of this case is not whether businesses pay swipe fees, but who ultimately carries the cost. While interchange fees are technically supposed to be charged to businesses, there is strong evidence that they are largely embedded into retail prices and passed on to consumers. Credit card processing fees typically range from about 2 percent to 2.5 percent per transaction depending on card type and network rules, and total U.S. swipe fees reached roughly $118.8 billion in 2025 alone, according to Reuters coverage of the settlement and industry estimates. In practice, most merchants cannot selectively surcharge or refuse cards without risking lost sales, which means these costs are almost inevitably spread across all consumers through higher prices rather than just to card users.

Image Source: Merchants Payment Coalition, 2024

This is where the fairness argument on Visa and Mastercard’s side breaks down. Economists and payment researchers have repeatedly found that a meaningful share of processing costs is passed through into general price levels, meaning even cash or debit users end up subsidizing credit card rewards they may never receive. Some estimates place the annual cost burden on households at over $1,000 when accounting for economy-wide pass-through effects. What does this mean? The system rewards frequent card users while secretly distributing the cost across everyone else. The settlement does not fix that imbalance, but it does shine more light on it than the industry has ever been forced to admit.

A Warning About Network Power

Visa and Mastercard do not behave like traditional corporations competing for individual customers in the usual sense. Their power comes from network effects: the more consumers use their cards, the more merchants must accept them, and the more valuable the system becomes for everyone already inside it. This creates a kind of self-reinforcing cycle where participation is effectively mandatory for businesses that want to remain competitive.

This concern is not unique to payments. Similar questions have appeared in platform-based markets where a small number of firms control access to essential infrastructure. A clear example is the legal battle between Apple and regulators in the Epic Games v. Apple case, where developers argued that Apple’s requirement that all iPhone app transactions go through its payment system, along with commissions of up to 30 percent, functioned as a form of gatekeeping over access to consumers. While the case was ultimately not about credit card networks, the system was quite similar: a dominant corporation acting as the middle ground, setting the rules of transaction flow between buyers and sellers.

The relation between these cases is very practical. The Apple case showed that even when courts impose restrictions or require changes to platform rules, the underlying network system often remains intact because consumers and businesses remain locked into the ecosystem. In other words, reducing specific fees or loosening certain restrictions does not automatically restore meaningful competition if the network itself remains unavoidable.

Looking Ahead

As mentioned before, Visa and Mastercard together process the majority of U.S. credit and debit transactions, and card payments now account for roughly two-thirds of all consumer purchases in the United States. In a system this deeply embedded, even small percentage changes in fees translate into tens of billions of dollars across the economy.

The deeper concern is that this infrastructure is effectively controlled by two corporations whose rules determine how prices are communicated and how payment methods are prioritized. Even after a $38 billion settlement, the market remains highly concentrated in their hands. The most realistic takeaway is harsh: once a payment network becomes indispensable, reforming its behavior is not the same as creating real alternatives to it. The settlement may alleviate some of the pressure put on consumers, but it doesn’t challenge the underlying reality that a large share of everyday economic activity depends on systems governed by very few players.