Why Merchants Could Start to Decline Reward Credit Cards

The most consequential part of the proposal centers on the long-standing ‘honor all cards’ rule.

File photo showing Mastercard and Visa credit cards in Zelienople, Pa., on Feb. 20, 2019. AP Photo/Keith Srakocic, File

Visa and Mastercard have proposed a sweeping settlement that could change how Americans use their credit cards—and may leave some premium rewards cards unwelcome at store checkout counters.

The agreement, announced on Nov. 10, aims to resolve a two-decade-long class-action lawsuit brought by retailers who accused the two networks of violating antitrust laws by fixing interchange, or “swipe,” fees.

These fees, typically between 2 and 2.5 percent of a purchase, are paid by merchants each time a customer uses a credit card.

Under the deal, Visa and Mastercard would cut swipe fees by an average of 0.1 percentage point for the next five years and cap standard consumer credit card rates at 1.25 percent for eight years. Neither company admitted wrongdoing, and the settlement still requires approval from a federal judge.

‘Honor All Cards’ Rule To Be Weakened

The most consequential part of the proposal centers on the long-standing “honor all cards” rule, which requires merchants that accept Visa or Mastercard to accept every card carrying those logos—regardless of fee level or card tier.

Premium rewards cards, such as Visa Infinite and Mastercard World Elite, charge significantly higher fees. A Visa Infinite transaction, for example, can cost a merchant roughly 0.15 percent more than a mid-tier Visa Signature purchase.

Under the proposed terms, merchants would be allowed to reject higher-tier cards altogether or impose surcharges on customers who use them. That could mean shoppers relying on premium travel and cash-back cards find them declined at the point of sale, or face added fees at checkout.

Stores could also offer discounts to customers who pay with cash or debit, especially in industries with thin margins.

Limited Savings for Merchants, Customers

While Visa and Mastercard claim the settlement provides “meaningful relief” and offers businesses better tools to manage payment costs, many retailers argue that the reductions are too insignificant to offset decades of rising fees.

Swipe-fee revenue has jumped 70 percent since 2020, reaching a record $187.2 billion last year, according to the National Association of Convenience Stores (NACS), a major retail trade group.

“This proposed settlement endorses business as usual, including by letting Visa and Mastercard increase their own fees without any restraints,” NACS senior vice president of government relations Lyle Beckwith said in a statement.

“That could erase the benefits that this settlement pretends to provide.”

Despite the savings the settlement provides, it is unclear whether consumers will see lower prices, as any reductions could be absorbed by operational costs before reaching shoppers.

“Once again, this proposal is all window dressing and no substance,” Stephanie Martz, general counsel at the National Retail Federation (NFR), said in a statement.

“The reduction in swipe fees doesn’t begin to go far enough, and the change in the honor-all-cards rule would accomplish nothing.”

NRF said that it remains unclear whether the settlement will curb Visa and Mastercard’s central setting of swipe fees, and the reduction applies only to interchange. With no limits on the networks’ own fees, they could raise their share and wipe out any savings for merchants and customers.

Only Visa and Mastercard are covered by the settlement. American Express, because it issues and processes its own cards, is not involved, and the deal has no effect on debit card transactions.