Credit card interchange fees are a closely watched issue for merchants, issuers, payment networks, and policymakers, making reports of potential Visa and Mastercard fee increases particularly significant. However, Mastercard is disputing claims that it plans to raise U.S. interchange rates or network processing fees, arguing that recent reporting has incorrectly characterized upcoming changes.
The distinction matters because growth in total interchange revenue does not necessarily indicate that interchange rates themselves have increased. Rising credit card transaction volumes can also drive higher overall interchange revenue, making payment volume an important part of evaluating trends in the card industry.
When I read the Wall Street Journal headline “Visa, Mastercard Prepare to Raise Credit-Card Fees,” the first thing that went through my mind was that it didn’t make sense. Mastercard and Visa have not signaled an upcoming rate change. We never would have missed that. It is hard to miss Mastercard or Visa in the news, with constant developments in inclusion, product design, and security.
The article cites a chart from the Nilson Report and talks about revenue generated by interchange, with a 10-year history. The chart illustrates rapid interchange growth, but it lacks important data. For instance, if you look at Mastercard’s supplementary disclosures for gross dollar volume, you will see that Q2 2021 volumes were $619 billion in the United States and grew to $717 billion in Q3 2023, a nearly 16% increase during the comparative period. Lay those numbers against the WSJ interchange increases, and the movement is linear and makes sense. References were made to a small research firm servicing the merchant side of payments, but there was no bank-side analyst representation or even a payment brand comment.
Well, they read the WSJ up in Purchase, N.Y., and Mastercard responded with this release. The first paragraph sums it up: “Unfortunately, this story is wrong.” In four points, Mastercard refutes the WSJ article:
Mastercard is not raising U.S. interchange rates this fall and has no plans to do so.
Mastercard is not raising U.S. network fees required for the processing of Mastercard transactions this fall.
The Authorization Optimizer service is the only Mastercard fee noted in the study cited by the Journal. It is not related to interchange. This service is designed to reduce the likelihood that subscription and recurring payments will be declined, with any related fees being de minimis in scope.
The article notes that Congress is considering legislation that could lower costs for merchants, yet it fails to mention the negative consequences for consumers: compromised security, a loss of rewards programs, and higher prices on goods and services. For example, after similar legislation pertaining to debit transactions was passed in 2010, the Federal Reserve of Richmond concluded that consumer prices increased.
The WSJ usually provides excellent insights on credit cards, but this time perhaps the editor was on PTO. The article lacks the balance you get used to in the WSJ.
The debate over credit card interchange fees illustrates the importance of distinguishing between interchange rates, network fees, optional services, and the overall revenue generated as card payment volumes grow. Mastercard’s response makes clear that the company does not consider the cited changes to represent an increase in U.S. interchange rates.
The issue also extends beyond payment network pricing. With lawmakers considering changes to the credit card market, merchants, financial institutions, payment networks, and consumers all have significant interests at stake. Any analysis of potential changes should therefore consider not only merchant costs but also possible effects on card security, rewards programs, issuers, and consumers.
Overview by Brian Riley, Director of Credit /Co-Head of Payments at Javelin Strategy & Research.
