What Does Visa and Mastercard’s $30B Settlement Mean for Credit Card Rewards?

Two of the world's largest credit card payment networks, Visa and Mastercard, have reached a blockbuster $30 billion settlement with U.S. retailers over the swipe fees charged for processing credit card transactions.
As part of the settlement announced Tuesday , Visa, and Mastercard have agreed to lower interchange rates – more commonly known as swipe fees – for U.S. merchants by at least 4/100ths of a percent and cap rates through 2030, giving small businesses greater cost certainty over the next five years. The settlement also allows merchants to direct customers to less costly payment options like paying with a debit card instead of a credit card.
The decades-long legal saga first began in 2005 when a group of 19 merchants – 90% of which were identified as small businesses – sued the credit card giants, alleging they violated antitrust laws by blocking competition and keeping merchants from being able to negotiate interchange rates.
In a perfect world, this settlement would lead to lower prices for consumers as many retailers have blamed high swipe fees for price hikes, and, in some cases, they'll even charge customers extra for using a card. But while the lower fees mean significant savings for many small businesses, it's unlikely that those savings will be passed on to consumers. 
This settlement also raises an important question for anyone using points and miles to fuel their travels: Is this the end of credit card rewards?
Banks can offer such lucrative credit card rewards – from cash back to points and miles and more – largely due to the money they make on these interchange fees. Every time you swipe your card to make a purchase, the bank and payment network (Visa, Mastercard, Amex, etc.) get a cut of the fee. Lower fees mean less profit for those payment processors, potentially making it harder for them to offer the lucrative rewards we currently see on many top travel cards
 
 
But before we write this settlement off as the end of credit card rewards as we know them, Kim Lawrence, President of Visa North America, says not so fast. In a press release , she noted that Visa was “making these concessions while also maintaining the safety, security, innovation, protections, rewards and access to credit that are so important to millions of Americans, and to our economy.”
Time will tell whether that proves to be true, but several factors at play lead us to believe this isn't the beginning of the end for credit card rewards .
First, while there's a good chance you've got a credit card in your wallet with the Visa or Mastercard logo on it, your card wasn't issued by either company – it was issued by a bank like Chase, Capital One, or Citi. Visa and Mastercard are just the payment networks that your card runs on. You can think of these payment networks as the backbone of your credit card: They enable transactions and ultimately govern the fees merchants pay when consumers swipe their cards.
 
Photo courtesy of Clay Banks, via Unsplash.
Then there are the annual fees. Banks charge a yearly fee for holding certain credit cards, typically those with more rewards and benefits. Swipe fees are how banks fund the rewards they offer on no-annual-fee cards. For more premium cards, however, those annual fees are how the bank can offer additional rewards in certain categories beyond what they're collecting in swipe fees. This settlement does not affect what annual fees banks can charge cardholders.
But the payment network determines some credit card benefits and that's where we could see a change as a result of this settlement. Things like roadside assistance , trip delay, cancellation protection , and other travel insurance are often benefits issued by Visa and Mastercard . If either company determines that offering these benefits is no longer financially viable with merchants paying less interchange fees, we could see some benefits like these go by the wayside.
Again, it's much too early to tell what (if any) impacts this settlement will have on credit card rewards but we'd wager that little will change for consumers. For now, you can continue swiping your card and earning rewards as you always have. If anything, you might find that businesses that previously didn't accept cards due to high swipe fees are more likely to take them going forward.
 
Featured image courtesy of A, via Flickr.