Mastercard and Visa Change their Fee Structure; A Chance for Crypto?

Mastercard and Visa, two big payment networks in the US, have changed their fee structures, and the decision could make businesses turn to cryptocurrencies. These fees, typically charged whenever a customer uses a credit card, generally are a portion of the total transaction. The rise of credit card processing fees is likely to affect many businesses.

What the Fee Increases Mean

The vast majority of the interchange fees go to banks issuing credit cards. A smaller portion goes to Mastercard and Visa, which use their networks to process the transactions. Both companies say the fees help fund fraud prevention and innovation.

Some of the delayed changes due to the pandemic aim to support small businesses and make shopping more convenient for consumers. However, retailers and members of Congress are concerned that these changes will increase the cost of doing business.

Although some companies will see higher fees, Mastercard and Visa say they are reducing their rates for small businesses by 10%. These changes should help make their businesses more competitive and attract more local customers.

A Chance for Crypto?

As credit card fees rise, more merchants will switch to other forms of payment, such as crypto. Although digital assets can also be cheaper than credit cards, they still have transaction fees. For example, despite Bitcoin’s criticism over its transaction fees, many people still believe that it should be considered a legitimate form of payment. 

Even better, are current layer two companion networks cheap enough? According to Buterin, various rollups are reducing fees for users of Ethereum significantly. For instance, Arbitrum and Optimism provide fees that are around 8x lower than the Ethereum base layer. These services can also avoid including signatures and have data compression.

Despite the lack of token subsidies, the rollups still see significant adoption. For instance, Arbitrum is worth over $2 billion, and it is one of the first DeFi platforms to show promising signs. However, despite the increasing number of fees these services offer, Buterin believes that they must be cheaper to encourage more adoption in the payments and gaming industries.

On the other hand, Bitcoin LN allows folks to transfer bitcoins without any fees using their digital wallets. The objective of the network is to make it easier for people to make payments between themselves without having to go through the traditional channels. By allowing users to handle transactions off-chain, the network improves the efficiency of the process.

Critics Believe Consumers Will Pay the Processing Fees

Critics say that the new fee structure will only benefit a small portion of merchants. It will also raise costs for the rest of the retailers, passing these on to their customers.

Several US senators, including Dick Durbin of Illinois, sent letters to Mastercard and Visa executives asking them to call off their planned fee increases. They noted that the companies already have a high-profit margin and that the increases would only benefit a small portion of their customers.

In response, Visa said that the changes would benefit over 838,000 small businesses in the US. It noted that the money collected from the fee increases would improve the security of card transactions.

Nothing New?

Credit card processing fees have been a contentious issue for both banks and retailers, with Walmart and Visa coming out of several lawsuits. In 2021, Amazon threatened to stop accepting credit cards in the UK due to high fees.

For years, retailers have argued that Mastercard and Visa fees are too high and are forcing them to raise prices. However, the fight is on with the increasing prices of various products.

According to Leon Buck, an official with the National Retail Federation, the average family will spend around $700 annually on credit card processing fees. Doug Kantor, the general counsel of the National Association for Convenience Stores, also said that the fees are passed along to the consumer, causing inflation and hurting merchants.