Earlier this week, payment giants Visa and Mastercard agreed to lower fees charged to merchants for credit card transactions in the US, following a lawsuit spanning almost two decades.

In a move that could collectively save merchants as much as $30billion, Visa and Mastercard have agreed to reduce so-called ‘interchange’ fees by 0.04 percentage points for a minimum of three years, and to cap them at the same level seen at the end of 2023 for five years – subject to approval by the US District Court for the Eastern District of New York.

Interchange rates, set by the two payment giants, generally sit between two to four per cent of each transaction total. According to Rob Beard, chief legal officer and head of global policy at Mastercard, the agreement delivers “certainty and value to business owners, including flexibility in how they manage acceptance of card programmes”.

Currently, merchants in the US can add surcharges to transactions for consumers using American Express cards – but not on Mastercard and Visa cards. But if the settlement is approved, merchants will be able to change the rates they charge for all cards, instead of basing it on the credit card network alone.

However, the majority of interchange fees actually go to the issuer banks, to cover the card services they provide, such as customer support, fraud prevention and to cover other associated handling costs. While it remains unclear which party will take the brunt of the cut, early suggestions look as though the banks will take the biggest hit. Questions could arise over how much of an impact these cuts could have on issuing banks across the US.

In response, Kim Lawrence, president of the North America region at Visa, explained: “Importantly, we are 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.”

A win for merchants, but a loss for cardholders?

Matt Schulz, chief credit analyst at LendingTree, an online lending marketplace, explains that, while US merchants will enjoy savings, this may not be the case for their customers, who may even become privy to higher fees.

“This settlement is potentially a big deal for merchants’ bottom line, but the financial impact on their customers is unclear. There’s no guarantee that even a dime of these savings gets passed on to consumers.

“Merchants will now be more able to add surcharges to purchases made with credit cards that come with higher swipe fees. That can help them recoup the cost of accepting those cards, but it also risks alienating customers.

“These changes come with some real risk to merchants. For example, a high-end credit card may cost more for a merchant to accept, but the typical user of that high-end card might be an extremely desirable customer with a lot of spending power. This dilemma is going to lead to some very interesting conversations within these companies.

“The measures in this settlement that allow for more surcharging and greater competition could lead to swipe fee reductions well beyond just what is mandated. The ultimate impact of this settlement on credit card rewards and the industry as a whole will depend on how that all plays out.

“Banks have plenty of levers to pull and buttons to push when it comes to recouping revenue in cases such as these. It is reasonable to expect that we might see other types of bank fees rise once the settlement is finalised. Banks don’t tend to take these types of changes lying down.”

Impact on issuing banks

Brad Goodall, CEO and co-founder of Banked, a fintech powering open banking payments, explains how the settlement between Visa and Mastercard could impact issuing banks, and how fintech could resolve future issues: “Mastercard and Visa have committed to maintaining average interchange fees at least seven basis points lower than the current rates over the next five years, providing a period of stability for merchants after a US judge clears the settlement.

“The big questions are; will this introduce surcharging at point of purchase and if so what will that do to consumer experience and cost? Will this open a door for alternative payment methods?

“The deal will also negatively affect issuing banks, which will take a moderate hit to the revenue they collect amidst a tough macroeconomic climate for banks as interest rates remain stubbornly high. Issuing banks are largely responsible for ensuring fraud is monitored and kept out of the system and they use part of this interchange to fight fraud.

“It’s key that fintech steps up to provide reliable and importantly, safe alternative payment methods for both merchants and banks. One promising path for innovation is Pay by Bank, a payment method built on global open banking payments rails, vastly reducing fees and providing near-instant settlement, whilst shoring up revenue for issuing banks.

“The collaboration between banks and fintechs to innovate on account-to-account rails is paramount. This partnership provides a unique opportunity, particularly as issuing banks face mounting pressures from diminishing interchange fees. This pressure incentivises them to envision a future where they can chart their own course towards a new network model. By harnessing core payment services and fraud tools, they can create a novel, real-time payment method that benefits merchants and consumers.”

Bank revenues ‘remain quite steady’ 

Not all agree with the idea that reduced interchange fees will genuinely hurt issuing banks. Dan Carter, senior director and head of global payment strategy at Redbridge Debt & Treasury Advisory, a global financial management partner to corporations, appears to suggest this, as he highlights that consumers shouldn’t fear significant additions to their bills.

“From a consumer perspective, there should be little to no major changes. Interchange rate increases have far outpaced the proposed decreases.

“As of October 2023, high-end rewards cards issued under Visa and Mastercard have reached 2.6 per cent plus $0.10 for interchange alone – up 0.1 per cent from just April 2023. Issuers may complain and may deflect with comments about fraud losses and bad debt write-offs, but their revenues remain quite steady.

“While surcharging, allowable since 2013, is more prevalent post-COVID, merchants who accept American Express are still bound by the terms of their agreements.

“What may be allowed under Visa and Mastercard may be prohibited under American Express, a network known for aggressively pursuing ‘honour all’ and anti-discrimination practices.”

Looking to the future of payments

Kjeld Herreman, head of strategy advisory at RedCompass Labs, a fintech consultant and accelerator, also explains how, even if the settlement comes into play, merchants worldwide could still benefit from other payment solutions; even those based across Europe, where interchange fees sit at around 0.3 to 0.4 per cent.

“Every card transaction that is made costs businesses money, and they usually must wait two to three days after taking payment for any money to reach their account. When it arrives, they’ve lost a chunk to interchange fees. Money that could be used to pay staff, suppliers, rent, and bills goes to the payment processor. Not only is the business worse off in real terms, but waiting for the money to arrive can create pressure with suppliers and staff who need to be paid.

“P2B real-time payments are a solution for merchants everywhere who are tired of paying interchange fees and waiting days for their money to arrive. The faster the payment, the faster the business is paid, the faster it can reinvest, and the faster it grows.

“The EU is attempting to tackle this issue to reduce the power of large foreign businesses. The European Payments Initiative is building a card-like scheme on top of real-time payment rails, as well as adapting interchange and chargeback processes. It is also mandating that all banks must be ready to send and receive real-time payments by the end of 2025, levelling the playing field between PSPs and card networks.”

Qonto, the European business finance solution, has launched a new in-house financing solution, ‘Pay later’, extending its product offering and strengthening its market leadership as the most advanced business banking offer.

Leveraging its existing payment service licence, Qonto is providing short-term financing in the form of ‘Pay later’, which gives eligible customers instant access to funds of up to €10,000, directly from the Qonto app.

Once approved, the funds are instantly available on the customer’s Qonto account, via the buy now, pay later solution, paid back alongside a 1.17 per cent per month interest rate. The repayment period begins 30 days after the invoice purchase, repaid in three automatic instalments over 90 days.

This launch signposts a new milestone for the company, which has so far relied on strategic partnerships to provide financing to its customers. The launch of Pay later marks another step in Qonto’s ambition to become the business finance solution of choice for one million European SMEs and freelancers by the end of 2025.

Alexandre Prot, CEO and co-founder of Qonto, commented: “Offering our first in-house financing solution is a big milestone for Qonto – and our customers. Our goal is to offer European SMEs and freelancers everything they need to seamlessly manage their business finances, from an online business account to invoicing, bookkeeping, spend management and, of course, financing.

“There is a real need for financing among European businesses, and we’re proud to offer a comprehensive solution with Pay later and our financing platform. The launch of Pay later brings us one significant step closer to our goal of becoming the business finance solution of choice for one million European SMEs and freelancers by the end of 2025.”

The new solution is accessible from Qonto’s mobile and web apps and complements the financing platform Qonto launched in 2023 through strategic partnerships, giving customers access to a comprehensive range of financing solutions that dispense amounts up to €10million.

Improving access to finance across Europe

In 2023, Qonto launched the Qonto financing platform across all four of its markets (France, Germany, Italy and Spain). Over the past year, almost 8,000 projects have already been financed for a total amount of almost €60million.

By launching this short-term financing offer, Qonto aims to provide businesses with increased financing options that respond to the very different needs of its customers. Its new Pay later offer complements existing offers from partners (Defacto, Silvr, Karmen, Edebex, and Riverbank in France; Faicredit and Viceversa in Italy; and Defacto, Kintai and Bankable in Spain) on the financing platform.

According to the European Commission, ensuring access to finance is one of the major challenges faced by European SMEs. In 2023, 21 per cent of SMEs reported ‘problems with financing’ as a main challenge for their business.

A Qonto report on the state of European SMEs, published at the end of 2023, shows similar results: 23 per cent of surveyed SMEs felt ‘pessimistic’ or ‘very pessimistic’ about their access to financing in 2024. Qonto’s ambition is to always meet its customers’ evolving needs and demands. With the launch of Pay later, Qonto aims to address the increasing need for SME financing in France, Italy and Spain.

Viva.com, Europe’s technology bank for payments powering card acceptance in 24 markets, has launched ‘Merchant Advance’; a new credit solution looking to solve critical cashflow issues for thousands of businesses across Europe, helping them invest in growth.

Viva’s Merchant Advance looks to offer transparent capital to businesses, based on merchant acquiring data. Loan disbursement is instant, to help businesses of any size or type immediately access capital for growth.

Merchant Advance by Viva.com is currently available in Belgium, Germany, Netherlands, and Spain, with more European countries of operation following soon.

Yannis Larios, senior VP of strategy and business development at Viva.com, explained: “Having access to reliable and flexible capital is critically important for growing businesses, but for millions of European merchants, it’s a real struggle to find the right solution.

“Traditional capital providers, and even newer market entrants, have to vet businesses properly, which results in time-consuming processes before any decision is made.”

While other capital providers can force businesses into lengthy application processes, Viva’s Merchant Advance leverages the merchant’s payment history with Viva.com – enabling access to near-instant capital with no fuss.

The new credit solution boasts smart prescoring, based on advanced payments data analysis for each business; as well as fast access to capital, charged with a single explained fixed fee.

It also offers a flexible automated repayment process via a percentage of daily card sales; no late payment fees; as well as a fully digital process with no collateral or other commitments.

Supporting business growth ‘without restrictions’

Merchant Advance is the latest inclusion in Viva.com’s market-leading digital payments bundle, a collection of integrated services that combine to power all businesses across Europe. From acquiring and issuing to business accounts and tailored financing, Viva.com’s solutions help businesses grow without limits.

“Viva’s Merchant Advance changes the game, allowing our customers instant access to working capital based on smart prescoring. This allows us to offer instant, flexible and transparent capital that they can use to grow without restrictions. Merchant Advance is the latest addition to our product suite, built to solve payment issues for businesses of all shapes and sizes,” added Larios.

The new Viva credit solution will be provided through a range of leading financial partners.

Viva.com is Europe’s first technology bank for payments, powering card acceptance across 24 countries and over 985 devices. With an ECB-approved banking licence and physical presence in 24 European markets, Viva’s ‘Tap on Any Device’ for in-store payments, smart checkout for online payments, and marketplace payment solution, help European businesses of any size to accept and manage payments how they want.

Customers who have struggled with decentralised payment issues such as custody risks, and slow, expensive settlements have been provided with a solution by Wirex, the Web3 money app. The solution, ‘WPay’, ensures users have a smoother and more secure payment experience.

Targeting decentralised applications, non-custodial wallets, and DAOs, WPay provides a transformative solution in the digital finance landscape. With the self-custodial debit card, users can spend their digital assets in the traditional economy through the WPay network.

Accepted by over 50 million merchants in more than 200 countries, the card enables users to have direct control over their assets, ensuring no counterparty risk.

Pavel Matveev, CEO and co-founder of Wirex, comments: “WPay revolutionises digital asset use in daily life, seamlessly merging them with traditional transactions. Bridging the gap between digital assets and everyday transactions has been challenging. WPay represents a significant advancement, allowing individuals to use digital assets for everyday purchases and services. This ushers in a new era of practical cryptocurrency use beyond mere investment.”

There are a variety of key value propositions of WPay. The first is self-custody. Customers gain direct control over assets with the WPay Card, mitigating counterparty risk. They are also provided with greater digital asset flexibility. This in turn means they can easily manage digital assets, lending, and borrowing. Another benefit is its security. With high-security standards in place, consumers can utilise crypto quickly and as simply as cash, accepted by over 50 million merchants in more than 200 countries.

• Francis Bignell

  Francis is a journalist and our lead LatAm correspondent, with a BA in Classical Civilization, he has a specialist interest in North and South America.

Virginia Tech, a university in the United States, has published a report outlining potential biases in the artificial intelligence (AI) tool ChatGPT, suggesting variations in its outputs on environmental justice issues across different counties.

In a recent report, researchers from Virginia Tech have alleged that ChatGPT has limitations in delivering area-specific information regarding environmental justice issues. 

However, the study identified a trend indicating that the information was more readily available to the larger, densely populated states.

“In states with larger urban populations such as Delaware or California, fewer than 1 percent of the population lived in counties that cannot receive specific information.”

Meanwhile, regions with smaller populations lacked equivalent access.

“In rural states such as Idaho and New Hampshire, more than 90 percent of the population lived in counties that could not receive local-specific information,” the report stated.

It further cited a lecturer named Kim from Virginia Tech’s Department of Geography urging the need for further research as prejudices are being discovered.

“While more study is needed, our findings reveal that geographic biases currently exist in the ChatGPT model,” Kim declared.

The research paper also included a map illustrating the extent of the U.S. population without access to location-specific information on environmental justice issues.

Related: ChatGPT passes neurology exam for first time

This follows recent news that scholars are discovering potential political biases exhibited by ChatGPT in recent times.

On August 25, Cointelegraph reported that researchers from the United Kingdom and Brazil published a study that declared large language models (LLMs) like ChatGPT output text that contains errors and biases that could mislead readers and have the ability to promote political biases presented by traditional media.

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