The news: Visa and Mastercard reached a settlement with merchants to lower interchange fees in the US, ending a 20-year battle in the courts, per SEC filings.

The networks will lower their average effective interchange rate by 0.1 percentage point for five years and cap standard US credit rates at 125 basis points. 

The agreement also eases Visa and Mastercard’s “honor all cards” rule for retailers, letting merchants adjust acceptance for three different buckets of cards: commercial, premium, and standard consumer.

How we got here: Merchants have long wanted relief from the fees imposed by networks, especially as more US consumers pay by card—roughly 1 in 3 (35%) payments in the US are now completed by credit card, making it the most popular payment method, per a Bankrate report. 

Retailers’ fee burden has grown with the popularity of premium cards that can charge retailers up to 4% of the transaction cost—double the rate of an average card, per the National Retail Federation. 

Conversely, networks have had every incentive to keep the status quo, as they stand to benefit from fees collected from lenders and retailers.

What’s next? Retailers can now discriminate against different tiers of cards at the POS, which networks frame as giving agency back to merchants. In practice, this could cause major confusion at checkout for many consumers unaware of rule changes, making implementation highly unlikely among major retailers. 

For SMBs with tighter margins, declining to take a Chase Sapphire Reserve may be worth it for their bottom lines—but they risk alienating the 20% of households that are driving the majority of spending growth in the US, per Moody’s analysis, who are more likely to carry premium cards.

Our take: Small businesses trying to maximize their bottom lines by declining premium cards need to incentivize their consumers to switch to a compatible payment method. 

Offering discounts or loyalty programs contingent on standard credit cards, debit, or cash can help mitigate dissatisfaction while changing their consumers’ payment behavior patterns.