Visa and Mastercard to Pay Nearly $200 Million to Settle Dispute with Merchants

Visa and Mastercard have agreed to settle merchant claims that the networks forced them to bear expenses associated with fraudulent transactions that involve counterfeit, lost, or stolen cards, according to a new report from Reuters.

The two credit card networks, which individually process more card-based purchases than any other networks in the U.S., will pay a combined $199.5 million under the settlement they have proposed.

The settlement gives financial support to merchant groups, but it also provides them with confidence that they have levers they can pull to hold card networks accountable when they impose changes that cause merchants financial stress.

A group of merchants first filed a lawsuit over the matter in 2016. At that time, they alleged that the card networks had breached antitrust law by working together to change rules regarding chargebacks. 

The changes the card networks introduced served to hold merchants responsible for chargebacks unless a business had previously made upgrades to their payment-acceptance systems that allowed customers to pay with chip-enabled cards.

Visa and Mastercard agreed to hefty settlements, but they denied any wrongdoing in the matter.

The moves the card networks put in place caused merchants to face escalated costs without realizing any savings in transaction fees, according to Reuters.

The settlement amount, which includes almost $120 million from Visa and just shy of $80 million from Mastercard, isn’t the first time networks have agreed to reach a settlement over this issue.

American Express and Discover previously moved to resolve similar claims at a combined cost of more than $32 million.

All four of the companies — Visa, Mastercard, American Express, and Discover — denied they had committed any wrongdoing by moving to settle the claims against them.

The proposed settlement from Visa and Mastercard still requires approval from a U.S. District Judge.

Credit card fraud can be a significant thorn in the side of merchants. Though businesses may consider fraud to be just another one of the costs of doing business, they may bristle when they take a closer look at what just one fraudulent sale can cost them.

A recent study shows that the total cost of fraud on the sale of a $100 item can amount to $231 for a business, once you account for the expenses a merchant can encounter for challenging a chargeback.

Online purchases, where a buyer’s card isn’t present, can lead to increased rates of fraud.

And changes in the way people shop can make it tougher for merchants to reduce the amount of fraud that hits their business in a given year.

“There’s no doubt that as more digital transactions take place, as more purchases are online, in card-not-present [transactions], the fraud rates go up,” Tim Tynan, CEO of Chargeback Gurus, said in a recent interview.

Businesses that have seen their fraud costs soar in recent years may take some solace in the news that Visa and Mastercard have decided to make big payments to settle the case merchants brought against them.

With the case behind them, merchants and networks can focus more on fighting fraud together. A unified effort from card networks, credit card issuers, and merchants stands to be more effective in countering the latest schemes bad actors use to commit payments fraud.