Who benefits from the 30B settlement from the card brands?

By Bart Kohler ETA CPP

The recent Visa Mastercard $30 billion settlement has sent ripples through the financial world, sparking debates on its implications for various stakeholders. While on the surface, the settlement may seem like a win for business owners with its promise of rate certainty, a deeper dive reveals troubling aspects that could spell trouble for business owners, consumers, and shareholders alike.

For business owners, the settlement initially appears to offer a sense of security by locking in rate increases. However, this perceived certainty is overshadowed by the potential for card associations to introduce new products and charge exorbitant fees for them. This move could undermine the supposed benefits of rate stability and expose business owners to unpredictable cost escalations for these products.

One of the core issues for business owners lies in the lack of true control over their payment processing fees. While the settlement may provide a temporary respite from rate hikes, it does little to address the underlying power dynamics that allow card associations to dictate terms and fees. This lack of transparency and autonomy in payment processing arrangements can stifle business growth and innovation, hindering their ability to thrive in a competitive marketplace.

Moreover, the settlement fails to address the broader concerns around fee structures and the impact on small businesses. With rewards for cardholders tied to the amount of fees charged to merchants, cardholders may face the prospect of limited rewards and diminishing benefits similar to the results that occurred when the Durbin amendment regulated debit cards and rewards all but disappeared for debit card holders. This not only erodes the perceived value of loyalty programs but also raises questions about the fairness of the system in distributing costs and benefits among stakeholders.

For consumers or cardholders, the implications of the settlement are equally concerning. The reliance on merchant fees to fund rewards programs means that any constraints on fee increases could translate into reduced rewards and benefits for cardholders. This could lead to a situation where consumers are faced with a choice between paying higher fees or settling for diminished rewards, ultimately affecting their overall satisfaction with payment cards.

Furthermore, the potential for card associations to introduce new products with higher fees could further strain the relationship between consumers and card issuers. The lack of transparency in how fees are structured and allocated can breed distrust among consumers, leading to a ripple effect on card usage and customer loyalty.

From a shareholder perspective, the $30 billion settlement raises red flags about the sustainability and profitability of card networks in the long run. While the sheer magnitude of the settlement amount is staggering, the source of this funding remains a critical question. Shareholders may bear the brunt of the financial burden, either through reduced dividends, increased fees, or other mechanisms that could impact their returns on investment.

The allocation of such a significant sum towards the settlement also raises concerns about the financial health and strategic direction of Visa and Mastercard. Shareholders rely on these companies to make sound decisions that drive revenue growth and enhance shareholder value. The diversion of resources towards settlement payments could divert attention from core business priorities and erode investor confidence in the long-term prospects of these companies.

Additionally, the uncertainty surrounding the implications of the settlement on future business operations and profitability could induce volatility in the stock market, leading to fluctuations in share prices that may harm shareholder interests. The lack of clarity on how the settlement will impact the financial performance of Visa and Mastercard raises questions about the prudence of investing in these companies amidst such regulatory challenges.

In conclusion, the Visa Mastercard $30 billion settlement represents a complex web of implications for business owners, consumers, and shareholders alike. While the promise of rate certainty may offer a temporary reprieve for business owners, the underlying challenges of fee structures and new product introductions could undermine this perceived benefit. For consumers, the prospect of reduced rewards and benefits raises questions about the fairness of the payment ecosystem. Shareholders, on the other hand, face uncertainties around the financial impact of the settlement and its implications for long-term value creation.

As stakeholders navigate the fallout of this settlement, it becomes imperative for regulators, industry participants, and consumers to engage in constructive dialogue to address the systemic issues plaguing the payment card industry. By fostering transparency, promoting competition, and protecting the interests of all stakeholders, we can pave the way for a more equitable and sustainable payment ecosystem that benefits businesses, consumers, and shareholders alike in the long run. At the end of the day it is a bad deal for business owners, consumers, and shareholders.