MasterCard is expected to pay US retailers $1 billion as part of an out-of-court settlement of a lawsuit protesting against high fees for debit card processing. The case against former co-defendant Visa, due to start today, has been adjourned pending the outcome of discussions between lawyers acting for the two sides.
Lawyers acting for up to 5 million retailers in a class action lawsuit brought against Visa and MasterCard began distributing details of the settlement with MasterCard yesterday. They have also begun talks with Visa in a bid to draw a line under the long-running dispute.
Notification of the details of the deal began circulating after the New York district judge presiding over the trial unexpectedly lifted reporting restrictions on the eleventh-hour settlement between MasterCard and the plaintiffs. As well as the $1 billion pay-out, MasterCard is also understood to have agreed to cut fees for processing debit card transactions.
The news is seen as a major blow for the banks that comprise the MasterCard network, as they stand to lose substantial annual revenues from the reduction in fees. Last year, merchants paid issuers of Visa and MasterCard $4.67 billion for signature-based debit transactions at the point-of-sale, compared with $715.3 million paid to banks that issued cards processed over cheaper PIN-based debit networks.
If the retailers force a similar agreement with Visa, analysts estimate that banks involved in the two card schemes stand to lose as much as $2 billion in revenues annually.