Block, the company behind the Square payment platform, alleges Visa and Mastercard conspired to inflate interchange fees
The fintech firm Block (former Square) filed an antitrust lawsuit against Visa and Mastercard with the US District Court for the Eastern District of New York. The company states that the two payment giants have artificially inflated so-called swipe fees, resulting in increased retail expenses for end consumers.
Allegedly, Visa and Mastercard have formed a conspiracy to maintain market power amid a rising number of fintech competitors. Block claims the credit card providers vastly overcharged the Square payment platform. This happened in two main ways. Firstly, Visa and Mastercard allegedly inflated interchange fees to the excess without reasonable excuses. In addition, the two credit card companies raised a certain fee Square pays based on the number of locations its partner merchant has.
More about interchange fees
Interchange fees are transaction fees that the merchant must pay every time a customer uses a credit/debit card to shop at their store. The fees go to the card-issuing bank to cover administration costs, fraud and bad debt costs and other risks involved in the payment approval process. The problem is that the acquiring bank passes an interchange fee on to the retailer who includes it, like any other cost, in the final prices to all consumers, even to those who do not use bank cards.
Those fees are one of the main ways Visa and Mastercard make money. The two payment systems take about 0.10% on every single transaction passed through their brands. Each of the companies processes thousands of transactions daily, which brings them hundreds of billions of dollars annually.
History of Visa & Mastercard legal troubles related to MIFs
Back in 2018, the European Commission voiced competition concerns relating to Mastercard and Visa inter-regional interchange fees for payment card transactions. To address that, Mastercard and Visa have separately decided to offer commitments that would reduce the inter-regional multilateral interchange fees (MIFs) by at least 40%.
However, the issue didn’t disappear. The Block’s case is not the first antitrust legal suit for Visa and Mastercard. Earlier this year, the companies faced a multibillion-dollar lawsuit in the UK. The law firm Harcus Parker on behalf of local SMEs alleged that Visa and Mastercard determined the number of exchange fees, focusing not on market circumstances, but on their own benefit contrary to objective factors.
Last year, the same firm filed another lawsuit against Visa and Mastercard, demanding compensation for MIFs incurred when accepting payments using corporate credit cards.