Visa and Mastercard are negotiating a settlement with merchants that will reduce fees - but could also see vendors refusing certain credit cards, according to a new report.

The terms of the deal would lower fees that stores have to pay on credit card transactions but also give them the power to reject certain ones, according to a Wall Street Journal report.

Under the proposed settlement, Visa and Mastercard would lower credit card interchange fees — which are paid by merchants and are typically between 2 and 2.5 percent — to an average of around 0.1 percentage point over several years, the Journal reported.

The most notable change for consumers would be merchants’ ability to reject certain credit cards. The current agreement between merchants and credit card companies is that if they accept Visa or Mastercard, they have to accept them all.

Under the new deal, credit cards would be split into several categories including rewards cards, non-rewards cards, and commercial cards. Some vendors may choose not to accept rewards cards, which charge them a higher transaction fee. The Independent has asked Visa and Mastercard for comment.

Visa and Mastercard are reportedly trying to negotiate a deal with merchants to lower fees stores pay for credit card transactions while also giving merchants the flexibility to reject certain cards, like those with rewards programs (stock image) (Getty Images)

The change could be especially disruptive for consumers as rewards cards have become extremely popular over the last several years.

According to an Ipsos poll from March 2024, 71 percent of Americans have at least one rewards credit card, and two in three people with such a card say they prefer to use them for purchases because of the points they earn for things like travel, gas, or retail discounts.

Nearly half of respondents — and 70 percent of younger respondents — said they use their cards to build credit, and another 13 percent said they even “shop around” to find the best rewards cards they can obtain.

While stores that decline rewards cards might save money on fees, they would also be turning away sales and could potentially see reputation blowback from frustrated customers.

The conflict between credit card companies and merchants goes back to 2005, when merchants sued Visa, Mastercard, and several large banks. The lawsuit accused the credit card companies and banks of engaging in anticompetitive behavior through the use of interchange fees and forcing merchants to an all-or-nothing credit card acceptance policy.

Last March both sides agreed to a deal that lowered interchange fees by around 0.07 percentage point on average over five years, but a judge rejected the deal.

The current deal would also require a court approval, assuming the parties settle on amenable terms.