Visa and Mastercard’s New Deal Would Let Stores Refuse Your Rewards Card — How This Could Upend Airline Miles

Visa and Mastercard are reportedly nearing a settlement for a 20-year lawsuit, proposing a gradual 10-basis-point reduction in interchange fees and allowing merchants greater flexibility to decline specific card categories like premium rewards or business cards. While the direct interchange cut is considered minor, the merchant steering flexibility could significantly impact co-brand credit card economics, particularly for airlines heavily dependent on this revenue, and potentially stabilize interchange rates by deflecting legislative efforts. However, widespread rejection of rewards cards is deemed unlikely due to potential sales loss, suggesting the overall impact on payment networks may be marginal, though it could subtly reshape the rewards ecosystem and consumer payment behavior.

Analysis

Visa (V) and Mastercard (MA) are reportedly nearing a settlement for a 20-year lawsuit, which includes a gradual 10 basis point reduction in interchange fees and enhanced merchant flexibility to decline specific card categories like premium rewards. While the direct fee reduction is considered minor, the ability for merchants to steer consumers away from higher-cost cards represents a more significant shift in the payment ecosystem. This development follows a prior settlement rejection in 2024, indicating persistent pressure for resolution.

The proposed changes pose a notable risk to airlines such as American Airlines (AAL), Delta Air Lines (DAL), Southwest Airlines (LUV), and United Airlines (UAL), which heavily rely on co-brand credit card revenue for profitability and liquidity. American Airlines, for instance, generates $5 billion in revenue from selling miles with a 53% margin, underscoring the critical role of these programs. A potential $750 million gross revenue hit for AAL highlights the vulnerability of these business models.

For Visa and Mastercard, settling this long-standing litigation could stabilize interchange rates by defusing momentum for legislative interventions like the Credit Card Competition Act. However, the increased merchant steering flexibility could pressure American Express (AXP), particularly as Delta's co-brand deal approaches renegotiation in 2029. Despite these shifts, widespread merchant rejection of rewards cards is deemed unlikely due to the risk of sales loss, suggesting the overall impact on payment networks may be marginal.

Key Decisions for Investors

• Monitor airline exposure to co-brand credit card revenue, especially for AAL, DAL, LUV, and UAL, given potential impacts on profitability and debt servicing.
• Evaluate the long-term stability of Visa (V) and Mastercard (MA) as the settlement could mitigate legislative risks, potentially stabilizing interchange rates.
• Assess American Express's (AXP) competitive position and acceptance strategy in light of increased merchant steering flexibility, particularly concerning co-brand partnerships.
• Observe the actual rate of merchant adoption of card category rejection to gauge the true impact on the rewards ecosystem and consumer behavior.