The use of credit cards has increased a lot in today’s time. Credit cards are used extensively in almost all the countries of the world including India. Credit cards provide many benefits to users, but to use them one has to pay various charges. Now users can get some relief on this front.

$30 billion settlement

An agreement has been reached between the world’s two largest card networks Visa and MasterCard, which is expected to reduce the expenses of credit card users. According to a Reuters report, Visa and MasterCard have agreed to a settlement of $30 billion. This settlement is regarding credit card fees of merchants. Settlement is also applicable on debit card fees.

Both agreed on these conditions

Both card network companies announced the settlement this week. Under the settlement, both network providers have agreed to reduce the swipe rate by 0.04 percent. This deduction will be for three years. Apart from this, it has also been agreed between both the networks that the average rate should be kept 0.07 percent lower than the current rate for the next five years.

What is swipe rate?

Both the networks have agreed to keep the rates fixed within the maximum limit for the next five years and there has also been talk of removing the anti-steering provision. Swipe rate is the fee that card networks like Visa and MasterCard charge for card transactions. Generally its rate is 1.5 percent to 3.5 percent. Card networks collect this fee from the merchant and in almost all cases the merchant passes this fee on to the customer. In many places, merchants warn the customer before making the card payment that he may have to pay this much extra.

In this way customers can benefit

The agreement between the two networks has increased the hope that it will benefit card payment customers. Actually, under the settlement, it has been left to the merchant to decide whether to pass on the benefit of rate reduction to the customers or not. If merchants pass on this benefit, customers will have to pay less extra. This settlement still needs the green signal from authorities in the US.

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International payment merchants like Visa and MasterCard have suffered a major setback in India. Taking action against Visa and MasterCard, the Reserve Bank has asked them to stop business payments through cards. After the action, senior officials of both the payment merchants have met the Central Bank officials. Visa and MasterCard dominate in card payments in terms of value.

Instructions to suspend such payment from the card

The Reserve Bank took this action on 8 February. The Reserve Bank has asked Visa and MasterCard to suspend business payments (commercial payments) made by companies through cards. The Reserve Bank has asked them to suspend all transactions of Business Payment Solution Providers (BPSP) till further notice.

Reserve Bank became suspicious of these things

The Reserve Bank has not yet told the reason behind this action. However, it is being said in the news that using the card, payments were being made to such merchants whose KYC has not been done. This thing was bothering RBI. Apart from this, the Reserve Bank was suspecting fraud and money laundering in some big transactions.

Such cards are available under credit line

Actually, banks issue such cards to big corporates. These are available to corporates under the credit lines they get from banks. Big corporates use these cards to make payments to small companies. RBI found some cases in which, using the system of commercial payments through cards, big corporates paid the money from credit lines received from banks to small companies whose KYC was not done. This made RBI suspicious that the card route was being used for money laundering.

Met with RBI officials

Some media reports are claiming that after the RBI action, top executives of both top payment merchants Visa and MasterCard met RBI officials on Wednesday. According to a report in Business Standard, top executives of Visa and MasterCard wanted to know what kind of business model to follow in the case of corporate card-to-business account money transfers. For this he met top officials of RBI.

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