Merchants: The Side That Pays and Never ChoosesThin moat

Mastercard (MA) — moat facet

Merchants pay for Mastercard's network, have no say in which network is used, and have been suing about it since 2005.

Merchants are the other side of every Mastercard transaction and the least satisfied. They pay the merchant discount, from which the interchange that funds the issuers' rewards and the network's assessments are taken, and they do not choose which network the customer's card runs on. Mastercard's own description of the four-party system makes the point: the account holder, the issuer, the merchant and the acquirer each play a role1, and only the issuer decides the brand.

US interchange litigation accrual ($M)559End-2024637End-2025149June 2026Mastercard Form 10-K FY2025; Q2 2026 10-Q
Most of what was accrued has now been paid.

The result has been two decades of lawsuits. The American merchant litigation began in 2005; merchants representing slightly more than a quarter of volume opted out of the class damages settlement, and Mastercard has since settled with most of them, covering over 90% of its American interchange volume2. It still faces cases seeking damages in excess of $1 billion3. The litigation page covers the detail.

The merchants' leverage is political rather than commercial. They cannot refuse the cards customers carry, but they can push for rules on interchange, surcharging and routing, and Mastercard lists regulation of interchange rates and surcharging among its risks4.

Mastercard's answer is to sell merchants something: fraud tools, authentication and data. Value-added services grew 23% in 20255.

Surcharging is where merchants' leverage could become commercial. The rules-relief settlement concerns Mastercard's rules on how merchants may steer customers and surcharge, and the filing warns that any future limitations resulting from litigation or regulation could affect its revenue6. A merchant allowed to add a fee for a card, or to offer a discount for another payment method, can influence the cardholder's choice at the counter. That, rather than any damages award, is what the merchants have been fighting for.

The merchants' anger is visible in court; their commercial power is not. What would change that is a law that lets merchants route credit transactions, and the growth of American credit volume, 9.5% in the second quarter of 20267, would be the first number to show it.

Moat trajectory: Holding steady

Most US merchant claims are settled; the rules case is due for final approval in November 2026.

The number that tests this moat
Reported
US credit gross dollar volume growth, latest quarter
+9.5% ($458bn, Q2 2026)

The payments merchants cannot route; slowing sharply after a routing law would show their leverage turning commercial.

Source: Mastercard Q2 2026 results release ↗
References
  1. ReportedMastercard's own description of the four-party system makes the point: the account holder, the issuer, the merchant and the acquirer each play a role, and only the issuer decides the brand.
    Mastercard Form 10-K for fiscal 2025 - Item 7 MD&A: net revenue by category, key metrics, rebates, geography and the five largest customers. — FY2025 · publ. 11 February 2026 · source ↗
  2. ReportedThe American merchant litigation began in 2005; merchants representing slightly more than a quarter of volume opted out of the class damages settlement, and Mastercard has since settled with most of them, covering over 90% of its American interchange volume.
    Mastercard Form 10-K for fiscal 2025 - Item 1A risk factors and Note 19 legal and regulatory proceedings. — FY2025 · publ. 11 February 2026 · source ↗
  3. ReportedIt still faces cases seeking damages in excess of $1 billion.
    Mastercard Form 10-K for fiscal 2025 - Item 7 MD&A: net revenue by category, key metrics, rebates, geography and the five largest customers. — FY2025 · publ. 11 February 2026 · source ↗
  4. ReportedThey cannot refuse the cards customers carry, but they can push for rules on interchange, surcharging and routing, and Mastercard lists regulation of interchange rates and surcharging among its risks.
    Mastercard fourth-quarter and full-year 2025 results release, Form 8-K exhibit 99.1 - statements, cash flow and operating metrics. — FY2025 · publ. 29 January 2026 · source ↗
  5. ReportedValue-added services grew 23% in 2025.
    Mastercard Form 10-K for fiscal 2025 - Item 7 MD&A: value-added services and solutions. — FY2025 · publ. 11 February 2026 · source ↗
  6. ReportedThe rules-relief settlement concerns Mastercard's rules on how merchants may steer customers and surcharge, and the filing warns that any future limitations resulting from litigation or regulation could affect its revenue.
    Mastercard Form 10-K for fiscal 2025 - Item 1A risk factors and Note 19 legal and regulatory proceedings. — FY2025 · publ. 11 February 2026 · source ↗
  7. ReportedWhat would change that is a law that lets merchants route credit transactions, and the growth of American credit volume, 9.5% in the second quarter of 2026, would be the first number to show it.
    Mastercard second-quarter 2026 results release, Form 8-K exhibit 99.1 - statements, cash flow, balance sheet and operating metrics by region. — Q2 2026 · publ. 30 July 2026 · source ↗
Sources
Generated September 25, 2026