Tag Archives for interchange.
Card, and interchange, are so woven into the fabric of the economy that it’s difficult to even predict the full extent of damage from redistributing money here not just from payment networks but also from consumers to retailers. That’s why Senator Durbin’s attempt to cap credit card swipe fees isn’t just bad policy, it’s literally insane.
A dirty secret is that cash has its drawbacks, too, and it’s often cheaper for a merchant to accept credit cards than it is to take cash. It’s not so secret anymore when businesses start adding extra steps and costs for cash acceptance.
Visa and Mastercard have entered into a $30 billion anti-trust settlement with retailers over card interchange fees. Readers are asking, as one put it, “Is this the end of credit card rewards?”
The New York Times embarrasses themselves arguing that rewards credit cards drive inequality. The Times doesn’t understand the issue beyond retail lobbyist talking points.
The blog post details a debate at CardCon on credit card interchange legislation, where the author argues against government-mandated lower interchange fees, citing concerns about the negative impacts on the economy, consumer credit, and rewards programs. It contrasts the potential benefits to retailers with the broader societal costs, questioning the real-world effectiveness of such legislation and its impact on various stakeholders, including consumers and financial institutions.
Senators Dick Durbin and Roger Marshall have requested an investigation into airline frequent flyer programs, alleging unfair changes to point systems. However, the senators’ motives may not be genuine consumer protection, as they have proposed a bill that could lead to significant devaluation of these programs, suggesting a hidden agenda to undermine objections to their legislation on credit card interchange.
American Airlines is asking employees to lobby against legislation from Senators Dick Durbin and Roger Marshall that would limit credit card interchange.
Interestingly, American presents the (true) argument to employees that they pushed back on me over for so long – that they lose money flying planes (cost per seat mile is greater than passenger revenue per seat mile, and even passenger revenue plus cargo, in many quarters) and only turn a profit by selling miles to banks.
Senators Dick Durbin (D-IL) and Roger Marshall (R-KS) have re-introduced their bill to crack down on credit card interchange. That’s the cost businesses pay to accept credit cards. Since banks and card networks like Visa and Mastercard make money on each transaction, they spend money to encourage those transactions. That’s what funds credit card rewards. It’s even to a large extent what funds the airlines, when carriers like American often don’t make money flying planes but ultimately earn money selling their miles to banks. Reducing interchange reduces card rewards. Of course if that were somehow good for the world, it would be tough to argue for our miles and points. But it isn’t good for the world. Countries that have capped interchange haven’t seen prices fall to consumers. Consumers are used here a fig leaf…
Big merchants like accepting credit cards, because it’s a convenient way for consumers to pay, and puts money right in their bank accounts. But that comes at a cost, which they’d rather not pay. They want the government to legally require banks and payment networks to provide their services for less.
Retailers don’t want to come out and say this, of course, so they cloak their argument in doing good… for the poor, whom they claim are the ones paying credit card fees. And they claim that rewards cards, which bring in bigger spenders who buy more and are more expensive, especially hurt the poor. That’s not actually true.
Where interchange has been limited, like in places such as Australia, credit card annual fees have risen since spend on the cards isn’t as profitable.
Europe, where interchange is limited and the use of cards as a payment mechanism is less common than in the United States (and cash more prevalent), is much poorer than the United States. That’s hardly the only reason, or the most significant reason. It’s a bundle of policies, and the U.S. would be ill-advised to follow European economic, financial and regulatory policy.
Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel -- a topic he has covered since 2002.
Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »
