Tag Archives for interchange.
There is, a path where credit card rewards survive this legislation if it’s passed. They’ll just look different. The key is that financial institutions with less than $100 billion are generally exempt from its requirements.
Senators Dick Durbin (D-IL) and Roger Marshall (R-KS) are expected to introduce a bill to limit credit card interchange fees. If enacted it would be a huge win for merchants, who love taking credit cards – since it means higher sales volumes at a lower cost than accepting cash – but would prefer not to pay for the privileges.
This is usually couched, by lobbyists for big retailers, as benefiting consumers. However prices haven’t fallen anywhere that interchange has been limited, such as in Europe and Australia. But it would effectively end credit card rewards as we know it.
Rewards credit cards frequently cost merchants more money to accept than plain vanilla credit cards without rewards. Merchants want to accept credit cards – it’s good for their business – but they’d love to pay less for the service. Many associations of retailers turn to governments or the courts to try to force lower fees from Visa, Mastercard, and American Express.
One of the arguments employed by merchants, to disguise self-interested behavior, is ‘concern for the pooor’ claiming that the rich benefit from rewards while the poor face higher prices as a result.
Vox runs a piece repeating the old trope that credit card rewards benefit the rich at the expense of the poor, because credit card processing fees result in higher prices – including for people who don’t pay by credit card. There’s a unique twist to the piece though since they call for taxing card rewards.
It comes with a TikTok making the argument, which turns out to be highly misleading.
Democrats generally have been supportive of legislation that would limit how much credit card companies could charge to process transactions.
These limits would destroy the value of frequent flyer programs, which sell miles to banks. And we’ve seen when limits have been imposed in other countries that they’ve destroyed the value of credit card rewards.
Visa is adjusting merchant swipe fees across the board for the first time in a decade. The fees grocers charge will go down. Rates will also be lower for health-care, education and real estate, areas where Visa would like to win market share away from checks. Meanwhile the fee for online (‘card not present’) transactions will go up.
Banks want to bonus small dollar, frequent spend like groceries to get customers in the habit of using their cards, keeping them top of wallet for unbonused spend. The categories where this makes sense to banks though will change based on the revenue associated with each type of transaction.
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 »
