The Wall Street Journal has reported that Visa and Mastercard are in settlement talks with merchant groups over interchange fees and are purportedly nearing an agreement that would reduce interchange fees and give merchants the ability to accept certain types of cards while excluding others — such as rewards cards.
It is hard to say whether this is really going to happen, but the Wall Street Journal reports that part of settlement talks is the ability of merchants to choose which types of cards to accept on each network.
As things currently stand, a merchant that accepts Visa must accept any card that runs on the Visa network. However, under the current talks, it sounds like merchants could possibly end up with the ability to turn away cards that feature a higher interchange fee, such as premium rewards cards. From the article:
Under the current talks, credit-card acceptance would be divided into several categories including rewards credit cards, credit cards with no rewards programs, and commercial cards, the people familiar with the matter said.
A merchant who refuses to accept rewards credit cards would presumably do so because of the higher fees involved with accepting them. Obviously, such a merchant runs the risk of losing business over that policy decision, but merchants are apparently seeking the ability to determine their own acceptance rules.
It seems to me that things would get pretty chaotic at implementation if a merchant that accepts Visa or Mastercard could exclude entire categories of Visa or Mastercard cards. I imagine that it would cause quite a bit of confusion among consumers, particularly in cases where the consumer only has one or two cards and suddenly may not have a Visa that a particular merchant accepts (as an example). I think there is a better chance that we’ll see merchants create different surcharges depending on the card type used.
I would obviously be incredibly disappointed to see this happen, but I imagine that the market will either quickly accept or reject any change on this front. Since both the banks and the loyalty programs with which they partner have a strong interest in not having their cards excluded or subject to higher fees, I’m surprised that talks have advanced with these stipulations, but we’ll have to keep a close eye on how this develops.
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You guys are all going to have to get out of your mom’s basement and get an actual job. Oh The Humanity.
They don’t want to exclude certain kinds of cards (ones belonging on the average to more upscale customers). They want to charge and pocket higher fees.
It’s well known that United, AA and Delta all rely on co-brand bank cards and selling their miles to banks to turn a profit. Most consumers who earn points and miles likely earn airline miles and/or transfer their bank points to the domestic airline transfer partners. While Amex would not be penalized by this, Chase and Citi along with United and AA seemingly would. I can’t imagine that United, AA, their lobbyists, their shareholders and their elected members of Congress from Texas, California, etc. would accept that outcome.
SMBs can’t turn away credit customers and stay in business. If you are a customer who is paying a $600-$900 annual fee they probably want your day to day business. However, there are several brick and mortar small businesses (bodegas, restaurants) in my city that already add a 2.5% surcharge when you pay with a credit card. While I don’t care for that practice, it doesn’t seem to hurt their overall business. Similar to how modern point of sale vendors like Square and Toast have updated their software to prompt 20-22-25% tips by default, I am sure that the POS software vendors would also update their software to allow merchants to add a credit card surcharge to your bill. Most likely that charge would also be added to Amex payments too because why not? It’s like the recent South Park episode with the City Market and LaBuBus – “I don’t pay tariff, you pay tariff!”
We also don’t know how this legislation would affect credit cards that offer cash back rewards. If transferable points hypothetically went away I imagine consumers would see a lot more creativity with the airline and hotel loyalty programs selling points directly to consumers using their cash back rewards.
I’ve noticed some restaurants have started to do this as well, but I’ve made it a practice to dock the tip by 5% (asymmetrical punishment) to compensate. I know a lot of other people do the same. I believe this is why it hasn’t really caught on.
Stiffing the server doesn’t send much of a message because you are taking money out of the wrong pocket. If you want to get their attention tell the owner you won’t be back or write a negative review of the surcharge on Google or Yelp.
No reason people can’t do both. I don’t generally write reviews and I have no interested in getting into it. But I do think reducing the tip and noting the reason sends a message. It says “don’t work for this employer”.
Hmm, maybe. I doubt many restaurant owners are going to make the connection, and the servers will just think you are cheap. Besides, I love my rewards, but the day I start stiffing servers to make a point is the day I quit points and miles for good.
It seems to me we already have a test case that roughly mirrors what could happen here. It’s widely known that AMEX charges higher fees and for a long time many merchants did not take AMEX, but if anything, over the past five years, I’ve noticed Amex become more and more accepted, including at my local Granola grocery store where I spend too much! I think that most merchants have accepted that the less friction, the more revenue. I think if anything could make “this time different” it’s all the media coverage this is getting …may simply embolden merchants to take actions they previously didn’t care to in order to join a movement.
Consumers do not take enough responsibility in these situations.
if I am aware that a particular merchant, or chain charges extra for the card I tend to use, I have a very simple solution, I don’t patronize.
if I am traveling, I typically look for signage indicating tack on fees. If I have options in my immediate area, I move on.
I use my buying power to discourage these tack on fees.
if more of us did this, they would not be wasting money on a lawsuit.
Oddly enough, many places don’t want to deal with cash because of the risk and expense associated with cash handling.
Yeah, you go, wheretonext, if the merchant would dare to increase its prices on you because you are more expensive to them, you will just walk away. How dare they increase the price for you, only you have the right to increase the cost on them!
Inconsistency has never bothered you much, has it?
I love my rewards but I do understand why the current system drives merchants bonkers. The big guys get lower fees for accepting credit cards so they don’t get much sympathy from me. But I do feel for the smaller places that often have small margins to start with and watch them shrink further when a customer pulls out a credit card. If a small place specifically asks for debit card or cash I try to oblige.
Seems reasonable enough. In the current system, lower credit score folks are subsidizing higher credit folks’ rewards.
Why the bank’s are willing to discuss this? It’s a lawsuit, the merchants aren’t just asking..
I am sure there is a cabal of lawyers who are making bank on this case.
Link that has better descriptions of the different “buckets”
https://www.marketwatch.com/story/visa-mastercard-reach-new-settlement-with-merchants-will-it-shake-up-credit-card-rewards-2c0d018a?gaa_at=eafs&gaa_n=AWEtsqc5oqPqFvVfYaVNOn7iQ5fe8YYYa4Qd28RHRfWglWGxv-lCM9vNvHKE47ZSDFU%3D&gaa_ts=6912656d&gaa_sig=JSzHX5HMKizD7VeDCDi9GfPOkjI5k5dHtRmKTGYYv2zKwvo7qa9diFHVTLoU70FBm6k-5TvY7poHgE9X4OvYag%3D%3D
UPDATE: It’s a done deal
https://www.wsj.com/finance/visa-mastercard-reach-settlement-with-merchants-to-lower-fees-c5fde9b7?st=FKddU1
Great post, Nick. Thanks for staying on top of this issue.
Seems like there are many transactions that we make with a credit card that do not require the ability for us to dispute the charge, for example groceries or dining or utilities. If we could forego that and either earn more rewards or pay lower amount than that would be fine.
I ca say assuredly for me that, for any optional merchants, I would not patronize those merchants if they do not accept the cards I hold.
I use my AMEX gold for all food. If a restaurant decided to not accept AMEX Gold, 100% I would mae it a point to no longer patronize that restaurant.
I would do the same with any non-necessary merchants.
Right now, my electricity provider is Tesla. I deplore the fact that I am forced to pay them through ACH. The issue is that I have Tesla solar, and unlimited charging for my vehicles.
Currently, there is no number of points that earns that could make up for losing unlimited charging, so, I am somewhat stuck.
Hopefully Frequent Miler will start a list of any of this crap ultimately happens.
Note the most important thing: This would mean lower prices for consumers.
Wrong
? No proof? Your flatus is not proof.
My business pays out around three grand a month in credit and debit card fees. I would dearly love to pay less but it’s extremely unlikely to happen. Why? Because it’s nearly impossible to allow some cards while disallowing others. That means I’ll be paying the same as now.
It is technically very simple. Just as the category assignment is done seamlessly now.
It would still aggravate my customers. That’s just not something I prefer to do.
I would avoid your business if you refused my Gold card. I’m an active traveler and would just find a location that accepts my card.
Agreed. See my previous comments about that.
The rip-off store next door will be glad to accept your Gold card
Note the most important thing: They already tried this with debit cards and every study since then shows it did NOT result in lower prices for consumers. The extra money went into merchants pockets.
Cite references. They don’t exist. How would you model the test where transactions for the product still includes credit cards?
Get out and see examples of the effect of competition every day — “DISCOUNT FOR CASH”.
“Discount for cash” enables the merchant to under report their earnings and pay less taxes. They can’t do that with credit or debit cards.
Interchange rates are around 2%. If it were cut in half to 1%, do you think merchants would lower their prices 1%??? They would use the savings to cover their expenses, not lower prices. Even if hypothetically they did lower the price 1%, how much of a difference would that make for the consumer? For example: $100 grocery bill would save the consumer $1. How is a saving of $1 today going to make a consumer choose one merchant over another? It won’t. Who is going to drive an extra mile to save $1?
If interchange rates drop 1%, do you think American Airlines is going to reduce all of their fares 1% lmao. Will TicketMaster reduces all of their fees 1%, will Amazon reduce all prices 1%. lol
Bottom line: consumer is not going to benefit from a reduction in the interchange rates, it’s the businesses that will benefit from it.
Gibberish. Economic illiteracy.
Ok, I’ll bite. Cite your sources for the prices going down. Since you’re calling folks illiterate.
ECON 101. You apparently slept through it.
EruptingVommit: Read the reply.
He’s a low intelligence troll. Ignore him.
I wouldn’t expect them to suddenly drop prices 1%, but in the long run I would expect them to be slower to raise prices. Businesses are always faced with two pressures. One is to keep prices high to maximize profits, and the other is to keep prices as low as possible to increase business and stay competitive in the market. If costs are lower then businesses, on average, will tend to keep prices lower, and there is nothing in this situation that changes this fundamental economic relationship. So sure, plenty of businesses will be gladly pocket savings on interchange fees. But In the long run, all else being equal, lower business costs will tend to result in lower prices.
I agree with the concept that lower business costs will tend to lower prices. However, there are so many business costs out there that all businesses have to cover that a reduction in the interchange fee will not be sufficient to lower business costs for the vast majority of businesses. Expenses keep going up across the board: city and state licensing fees, insurance and workman comp fees, minimum wage goes up, accounting fees go up and so on. Has any state or city ever reduced their licensing or permit fees? Any fees? The list is endless and that is why I am extremely skeptical that the reduction of interchange fees will cause prices to go down.
Well however you slice it extra costs are extra costs. If a business’s costs go up 5% and their cost from interchange fees goes down 1% then they only have to raise prices 4% to keep up with the increased costs.
In this case the reduction in interchange fees appears to be only about 0.1%, so it isn’t likely to make a noticeable difference. The bigger question is whether the premium cards (or maybe even all rewards cards) will be accepted less or have surcharges associated with them.
The one possible scenario I could imagine that could result in some minor savings to consumers is if businesses currently adding surcharges drop the surcharges and then limit which cards they take. I doubt we will see much of this with the big guys, who already get reduced fees anyway. But it could have some impact on mom and pop stores and perhaps small restaurants that operate on thin margins.
Pure Nonsense. What will happen is the companies will be making more profit. There is NO WAY the companies will lower their prices. If they did, then they would be in the exact same spot as they were previously, and what would be the point of lowering the interchange fees? Companies are trying to increase their profits, not keep them the same…lol
Heard of competition?
You should take some Econ 101 (or listen this time).
You must not have read the settlement where the reduction in interchange fees will not be 1%, it will be a fraction of a percent.
In the previous agreement in 2024 they had agreed to reduce swipe fees by 0.07% = For a $100 charge that would a savings of 7 cents! lol…yeah that sure will increase competition.
“The deal would save nothing for consumers, said trade groups like National Retail Federation, MPC, National Association of Convenience Stores and Retail Industry Leaders Association.
“The plan to limit interchange fees by only a small fraction does not offset the increases that have occurred over the past several years — let alone the last two decades,” said Austen Jensen, RILA’s senior vice president of public affairs.”
Study the agreement first and then present your arguments on why there will be increased competition. Sadly the only thing you are capable of doing is telling people to take Econ 101.
I have seen the published details — see the WSJ. None of those are relevant to the underlying economic theory. I.e. that the fees are a cost of doing business. Reduce them by 3% and everyone’s costs go down by 3%, so competition forces prices down by the same amount. The problem in this chat is that we have people with no economic training invoking their personal “voodoo economics” to make assertions that have no rational foundation. Like, prices will magically remained unchanged.
You are doing some god level trolling, I’ll retake Econ 101 if you retake (though I’ll need a citation that you actually completed) 2nd grade.
You’re talking like you think all actors are rational, in which case I guess you never got to ECON 102, where you learn they are anything but.
Stop pretending to be an economist. You are just making a fool of yourself.
LOL!
Why don’t you raise your prices 30%?
Y’all are missing an important factor. Handling cash costs money.
There are businesses that prefer to not take cash being of the risks, and the cost to move and store cash.
Checks have basically disappeared because most businesses didn’t like the amount of time for processing. I cannot imagine most pedestrian businesses would be too happy at all of cash became king again.
Risk of robbery and theft, costs to store and move cash, and the added bank costs on commercial accounts.
What they are asking for looks good on paper, but will likely not add up in the real world.
All true, but the question here isn’t so much credit cards vs cash as it is high interchange fee credit cards vs lower fee credit cards. Some merchants will probably find it very appealing to get the benefits of accepting (some) credit cards at lower costs in interchange fees. My guess is that most won’t be willing to deal with the complication of accepting some cards and not others. But it is going to take quite some time for it to all shake out, so time will tell.
I totally agree, but from my standpoint I am going to choose 1 of 2 options.
I am either going to abstain from patronizing businesses that tack on fees (as I already do), or use cash if I do not have alternative options for like products and services.
Agree if that was the case, they would give a discount for cash purchases
They do!
Plenty of small businesses do.
The problem is it does not play out that way. Instead, companies are now adding 3-5% surcharge to use a credit card. That is not a cash discount. A discount would require lowering the price listed.
Businesses rarely lower their prices… but they will increase their profits.
When a law,the Durbin Amendment, was passed in the U.S. in 2010, that changed the way fees were charged for debit cards, it was supposed to lower prices. The end result was not lower prices for consumers, but higher profits for corporations.
You can find a Boston University study on this along with a 2019 study done by Georgetown University and the Wharton School.
Retail did not lower prices and banks raised fees impacting lower and middle class consumers.
Citations? Those vague allusions don’t qualify. And the Durbin Amenedment is not a test.
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Here’s some citations, but I notice the ass-covering you did by claiming “Durbin is not a test”, could you provide some citation for that claim? Pretty bold to block out the most relevant example of interchange capping with a broad claim like that with 0 credible backup.
Mukharlyamov, Vladimir and Sarin, Natasha, “The Impact of the Durbin Amendment on Banks, Merchants, and Consumers” (2019). All Faculty Scholarship. 2046.
https://scholarship.law.upenn.edu/faculty_scholarship/2046
David S. Evans, Howard H. Chang & Steven Joyce, “The Impact of the U.S. Debit Card Interchange Fee Caps on Consumer Welfare: An Event Study Analysis” (Coase-Sandor Institute for Law & Economics Working Paper No. 658, 2013).
I am wildly entertained by the low quality, slobbering nonsense you feel the need to let drool over this comment section, so thank you. If you’re trolling, you’re doing a great job. If not, I’ll Take Econ 101 again if you re-do 2nd grade, though I’ll need a citation for your initial completion, as I remain unconvinced you made it to 3rd.
This appl;ies to you too:
“https://secure.gravatar.com/avatar/ecab20923d20654412debfe881750c83ff0dbc8efa4e074a3839f837efe37935?s=64&d=mm&r=pg
Nick Reyes
Author
Reply to L3 again
1 day ago
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Thank you for posting those papers. They both support my position! Although I see lots of problems in both. Prices went down.
I assume that you did not read them.
Trickle-down economics doesn’t work (like that), unfortunately.
What might happen is a credit card surcharge rate that is at least the maximum rate the merchant pays. What we are seeing here in Hawaii is a 3% surcharge on credit card use by many, many merchants (especially restaurants).
I’m not sure this would make it any more likely for merchants to add a surcharge because that is already an option they have. As I read it this will give them a different option, which is to only accept credit cards with lower interchange fees. I could imagine some merchants that currently have surcharges dropping or lowering the surcharges but limiting which cards they accept.
CJC claims the reverse happened!
Even thought this reads as a significant development, I can’t see that it will ever be used in practice by most businesses. The reason being, that businesses are currently being charged the interchange fees today, but most are declining the option to charge a credit card surcharge for using said cards (i.e. 3% credit card surcharge that some mom & pops charge). If they are not doing this today, I think it’s unlikely they will take the more complicated step of charging a fee on certain cards. Even less likely, would be they start rejecting certain cards. Again, if they were to do this, they probably would have not accepted cards like amex in the first place, since amex charges the highest fees.
In my view, I think this is a good(ish) development, it that it throws a small win to the merchants, leaving congress less likely to make a major change to the entire system, which would definitely bring this house of cards crashing down.
Amazon has been pushing for this for a while. They will definitely implement this in some form. I’m guessing that they have negotiated a very low fee for their prime card from Chase and there be even more incentive to use this card at amazon
True, a lot of the big players have developed co-branded cards to incentivize spending in certain ways. I just don’t see local merchants (who haven’t charged a CC fee already) using some sliding fee scale based on the card we used for a transaction…or worse, prohibiting us from completing our transaction because of the flavor of Visa/Mastercard we are using.
Interesting. It sounds like Amazon is the one to watch. They have the technical ability to stratify *and* present the choice & “consequences” to shoppers in a clear way.
The question is will consumers accept this, and change their behavior in the way Amazon wants, or will they be annoyed at even a minor amount of decision-making friction and additional charge, and buy less?
You never know, but I suspect very few merchants would start “discriminating” against certain types of Visa/Mastercards. It would be too darn confusing, chaotic and annoying. Perhaps limited to just a few “oddball” merchants, and maybe those who process high value/low impulse transactions (like car dealerships)?
I predict that this will be a giant mess. Imagine not accepting Amex Platinum cards for example. After various attempts by merchants the vast majority will take either everything or just about everything. It’s just too tough and convoluted to do otherwise.
“Visa Signature not accepted” – how simple is that?
From a merchant’s perspective it’s not about simplicity or ease; it’s about pissing off customers. I don’t <i>like</i> spending thousands of dollars in credit card fees monthly but it’s literally just the cost of doing business for me.
As to Visa Signature, I’ve been in this hobby for fifteen years and I couldn’t tell you if any single card I have is a Visa Signature. This while I can tell you within a hundred thousand just how many miles and points either me or my wife have at any given time. If I can’t tell if it’s Visa Signature then how is a normal person supposed to do so?