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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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.
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.
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.
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.
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).
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.
Agree if that was the case, they would give a discount for cash purchases
They do!
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.
Well, I’m amazed the reward card nonsense lasted so long. Yes, credit card companies made out like bandits, along with a few savvy consumers, but it crushed those who could least sfford the higher fees/interest rates.
Some people were so smug saying that the Durbin 2 legislation would never pass. Well, with this settlement, it appears the legislation didn’t need to be passed. The earthquake is about to hit — let’s go down to the shoreline and watch for the tsunami.
This will have little to no impact on most people. We will just pay the minuscule new surcharge (if any) and continue as usual – if this even passes, which isn’t guaranteed.
People aren’t going to pay a 3% surcharge to pay for a 2% cash back card. Even at a restaurant that say gets 3 UR at ~1.8cpp, paying 3% for 5.4% “cash back” when redeemd for Hyatt is quite a stretch too.
I think there are two different things here. One is the overall decrease in interchange fees, which is minuscule (reportedly 0.1% decrease over several years). The other is the ability of merchants to stratify which cards they accept. It sounds like maybe this would be done through whole classes of cards, e.g., a merchant might stop accepting rewards cards. I assume they could also tack on a surcharge for rewards cards and not for non-rewards cards, or other variations.