The Wall Street Journal reports on some upcoming legislation that could cap credit card fees, which in turn could destroy credit card rewards in the United States as we know them.
In this post:
Senate bill could change credit card industry
Over the years we’ve seen quite a few politicians talk about capping credit card fees, as a way of making it seem like they’re looking out for small businesses and consumers. Typically nothing comes of this, though we’re seeing the latest such proposal now.
Senators Dick Durbin (a Democrat from Illinois) and Roger Marshall (a Republican from Kansas) are preparing to introduce a bill that would allow merchants the ability to process Visa and Mastercard transactions over different networks.
This bill would mandate that merchants can route payments through an unaffiliated network, and this would apply to Visa or Mastercard credit cards issued by banks with more than $100 billion in assets. In other words, Visa and Mastercard would no longer have the same power when it comes to merchant fees.
The United States has among the highest merchant fees of any industrialized country in the world. It’s claimed that these fees amount to an average of 2.22% of transaction amounts, making swipe fees the highest operating costs for some merchants after labor. The argument is also made that these fees drive up consumer prices by more than $900 per year for the average American family. I think all of these claims are a bit extreme, but we’ll cover those later.
Now, I’d be surprised if this gets the votes needed to pass, though it is something that always seem to be discussed.
This would have far-reaching impacts
If legislation like this were to pass, it wouldn’t just impact banks and payment networks. It would also impact all kinds of other industries.
Just take a look at the airline industry, for example. Major US airlines make more in profits from their co-brand credit card agreements than they do from actually flying passengers. Heck, during the pandemic we saw major airlines leverage their frequent flyer programs to secure financing, as they’re so valuable exactly because of these co-brand credit card agreements.
The US airline industry would look totally different if these caps were to be put into place. Delta employees? Your profit sharing check would look a lot smaller. American employees? Well… I mean, do I even need to say?
That’s just the tip of the iceberg…
The flip-side of high credit card merchant fees
When we see legislation like this proposed, we often see a couple of narratives that I think are pretty disingenuous:
- It’s claimed that the current credit card merchant fees are terrible for businesses, especially small businesses
- It’s claimed that the current system causes poorer consumers (often those without credit cards) to subsidize purchases for richer consumers (often those with credit cards)
I think that’s a very narrow view of the credit card industry, and the overall benefit it brings to both businesses and consumers.
In terms of benefits for businesses:
- For better or worse, people spend more when paying by credit card than when paying by cash
- Yes, merchant fees are a significant expense for small businesses, but the cost of handling cash is also expensive, in terms of loss, theft, banking, etc.
- Big businesses often save significant money with credit cards, as they’re able to get lucrative co-brand credit card agreements that bring their fees pretty close to zero
In terms of benefits for consumers:
- Obviously credit cards can be extremely rewarding, and savvy consumers can recoup significantly more than the alleged price increases from accepting credit cards
- Purchase and fraud protection is an awesome benefit that you don’t get when paying with cash, and typically won’t get when paying by debit card
- Credit cards offer all kinds of other valuable perks, from rental car coverage, to travel protection, to cell phone protection
The argument that costs are driven up by over $900 per year for the average American family seems to be based on an alternate reality where consumers make exactly the same purchases and businesses have no costs associated with collecting cash. It assumes consumers never benefit from credit cards, whether it be from purchase protection, or rewards, or whatever else.
Bottom line
We’re about to see legislation that would ultimately result in credit card merchant fees being significantly capped. If this were to pass and be fully implemented (which seems unlikely, but who knows), credit cards would look a whole lot like debit cards, in terms of benefits and fees.
Say goodbye to credit card rewards, and say goodbye to credit card protection and other benefits. Businesses can look forward to consumers spending less, and to have increased costs associated with other forms of payment.
That doesn’t even begin to address the impact this would have on so many other industries, in particular the travel industry.
What do you make of this proposed credit card legislation?
Let’s not forget that typically rewards programs are funded by Interchange fees that support the card schemes and go directly to both the merchant(acquirer) and issuer bank and are set at the schema level for the product regardless of if they are processed on or off network.(currently a bank that is both acquirer and merchant has the ability to do “on us”processing and send transactions to Visa)
This appears to target the network and...
Let’s not forget that typically rewards programs are funded by Interchange fees that support the card schemes and go directly to both the merchant(acquirer) and issuer bank and are set at the schema level for the product regardless of if they are processed on or off network.(currently a bank that is both acquirer and merchant has the ability to do “on us”processing and send transactions to Visa)
This appears to target the network and processing fees charged by the network for processing on visanet etc.
For small merchants these fees are often aggregated by their merchant services provider into a single swipe percentage fee but at large acquirers every cost component is negotiated.
Why does this read like a post by a lobbyist for the Credit Card industry...
Not the balanced article I was hoping for I've gotta say
[accidentally tried to post not logged in - sorry if you see a similar comment twice.]
This seems much hysteria, and the article does a poor job of linking the actual policies to the theoretical risk to the mileage programs.
The airline and hotel industry are quite adept at dealing mortal wounds to their own loyalty programs unaided - just look at MGM Rewards or American Airlines' ironically-named "Loyalty Points."
I used to take extra...
[accidentally tried to post not logged in - sorry if you see a similar comment twice.]
This seems much hysteria, and the article does a poor job of linking the actual policies to the theoretical risk to the mileage programs.
The airline and hotel industry are quite adept at dealing mortal wounds to their own loyalty programs unaided - just look at MGM Rewards or American Airlines' ironically-named "Loyalty Points."
I used to take extra trips to Vegas to keep my $8K/year spend for my MGM Rewards. It was also, thanks to American Airlines' 1,000 mile/segment minimum for first class an excellent miles builder (I live in southern AZ, so short segments to PHX or LAX are very common). American was getting a bit pricier to keep up my spend, and when the EP minimum spend went up from $12K to $15K we fell back to Platinum Pro for a year (I buy tickets for two).
In 2022, both MGM and American moved status out of reach of normal people. The devaluation of MGM's points program moved Platinum status from $8K/year to $50K/year (from 25 points/dollar to 4 points/dollar). American's Loyalty Points took the Platinum Pro spend from $9K to about $15K/year.
The end result for someone who books his own travel and travels often for leisure is that we go to Vegas less and use American Airlines less. Delta has some very good fares out of Tucson (esp to places like Seattle) and the quality of the lounges is immensely better. I love Vegas, but it's no longer my default getaway, and MGM hotels are great but now I'm freed from using them exclusively.
In short, the loyalty programs have pushed people out of being loyal.
My brother's a pilot for one of the majors. When I bring this up to him he retorts "well, 70% of the revenue comes from the front of the plane, and 70% of the people in the back have no loyalty at all, fly once a year or less, and buy the cheapest ticket when they do."
It only takes one quick peek behind the curtain to wonder why any airline would treat economy (and especially basic economy) flyers the way they do and expect any loyalty at all.
If the airlines and hotels care about attracting and retaining customers, they'll offer good loyalty perks. If they perceive their business is entirely about mass action and limited options, the loyalty programs will continue to wither, no matter what happens to co-branded credit cards.
If the airlines want to engender loyalty, they need to start offering the average person reasons to be loyal in the first place.
These arguments are very disingenuous, Ben:
"For better or worse, people spend more when paying by credit card than when paying by cash
Yes, merchant fees are a significant expense for small businesses, but the cost of handling cash is also expensive, in terms of loss, theft, banking, etc."
These arguments would make sense if the proposed bill were to abolish credit cards. But it does not such thing. It just reduces costs for merchants via increased competition.
This might be the worst article ever published by this blog.
The hysteria is completely unfounded. The author starts with a thesis that airline credit card programs will suffer, but provides zero evidence that this is the case. Moreover, his only objection to the very many real issues he cites with credit card processing as it currently exists is "cash is hard to handle, too."
One need only look to MGM's 2022 shift from 25...
This might be the worst article ever published by this blog.
The hysteria is completely unfounded. The author starts with a thesis that airline credit card programs will suffer, but provides zero evidence that this is the case. Moreover, his only objection to the very many real issues he cites with credit card processing as it currently exists is "cash is hard to handle, too."
One need only look to MGM's 2022 shift from 25 points/dollar to 4 points/dollar for hotel and food spends (raising the threshold for MGM platinum from $8K to a $50K spend), or American Airlines' ironically named "Loyalty Points" (which raised their Platinum Pro spend from $9,000 to roughly $15,000 - about a 60% increase) to realize that the airline and travel industries are more than adept at inflicting mortal wounds to their loyalty programs themselves.
You are arguing that if the legislature passes consumer will resort to paying cash therefore spending less? Whe proposed legislature targets the merchant fees so wy would thisT affect consumer spending behavior? I think this would affect those points-loving consumers the most where co-branded credit card issuers would probably cut back on rewards as a result.
I don't think this will be as dire as it was in Europe, depending on the cap that's set. Europe's cap was 0.3%, in a market that doesn't accept annual fees. This meant there was little room to move, so rewards died (UK really, the rest of Europe already sucked).
Australia capped at 0.8%, but the Aussie market was already used to annual fees - so rewards were cut, but they still exist and can...
I don't think this will be as dire as it was in Europe, depending on the cap that's set. Europe's cap was 0.3%, in a market that doesn't accept annual fees. This meant there was little room to move, so rewards died (UK really, the rest of Europe already sucked).
Australia capped at 0.8%, but the Aussie market was already used to annual fees - so rewards were cut, but they still exist and can be lucrative. US market also seems to be accepting of annual fees, so I would assume it would go the same was as the Aussie market (in that you could still potentially see 100k+ SUBs), but again this depends on what the cap is set at.
And Amex will probably be exempt, as it is elsewhere other than its co-brand cards, but given it won't have to compete, its rewards will likely be reduced eventually. Obviously this is all just speculation.
Processing fees vary between merchants and also reflect credit risk, not just the utility of convenience & widespread acceptance. For example, a brick and mortar restaurant that's been in business for 20 years would typically have very few, if any, merchandise returns, billing / fraud disputes, etc., whereas a 6 month old internet website reselling timeshares might be a bit riskier.
Many small businesses use credit cards for purchasing their inventory, supplies, paying bills, etc....
Processing fees vary between merchants and also reflect credit risk, not just the utility of convenience & widespread acceptance. For example, a brick and mortar restaurant that's been in business for 20 years would typically have very few, if any, merchandise returns, billing / fraud disputes, etc., whereas a 6 month old internet website reselling timeshares might be a bit riskier.
Many small businesses use credit cards for purchasing their inventory, supplies, paying bills, etc. and then receive rewards, points, or cash back for those purchases. You could argue their processing fees for accepting cards are partially offset by the rewards they receive from their own purchasing?
If processing fees are forced downward by legislation, I would expect rewards to follow suit, either thru lower earning rates, or higher redemption thresholds.
What's absurd about this is that SMBs are usually the ones who pay the highest swipe fees, lacking the heft to negotiate sweetheart deals with banks. However, I can tell you, handling cash isn't cheap either, for much the same reason. Not only do banks charge for cash deposits and change-making, but someone must physically go to a bank to get change in the morning and deposit after closing. The alternative to daily bank runs...
What's absurd about this is that SMBs are usually the ones who pay the highest swipe fees, lacking the heft to negotiate sweetheart deals with banks. However, I can tell you, handling cash isn't cheap either, for much the same reason. Not only do banks charge for cash deposits and change-making, but someone must physically go to a bank to get change in the morning and deposit after closing. The alternative to daily bank runs is an expensive safe and stiff hike in insurance rates to cover cash stored overnight. Back in the day, I managed a small cafe, and it definitely cost more than 1-2% of sales to deal with cash. Maybe it's less for larger small businesses, but regulation to cap merchant fees always ignores the very real cost of the alternative.
It always perplexed me that before the pandemic heaps of small businesses here wouldn't take cards (or had $20 minimum transactions). Why they ignored cash handling costs I'll never know. In the pandemic, cash use plummeted and some places even refused to accept cash. Add to that better POS technology + more digital wallets, so now most places accept contactless payments for everything.
The sooner that happens the better. The rest of the world gets like 10,000 points for a card signup while the US gets 200,000 and 10 different cards that offer it.
So, this is your US credit card envy speaking up?
Sucks to be you.
There are several cards in Australia with 100K+ sign-up bonuses. Some of those are 1:1 transfer rates but many are 2:1 or worse, 3:1. My QF MC had a 120K QF point bonus. Amex platinum gives 200K but AU Amex rewards points transfer as half an airline mile (but base earn rate is 2 per AUD). We certainly don't have the number of card choices that the US does.
There are cards with much smaller sign-up bonuses, of course.
Australia also gets 100,000+ SUBs. Amex Platinum was offering 300,000 MR points recently (300k MR in Aus is only 150k airline miles though).
As @RichM mentioned, changes in Australia did not result in the sun rising in the west. Fees were regulated, but not in detailed terms. Legislation tasked the competition regulator with setting the details of rules and guidelines. It consulted business on how to achieve its objectives, not what they should be.
Broadly, POS terminals had to process any cards; interbank, merchant, and customer fees were capped at the cost of providing them but not set...
As @RichM mentioned, changes in Australia did not result in the sun rising in the west. Fees were regulated, but not in detailed terms. Legislation tasked the competition regulator with setting the details of rules and guidelines. It consulted business on how to achieve its objectives, not what they should be.
Broadly, POS terminals had to process any cards; interbank, merchant, and customer fees were capped at the cost of providing them but not set as a specific figure, so the actual fees charged would not be the same for all. (They publish indicative fees.) Essentially, the rules allow recovery of the cost of providing the services but not for the fees to be a separate revenue stream.
For customers, merchants fees have to be a percentage based on their cost (flat fees are prohibited), with the regulator's indicative figure being about 1%.
The credit card ecosystem was different to the US anyway, and we haven't had the 2x, 3x or 5x base point earning levels for categories of transactions, but banks and Amex still compete on their points offerings, with different rates of return for different card annual fee price points, sign-up bonuses still happen and there are still options of single airline points cards or transferable points currencies (fewer options on where to transfer them than the US has). Airlines still tout the cards that allow them to sell points to the banks.
In short, the payment system here is a utility with rules that apply to credit card companies. There are still plenty of ways for the banks and other card providers, and for the airlines and hotels to make money, and setting up points earning programs is still part of how they do it.
Nobody knows if anything will ever come of these bills in congress. If it does, life and frequent flyer programs will go on. There is still a Point Hacks web site here canvassing the same things @ben talks about.
Yes, if this legislation passed it would be bad for the points/miles hobby BUT it would be better for society as a whole. Banks changing fees is an old game be it the bank charging overdraft fees, a payday loan or a credit card. Unless you work for a bank this will end up being better for you.
Anyone in this hobby should understand that we are playing the game and are the less than...
Yes, if this legislation passed it would be bad for the points/miles hobby BUT it would be better for society as a whole. Banks changing fees is an old game be it the bank charging overdraft fees, a payday loan or a credit card. Unless you work for a bank this will end up being better for you.
Anyone in this hobby should understand that we are playing the game and are the less than 10% of credit card users who pay off their card every month and come out ahead with the miles/points. Most people get a bonus and then hold a balance who’s interest negates the value of the bonus.
And yes, Lucky your income from people clicking your credit card sign up links would go down.
I'm not even sure credit card changes are bad for the points/miles hobby - at least directly. Remember the good old days of "mileage runs" and no minimum spend for airline status? The airline and hotel industries have pared their loyalty programs down so much that in many cases chasing status just isn't worth it anymore.
The airlines and the hotels love any fig leaf they can hide behind, but the reality is they've...
I'm not even sure credit card changes are bad for the points/miles hobby - at least directly. Remember the good old days of "mileage runs" and no minimum spend for airline status? The airline and hotel industries have pared their loyalty programs down so much that in many cases chasing status just isn't worth it anymore.
The airlines and the hotels love any fig leaf they can hide behind, but the reality is they've been hollowing out their programs for a long time.
It all started with a bean counter at American Airlines, who figured out that if you put ONE LESS OLIVE in the economy class salad (yes, you read that right "economy class" and "salad" was not a typo) you could save the airline $1 Million/year (this was back in the 60's).
It's been a race to the bottom ever since. Minimum spends, point devaluations, dynamic award pricing, you name it. But all of those things are things the industry has done to itself, to the point where loyal flyers are no longer loyal - it doesn't make sense to be.
The two worst offenders this year (from the point of view of my reward wallet) are MGM and American Airlines. But they all have their turns. Those two just had the steepest devaluations of any programs.
So what happened? Actually, after getting over the initial shock it was kind of liberating. I really like MGM hotels and will continue to stay in them when I go to Vegas, but I've actually started going to Vegas a lot less. An $8K spend to keep my Platinum status was something I did for years, even if it meant one or two extra trips (so typically 6-8 trips/year). Now to keep that same status is $50K/year - completely untenable. This year I think I've only been in Vegas once in 2022. And if I go to Vegas, as much as I like MGM I'm eager to try some different hotels.
Same thing with American Airlines and the Loyalty Points. I'm buying tickets for two, so that historically meant keeping two EP's topped off - which was easy before the minimum spend, and a bit more challenging at $12K/year. Then EP went to $15K/year - so we fell back to Platinum Pro. And now with Loyalty Points it would be hard to clear Platinum (the irony being thanks to COVID I'm back to EP this year).
So what happened? I started flying Delta. I discovered I can sometimes get a round-trip first class ticket between Tucson and Seattle for as little as $500, for starters. And Delta's Sky Clubs put the Admiral's Clubs to complete shame. Again - liberating.
Unlike many here, much of my travel is leisure travel, and even for business I book my own flights and hotels, so I have much more say than the average business traveler about where I stay and where by dollars go.
In 2022 I decided that Loyalty Programs weren't really worth it - at least for me. Sure, I'll sign up and accumulate all the points, as it never hurts to do so. But I'm done paying higher fares to fly my preferred airline and booking extra stays to keep my hotel points up. Also, my dogs love it because I'm home more.
Everyone has to do what's right for them, of course. And I'm just speaking from my own experience.
My brother is a pilot for a major airline, and it's amazing what I hear from him. I complain about the loyalty programs, and his retort is that "70% of the revenue comes from the front of the plane, and of the people in the back of the plane about 70% of them fly once a year or less, and just buy the cheapest ticket they can."
As someone who buys tickets in the pointy end, I look past that curtain, and I wonder why ANYONE would have ANY loyalty to a company that treats them as economy (and especially basic economy) passengers are treated. After looking at the Loyalty Points program I actually felt like American wanted me "to see other airlines."
One time many years ago I was frustrated with my cellular carrier (Sprint at the time) and in my frustration told the agent I was going to switch. Their response was priceless: "Do you honestly think you'll get any better service from the others?" to which I replied: "I don't know, but I'm going to find out."
This same pernicious attitude has infected loyalty programs today. It's doubly hard to comprehend after the extensions and generosity (and desperation) of programs at the height of COVID. But like baggage fees and other "unbundling" it was all about "helping the airlines out" when they were hurting so they could reap record profits and not give back to their customers when things improved.
Such moves do not engender loyalty.
So if airline and hotel loyalty programs are in trouble, maybe they should ask themselves why they've been so disloyal to regular customers in the first place.
Similar legislation to this passed in Australia a few years ago.
None of the dire predictions made by those opposed to it came to pass, and it has reduced card fees for merchants and consumers.
You're not quite correct, a few years ago rewards were slashed massively when swipe fees were capped at 0.8%. Remember ANZ, NAB, Westpac, etc. all used to offer co-brand Amex cards paying 1.5 miles per $, Amex used to transfer to airlines 1:1, now only the premium card pay 1 mile per $. People have short memories.
But still, we're not as badly affected as Europe, the 0.3% cap over there killed what was left...
You're not quite correct, a few years ago rewards were slashed massively when swipe fees were capped at 0.8%. Remember ANZ, NAB, Westpac, etc. all used to offer co-brand Amex cards paying 1.5 miles per $, Amex used to transfer to airlines 1:1, now only the premium card pay 1 mile per $. People have short memories.
But still, we're not as badly affected as Europe, the 0.3% cap over there killed what was left in the UK (there was nothing really anywhere else to start with), with the exception of Amex.
Businesses probably would not save a lot of money if this is passed. Compared to other countries that are heavily based on mobile cashless payment, this is not really the case in the US, so there is not many alternatives.
If it is passed I think it will look a lot like credit cards in many other countries with rewards that are not worth obtaining and the bank not getting involved in disputes (e.g....
Businesses probably would not save a lot of money if this is passed. Compared to other countries that are heavily based on mobile cashless payment, this is not really the case in the US, so there is not many alternatives.
If it is passed I think it will look a lot like credit cards in many other countries with rewards that are not worth obtaining and the bank not getting involved in disputes (e.g. customer work it out with the merchant and if merchant does not agree nothing we can do). Could you imagine buying online? It would become a mess.
I also think the $900 argument is a bit pushing it because it probably does not take into account all of the free credit cards out there. People that have the high end credit card usually take advantage of enough benefits to counter most of the fee, but this assumes that they have one high end credit card with multiple users or multiple high end credit cards. Look at the number of cards today that are free and can still earn Amex or Chase or whomever's points. Even the co-branded cards have cheaper or free versions.
Lucky, love your travel commentary. Though I’ll draw the line at your legislative and economic prognostications. That’s waaaay outside your wheelhouse.
Reining in banks and credit card companies sounds like a great idea. Bring it on.
What are your qualifications when it comes to legislative and economic matters?
Welcome to the rest of the world! Everywhere else has way way lower fees so I'm not surprised the big retail companies are starting to get fed up how much they're paying for payment processing. If this comes in hopefully it'll stop the points and miles inflation that comes from the insanely generous rewards in the US.
None of the big retailers are paying a lot of fees. The big players have immense pricing power.
Costco basically got a zero fee deal from Citibank. Walmart very aggressively force/dark-pattern route all Debit Cards (which is the vast majority of the card usage at Walmart) via the PIN debit networks, and you bet they have a killer deal for credit cards. Walmart also have a deal with Chase to process all Chase cards...
None of the big retailers are paying a lot of fees. The big players have immense pricing power.
Costco basically got a zero fee deal from Citibank. Walmart very aggressively force/dark-pattern route all Debit Cards (which is the vast majority of the card usage at Walmart) via the PIN debit networks, and you bet they have a killer deal for credit cards. Walmart also have a deal with Chase to process all Chase cards in house via ChaseNet, skipping Visa (So did Starbucks, and probably Amazon).
The airlines makes more money via their co-branded card deals than flying, so they aren't the ones complaining.
It's the SMBs that generally have to pay the most card acceptance fees % wise. But the big retailers nevertheless will benefit from this and they got the lobbying dollars, so why not.
Credit cards fees are a pest to small businesses. When you receive a monthly bank statement from your credit card processor, the fees are close to 10% of the total revenues collected via credit cards. It is ludicrous to urge the government to mandate businesses not to impose such fees when all government agencies charge them. Namely tax payments. Somebody has to pay for the convenience and benefits of using cc. Banks are user friendly...
Credit cards fees are a pest to small businesses. When you receive a monthly bank statement from your credit card processor, the fees are close to 10% of the total revenues collected via credit cards. It is ludicrous to urge the government to mandate businesses not to impose such fees when all government agencies charge them. Namely tax payments. Somebody has to pay for the convenience and benefits of using cc. Banks are user friendly to consumers not merchants, especially AMEX. I fail to see the correlation between banks fees and prices. Merchants determined prices based on how much the manufacturers charge them plus overhead costs, not so much bank fees. So weird and odds to read comments from those who are clueless about how things work: Make no $$ sense and common sense.
We process our CCs online through Square and our net fees around 3.1%.
10% seems really, really high. How does it get there?
It doesn't, it's just BS from that guy. Amex is a little more expensive but around 3% is standard.
Unless he is really non compliant and getting a lot of charge back fees I can’t possibly see how it could get that high
Alright, Ben, this opinion is, well, an over-reaction to the proposed proposal.
First, it's not aimed at "reward" part of the equation. It's worth remembering that banks and/or the reward programs. Now, the banks *do* get revenues from the interchange fees, this is only part of the picture. There are other fees (e.g. network fees, which will be much more impacted) and restrictions (e.g. "honor all cards" rule by Visa/Master). There are other *reasons* why...
Alright, Ben, this opinion is, well, an over-reaction to the proposed proposal.
First, it's not aimed at "reward" part of the equation. It's worth remembering that banks and/or the reward programs. Now, the banks *do* get revenues from the interchange fees, this is only part of the picture. There are other fees (e.g. network fees, which will be much more impacted) and restrictions (e.g. "honor all cards" rule by Visa/Master). There are other *reasons* why program is set the way it is. For example, it's well-known that Chase expected the Sapphire Reserve card to take year(s) to recoup the cost. Yes, lower interchange fees would lengthen that period, but that's a question of degree, not kind.
Second, for goodness's sake, you write about credit cards! Be precise about "credit card fees" (which people tend to refer to annual fees consumers pay to the issuers) and commonly called "processing fees" (which are paid by merchants at card swipe or payment time).
Third, let's be frank here, *everything* "changes" the reward programs. People travelling too much changes the programs (remember all the nostalgia "oh remember when Delta had an award chart"?). People traveling too little changes reward programs. Economy downturn changes the reward programs. How is a legal requirement that merchants have choices in network would be larger than a recession or, God forbids, a global pandemic?
I know I know, it feels like your baby is under attack when The Government(TM) is changing The Laws(TM). But let's face it: the world constantly changes. And, all things considered, this is a small, competition-inducing, probably money-saving-for-most legal update. Yes, it will impact our beloved loyalty programs, but what doesn't? Remember back when OMAAT was a niche blog and few people know what a mileage run is? Yeah, *you*, too, change the loyalty programs. So let's chill, shall we?
For a blog that is all about credit cards, this is his main source of income.
If they obstruct you employment, you probably can't chill either.
So while you and others can chill, give OMMAT a break shall we?
Everyone here knows that credit cards are less important than life and death. But we're interested in them and we care what happens to them. Telling Ben he shouldn't ascribe high importance to the proposed legislation because change happens anyway? sheesh.
I strongly disagree with Ben on this one. Some of the arguments are very spurious.
As a small business owner I pay very high fees to process credit card transactions, which I ultimately have to pass on to my customers. Why shouldn’t I be able to use alternative providers offering a lower cost? It should be a free market.
Europe and the UK seems to charge far lower merchant fees.
I hope this Bill will be successful.
Will you pass on the savings to your customers and lower your prices?
I'm not sure that you understand in any way what a free market is. No one is forcing you to use any provider or even to accept credit cards at all. When you ask the government to mandate things you are advocating against a free market. Perhaps they should also have a bill that caps the price you can charge for whatever it is you do/sell.
This whole law is ridiculous. Hopefully the lobbyists will come out swinging on this one.
Thoughts:
1. The credit industry is massive and predatory, to the point that many Americans view it as a necessity to enslave themselves to a score and accrue massive debt in the process. It should probably be further regulated.
2. The credit industry greatly benefits me (and you). I'm better off with the way things are. I'd rather it not be further regulated.
Thoughts:
1. Massive and predatory, sounds like Super PACs.
2. The credit industry greatly benefits capitalists. The wealthier you are the more benefit you get. The wealth somewhere in the middleclass is where credit will start hurting more than helping.
One only needs to look back to the first Durbin amendment back in 2009 where debit card fees were capped. This was sold as a “consumer friendly” strategy with the same arguments that savings would be passed back to consumers. Do you know what happened? Banks stopped offering free checking accounts to low income consumers and destroyed an important niche in the banking segment. Banks used the debit fees to subsidize low balance accounts and...
One only needs to look back to the first Durbin amendment back in 2009 where debit card fees were capped. This was sold as a “consumer friendly” strategy with the same arguments that savings would be passed back to consumers. Do you know what happened? Banks stopped offering free checking accounts to low income consumers and destroyed an important niche in the banking segment. Banks used the debit fees to subsidize low balance accounts and kicked the consumers to the curb when the interchange dried up by charging monthly account fees.
Screw this proposal. Get rid of resort fees!
The fees charged are exceptionally high, and totally arbitrary (it doesn’t cost anywhere close to the charged amount to provide the service), and the barriers to entry for a new competitor are insurmountable. So it’s just rent-seeking from anti-competitive card issuers. The banks will find a way to still compete with each other by giving out sign-up bonuses, don’t worry… most of their money still comes from enticing people into debt, not their fee income
All you need to do is look at the credit card offers/perks available in Europe to realize how completely nonsensical your comment is.
I have to question if this would be "all bad", really. Yes, we get lots of benefits from credit cards. But we're in a never-ending cycle of award depreciation because, let's be honest, points and miles are too copious.
Also, Biden has a serious allegiance to the state of Delaware and their business constituency. There is a high chance he'd veto any bill like this.
It would be bad. Look at all other countries for awards. Unless you're a top level flier, this would be a negative.
Not just points & miles, cash back cards would get crushed too if this ever passed.
Look at what’s available in Europe. That’s what the US would be reduced to.
Does lowering fee = Consumer saving?
Absolutely NOT. No savings will be passed on to buyers.
You want to help small business? Give them tax credits. (That's the whole point of small biz wanting cash only)
If small businesses nationwide are clamouring for lower card acceptance fees, giving them tax credits won't make them feel heard. I'm not arguing that they're right, or that your proposal isn't right, I'm just predicting that if they have decided what they want, giving them something different isn't a political winner.
Small business are not clamoring for lower card acceptance fees, 2 politicians are.
The cash only excuse mainly is because small business can underreport their revenue.
Giving them (small biz) tax credits is exactly how they (not politicians) will be heard.
No one wants to pay tax big or small. Just because Amazon can't get away with it anymore doesn't mean Jeff Bezos suddenly wants to pay tax.
While everyone on this blog are against this bill, for obvious reasons:
1. Don't scream Democrats are bad since there're Republicans behind this.
2. Don't pretend people who are credit disadvantaged (using debit, cash) are subsidizing our habits, and before talking about personal fiancial responsibilities, remember a lot of them are crushed by medical debts.
3. Don't pretend small business are disadvantaged too (see DenB)
Better fix some of the points before...
While everyone on this blog are against this bill, for obvious reasons:
1. Don't scream Democrats are bad since there're Republicans behind this.
2. Don't pretend people who are credit disadvantaged (using debit, cash) are subsidizing our habits, and before talking about personal fiancial responsibilities, remember a lot of them are crushed by medical debts.
3. Don't pretend small business are disadvantaged too (see DenB)
Better fix some of the points before the calls for capping fees become so loud and it really pass. And we'll be SOL like Europeans.
"pretend"?
Meant you explained the point well so I suggest people reading your point, sorry if misunderstood!
Well due to the due in agreement the amount of interchange revenue they generate is limited. Rewards programs are funded out of interchange revenue not network processing fees. Interchange is shared between the banks the other is revenue for visa/Mastercard. The network processing fees are a much smaller percentage of the overall cost to merchants, typically less than a 1/3 of total cost. Appears to be targeting the wrong area if cost relief is really...
Well due to the due in agreement the amount of interchange revenue they generate is limited. Rewards programs are funded out of interchange revenue not network processing fees. Interchange is shared between the banks the other is revenue for visa/Mastercard. The network processing fees are a much smaller percentage of the overall cost to merchants, typically less than a 1/3 of total cost. Appears to be targeting the wrong area if cost relief is really what they’re after
A Republican doesn't mean Republican(s). It's definitely the left side of the aisle pushing this. Look what happened when Durbin got through his "No Debit Fee" rule, low income people got kicked from banks and all free checking accounts dried up.
Regarding your three arguments in „In terms of benefits for businesses“: the bill is not against credit cards. It is about reducing the merchant fees. So customers will still spend more compared to paying cash - but the overall prices will be lower. And as you say: big businesses have co-branded cards but small businesses do not.
There is literally no way that getting rid of merchant processing fees will result in "overall prices will be lower". Do you even know what country this legislation is in? The US capitalists are going to, ya know, capitalize on this. There's 0% chance of these savings being passed on to the consumer. Zero. Percent.
Small business does face inappropriately high processing fees. Processing Amazon's Mastercard charges for 0.9%, while charging the local burrito kiosk 6.3% (yes, I'm guessing and exaggerating, just as the bill's proponents will) is a recipe for resentment, the fuel that brings political proposals to a roaring blaze. I don't think the bill will pass, but I wouldn't put the odds at 1%, I think it's more like 30%. People don't like banks getting rich on...
Small business does face inappropriately high processing fees. Processing Amazon's Mastercard charges for 0.9%, while charging the local burrito kiosk 6.3% (yes, I'm guessing and exaggerating, just as the bill's proponents will) is a recipe for resentment, the fuel that brings political proposals to a roaring blaze. I don't think the bill will pass, but I wouldn't put the odds at 1%, I think it's more like 30%. People don't like banks getting rich on poor people and that's the narrative behind this bill. It's an easy story to sell.
Seems liked fixed pricing for fees is what we need. Same price for all merchants, as determined by the provider. Should be same with medical - no more reduced insurance rates.
Ben,
As a business that heavily sells credit cards, I think you should have added a disclaimer to your post. You’re right: a lot of people get outsized benefits from reward credit cards. I will add, so do you.
“In the interest of full disclosure, OMAAT earns a referral bonus for anyone that’s approved through some of the below links. These are the best publicly available offers (terms apply) that we have found for each product or service. Opinions expressed here are the author's alone, not those of the bank, credit card issuer, airline, hotel chain, or product manufacturer/service provider, and have not been reviewed, approved or otherwise endorsed by any of these entities....
“In the interest of full disclosure, OMAAT earns a referral bonus for anyone that’s approved through some of the below links. These are the best publicly available offers (terms apply) that we have found for each product or service. Opinions expressed here are the author's alone, not those of the bank, credit card issuer, airline, hotel chain, or product manufacturer/service provider, and have not been reviewed, approved or otherwise endorsed by any of these entities. Please check out our advertiser policy for further details about our partners, and thanks for your support!”
These are the first words on every credit card post published on this site. What more do you want? Do you really think any of this is new/news to OMAAT blog readers?
Businesses still pay the full transaction fee even if they have a partnership with credit card companies. Saying their costs are close to zero is incorrect since it’s sort of two different things and certainly isn’t viewed as one offsetting the other.
More likely we will see annual fees rise or some other way to push the cost toward consumers since the card benefits and rewards are how credit card companies compete for customers. For...
Businesses still pay the full transaction fee even if they have a partnership with credit card companies. Saying their costs are close to zero is incorrect since it’s sort of two different things and certainly isn’t viewed as one offsetting the other.
More likely we will see annual fees rise or some other way to push the cost toward consumers since the card benefits and rewards are how credit card companies compete for customers. For this reason I don’t think it’ll pass congress because it would be detrimental to consumers at a time when that’s the last thing anyone would want to vote for.
The government needs to focus on mandating that businesses not charge a credit card processing fee to the consumer. More and more common to see a 3.5% surcharge on my bill/tab nowadays to cover "credit card fees".
The only place I see card prices higher is at gas stations. There are small businesses that do not accept cards which I avoid.
I've seen surcharges at countless restaurants, bars and coffee shops throughout the country. This sh*t needs to stop.
It’s illegal in some states to charge cc surcharges.
That was law and then repealed a year or so ago.
The government will force processing fees to drop and businesses will just pocket the change rather than lowering prices for consumers.
The fact that big businesses are able to get significant discounts, but small businesses are not, doesn’t seem an argument in favour of high default interchange fees in my opinion.
@ Chris D -- The comment about big businesses not paying that much was in reference to the claim that credit cards cost the average American family $900 per year. Presumably that's based on a merchant fee being multiplied out across purchases from all retailers.
My point was that purchases with some of the world's biggest retailers (Amazon, Costco, etc.) have significantly lower fees than that.
Interchange rates don’t get negotiated. They’re standardized across all banks participating in the network scheme. Now large acquirers and merchants get incentives in other ways always based on achieving definable outcomes that reflect the networks strategic objectives(eg. Adoption of touch to pay, EMV adoption a few years ago, transaction growth)