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Shoppers Love Rewards Credit Cards. Retailers Hate Them.:
Large merchants including Amazon.com Inc., Target Corp. and Home Depot Inc. are pushing for the right to reject some rewards credit cards, which typically carry higher fees for merchants. They are likely to opt out of a roughly $6.2 billion settlement Visa Inc., Mastercard Inc. and several large banks recently reached with merchants and continue to make their case in court, according to people familiar with the matter.
The retailers are trying to end the card networks' "honor all cards" rule, which requires merchants that accept Visa- or Mastercard-branded credit cards to take all of them. If merchants could pick and choose among Visa or Mastercard credit cards, those with the highest merchant fees -- and most generous rewards -- likely would be on the chopping block.
The stakes are high all around. Rewards credit cards such as JPMorgan Chase & Co.'s Sapphire Reserve, Capital One Financial Corp.'s Venture and Citigroup Inc.'s Double Cash are wildly popular among consumers for their perks like cash back, airfare and hotel stays. Some 92% of all U.S. credit-card purchase volume is currently charged on rewards credit cards, up from 86% in 2013 and 67% in 2008, according to estimates from Mercator Advisory Group Inc., a payments research and consulting firm.
Yet merchants say the most generous rewards credit cards with the highest fees are cutting into their profits. When shoppers pay with Visa or Mastercard credit cards, merchants are charged interchange fees that are set by the card networks and funneled to the banks that issued those cards. These "swipe" fees vary widely, but are higher on rewards credit cards -- sometimes around 3% of the cardholder's purchase price.
Card networks say preventing merchants from picking and choosing among credit cards creates a frictionless experience for consumers. They argue their rule also creates an even playing field by making sure credit cards issued by banks large and small are accepted.
"If a merchant agrees to accept Mastercard, there cannot be any discrimination between different issuers' cards or between different types of cards issued by one financial institution," a Mastercard spokesman said.
"Visa believes consumers should always have a choice in how they pay, including being allowed to use their Visa credit card regardless of the card type or issuer. When consumer choice is limited, nobody wins," said a Visa spokeswoman.
[...] Visa and Mastercard premium credit cards charge some of the highest interchange fees, often north of 2.1% of the purchase amount, compared with roughly 1.2% to 1.7% on nonpremium credit cards.
[...] For some merchants with lower margins, like grocers, the fees can have a big impact. Kroger Co. unit Foods Co Supermarkets stopped accepting Visa credit cards in August after the two companies failed to reach an agreement on swipe fees.
Kroger Chief Information Officer Chris Hjelm said in an interview at the time that the growing use of rewards credit cards factored into the decision.
(Score: 5, Interesting) by richtopia on Saturday September 29 2018, @02:26PM (20 children)
Credit cards have a transaction cost. I've always been confused why this fee is effectively hidden from the consumer. I never realized that different cards of the same brand have different costs, which is just an example that as a user I'm protected from seeing these fees.
I suspect part of the reason the fees are hidden is that it allows the credit card companies to charge more. In this digital era, transaction costs should be pennies, even with fraud protection (and I would argue fraud protection should be per-user priced, similar to insurance, but that is a different conversation). The number I always see in internet retailers is 3% for credit card transactions... but what costs so much in a digital transaction?
(Score: 0) by Anonymous Coward on Saturday September 29 2018, @03:08PM
It's hidden from the customer because the customer has no reason to know about it and is unlikely to choose a credit card company based on that. It's something that is of concern to the merchant and to the credit card company.
The bigger issue is likely chargebacks. Some companies are more aggressive about charge backs than others are. And the cost of a chargeback can be a lot more significant, even wiping out the profit from several other sales.
(Score: 2) by Whoever on Saturday September 29 2018, @04:34PM (4 children)
Not always. Gas stations charge more to use a credit card than cash.
(Score: 2) by KilroySmith on Saturday September 29 2018, @07:06PM (3 children)
Only gas stations that are violating their Merchant agreement, which specifically bars doing so.
(Score: 3, Informative) by Whoever on Saturday September 29 2018, @08:37PM (1 child)
No. there was a settlement.
https://www.creditcards.com/credit-card-news/retailer-swipe-fee-consumers-settlement-surcharge-1282.php [creditcards.com]
(Score: 0) by Anonymous Coward on Sunday September 30 2018, @04:22AM
And the settlement was rejected a few years later?
https://www.creditcards.com/credit-card-news/court-rejects-swipe-fee-settlement-surcharges.php [creditcards.com]
(Score: 2) by Joe Desertrat on Saturday September 29 2018, @09:26PM
They got by this by offering "discounts" for cash purchases, so technically they were not raising the price for credit card purchases. At least that's how they explained it.
(Score: 5, Interesting) by martyb on Saturday September 29 2018, @04:36PM (3 children)
Little known fact: Business accounts at a bank have transaction costs, too.
Banks will assess fees for every check deposited, for making a cash deposit, for each check written, and for just having an account open with them. "Bounced" checks, too.
Further, securely processing cash is a non-trivial undertaking for the merchant, as well. The small "mom and pops" will just do a nightly deposit at the bank's deposit slot. But they still need to make sure that none of their employees are keeping a piece of the action, at any point in the process from receipt of cash from the consumer up until the point the cash is deposited.
When you get to large brick and mortar stores (think on the order of Home Depot, Lowes, Sears), it is common for Wells Fargo or Loomis to send an armored car to pick up the daily transactions -- and that is not done for free.
All of this is built into the price of the items you purchase as overhead. The same as is done with credit card fees. I would wager that most large businesses would prefer to do all transactions electronically if they could as the chain of custody and security would likely be more convenient and less expensive.
I know of at least one national retailer that will, if possible, scan the MICR codes on a check and process it electronically as an EFT, returning the check to the customer at the end of the transaction. Less paper to track and protect!
(Disclaimer: I don't have hard and fast figures or links to hand for that, but is based on various things I've read on the internet over the years.)
Ultimately, it is in the retailer's best interest to make the paying for a purchase as frictionless as possible. As a rule-of-thumb, the less they put in the way of your selecting something you want to buy, and taking it from the store, the more you are likely to purchase.
Wit is intellect, dancing.
(Score: 0) by Anonymous Coward on Saturday September 29 2018, @10:51PM
US banks certainly scan check images now (CHECK21). If you bounce a check somewhere, you get a printout of the scanned image, not the original check.
Most larger retailers now have little signs at the cash registers saying that they may process checks as EFTs. After all, they want their $ (because as soon as the cashier hits the green button, it's theirs in their mind, not yours), and they want it now, not 7 days later when a paper check goes through the ACH (check clearing house).
(Score: 3, Interesting) by TheRaven on Sunday September 30 2018, @11:23AM (1 child)
sudo mod me up
(Score: 2) by martyb on Sunday September 30 2018, @12:50PM
Thanks for that. There's also that, for small shops, cash could find it's way to the owner's pocket without being reported as income, thus resulting in a lower tax. Entirely illegal, but I'd be a fool to assume that THAT never happens! OTOH, in large department stores with, say, 50 or so registers, there's a huge desire to keep the sales staff from pocketing a $20.00 here and there. If there were no controls, word would get out and there would be such rampant theft that controls would soon be instituted. So, that means much more overhead (labor == money) to record all transactions, tally the actual amounts received from each register, who worked on each register and when, reconciling shortfalls, never mind the cost of actually having the cash deposit picked up. And, further, if someone shows up with a $100.00 bill and buys a $25.31 item, they'd kind of like it if they would get change back. So that means receiving an assortment of bills and coins from the bank to keep on-hand for replenishment of each register's cash-on-hand... said cash just sitting there and not earning interest. (back of the napkin calculation... 50 registers @ $300.00 each... that's $15,000 just sitting idle in each store. During the holiday season, more registers are often put out, so that number could be even larger. Time for me to get going, but thanks for the opportunity to expound a bit on the topic!
Wit is intellect, dancing.
(Score: 3, Informative) by Runaway1956 on Saturday September 29 2018, @07:24PM (3 children)
Back in the early history of credit cards, those fees were not hidden at all. Goods and services had two prices - a "cash price" and a second price listed below the "cash price". The "cash price" was generally about 5% lower than the other price. The Credit card companies challenged that practice, and successfuly stopped it. Credit card customers get the exact same price as cash customers. Some few vendors out in Backwoods, Nowhere, might get away with a two price system today, but it won't last very long. The very first credit card customer who suspects that he was charged "extra" will be complaining to someone.
(Score: 0) by Anonymous Coward on Saturday September 29 2018, @08:35PM
Take a trip to California some day. I live in the Bay Area and it is rare to find a gas station that doesn't have two prices based on whether you are paying with cash or credit.
(Score: 2) by tibman on Saturday September 29 2018, @09:53PM
It still happens. They call it a convenience fee.
SN won't survive on lurkers alone. Write comments.
(Score: 2) by fido_dogstoyevsky on Sunday September 30 2018, @12:46AM
On this side of the pond merchants ARE permitted to pass on the extra cost. Banks don't like it, but... tough.
It's NOT a conspiracy... it's a plot.
(Score: 2) by MostCynical on Saturday September 29 2018, @08:26PM
The UK [businesscompanion.info] and Australia [accc.gov.au] have made it illegal to hide the surcharges. A business can charge whatever the bank charges, passing on the cost, but they have to declare it.
"I guess once you start doubting, there's no end to it." -Batou, Ghost in the Shell: Stand Alone Complex
(Score: 1) by khallow on Saturday September 29 2018, @11:40PM
Poor market competition.
(Score: 2) by quietus on Sunday September 30 2018, @09:50AM (2 children)
Card issuing banks use reward schemes to incentivise consumers to pay with the cards providing the highest fees to the bank. Maybe they do the same with retailers?
There is a huge difference between the US and the EU here: in the European Union, debit card fee per transaction is something around 0.06%. For credit card transactions, the fee is capped [europa.eu] between 0.3 and 0.4%.
(Score: 2) by TheRaven on Sunday September 30 2018, @11:26AM
sudo mod me up
(Score: 0) by Anonymous Coward on Monday October 01 2018, @07:06PM
Note the linked factsheet refers to a cap only on interchange fees, which is just one of the fees relevant to processing credit card transactions.
The interchange fee is the fee, set by the credit card network, which is paid by the acquirer (typically a bank) to the issuer (also typically a bank). It's usually not directly paid by the merchant. Most businesses just sign up with a processor and that processor charges a single rate per transaction. Sometimes there are a couple different rate buckets depending on the details of the transaction, but often the exact interchange fee is hidden.
Obviously retailers like Amazon have a lot of clout and can negotiate very favourable agreements with a processor. That very well may include directly paying the interchange fee on each transaction. Most retailers won't have that kind of influence.
(Score: 0) by Anonymous Coward on Sunday September 30 2018, @12:11PM
Hidden? Here in Australia they now whack it on the bill as you pay. Not hidden at all. Expect 1% to 3%.