On Tuesday, the largest credit card companies in the United States reached an agreement with merchants to reduce so-called swipe fees that retailers pay for accepting credit card payments, potentially saving retailers $30 billion.
These fees also help fund the credit card rewards programs that many travelers redeem for things like free flights and hotel stays, leading points merchants to ask: Are loyalty programs at risk?
Here’s what we know about the changes so far.
What are the contract conditions?
Last year, merchant credit card payments generated an estimated $72 billion in fees, which are typically passed on to customers in the form of higher prices. For nearly 20 years, merchants have sought to reduce the fees they pay Visa and Mastercard to process transactions using the cards.
The proposed settlement, which is still awaiting federal court approval, would reduce and cap those fees for five years. This would also allow merchants to potentially charge consumers more based on the card they use to pay. For example, a person paying with a premium card like the Chase Sapphire Reserve, which costs $550 per year, could be charged more than someone paying with the more basic Chase Sapphire Preferred card, which has a $95 annual fee pays.
Why does it matter?
The majority of the fees collected go back to the banks that issue the credit cards. These banks have used the funds to promote premium credit cards that offer loyalty points that can be redeemed for free rides and other perks. The cards with the biggest benefits are usually the ones that charge higher swipe fees.
While the reduction in fees charged sounds small – at least 0.07 percent on average – it amounts to an estimated $30 billion over the five-year life of the deal, which banks could try to offset by cutting points perks.
“It’s reasonable to assume so,” said Brian Kelly, the founder of Points Guy, a news site dedicated to maximizing credit card points.
While he speculated that banks will “find other ways to make up the difference,” he acknowledged that there could be a points crunch.
“The earning potential probably won’t flourish,” he said.
The idea that merchants could charge holders of expensive premium cards with additional services more could also deter consumers from using them. Some experts question the viability of this practice given the possibility of a consumer backlash.
The legal actions that led to the new credit card agreement date back to 2005. However, the newer Credit Card Competition Law proposed in 2023 aims to introduce more competition in the credit card payment system. By creating a cheaper alternative payment processing pipeline, the proposed legislation is seen as a greater threat to rewards programs.
In response to the just-announced agreement between credit card companies and retailers, Senator Dick Durbin, Democrat of Illinois and lead sponsor of the Credit Card Competition Act, released a statement urging passage of the legislation.
“I fear that this deal only provides for temporary concessions negotiated by some lawyers behind closed doors,” he said in the statement.
Other experts said the agreement could ease pressure on Congress to pass the law.
“I think it’s a way for Visa and Mastercard to show they’re making a good faith effort to help merchants by lowering the fees they’ve been complaining about for 20 years, and hopefully enough to get the senators “To let them know they’re doing their part,” said Chris Hassan, the social media and brand manager for Upgraded Points, a website that tracks credit card benefits.
Separately, the proposed merger between Capital One and Discover, which still needs to be approved by the federal government, could lead to more competition between credit cards and potentially improve rewards for those cards’ holders.
What should I do now?
The points and payment systems will not change until the agreement is approved, which is expected in late 2024 or early 2025, according to a Mastercard press release.
But the theme is meant to remind travelers of the reality of the points game: The rules are always changing. Values tend to decrease as repayment levels increase. Companies issuing these currencies can customize them as they wish.
If you have points, spend them, say experts like Sara Rathner, travel and credit card specialist at financial website NerdWallet. “They are not a trophy to be dusted off and admired.”
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2024-03-28 17:09:27
www.nytimes.com
