Retailers hate rewards cards and the swipe fees that come with them
Rewards credit cards, the type that offer perks such as air travel and cash back for continued use, have grown increasingly popular with consumers in recent years. Retailers do not share that sentiment as they continue to bristle at the fees banks charge them for processing transactions when reward cards are used as payment.
Today, 92 percent all purchases made with credit cards are done with those offering rewards, up from 67 percent a decade ago, according to estimates provided to The Wall Street Journal by Mercator Advisory Group, a research and consulting firm specializing in payments.
While the popularity of rewards cards cannot be denied, retailers want the option of choosing which ones they accept. So-called swipe fees, what banks charge for processing card payments, may vary significantly from card to card, with those offering rewards having the largest associated cost for retailers, up to three percent, according to the Journal report.
The National Retail Federation (NRF), the Retail Industry Leaders Association (RILA) and other groups along with their members recently rejected a settlement of a class action suit brought against Visa and Mastercard over swipe fees. The group said that the $6.2 billion settlement did not resolve the core issue, either by reducing high swipe fees by banks or by giving retailers the option of refusing to take those that have the highest associated costs.
In their arguments, retailing advocates argue that they are looking out for the best interests of the small guys — businesses and people.
NRF, RILA et al argue that it is smaller merchants that bear the biggest burden associated with high swipe fees. While higher fees are a challenge for merchants of all sizes, it’s mom and pop retailers that have the hardest time absorbing the lost profits that come with high cost card transactions.
“Swipe fees are not just a business-to-business issue,” said Stephanie Martz, NRF general counsel, in a recent statement. “By driving up prices, they cost consumers hundreds of dollars a year — nearly as much as the average family spends on Christmas gifts or back-to-school supplies.”
Card companies and banks say they are the ones looking out for consumers.
“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,” a Visa spokesperson told the Journal.
- Shoppers Love Rewards Credit Cards. Retailers Hate Them. – The Wall Street Journal
- Retailers Say New Settlement Proposal Still Fails to Bring Billions in Credit Card Swipe Fees Under Control – National Retail Federation
- Retailers Swipe Fee Settlement Fails to Address Broken Payment Ecosystem – Retail Industry Leaders Association
- Visa Resolves Monetary Claims in Multi-District Litigation – Visa Inc.
- Mastercard Reaches Agreement to Settle Monetary Damages Related to U.S. Merchant Litigation – Mastercard
Discussion Questions
DISCUSSION QUESTIONS: Do you see a shakeup coming in the running battle between retailers and banks/credit card companies over swipe fees? What is your magic wand solution to ending this dispute that would serve the best interests of merchants, banks and consumers at the same time?
Poll
BrainTrust
Art Suriano
Chief Executive Officer, The TSi Company
Ralph Jacobson
Global Retail & CPG Sales Strategist, IBM
On the surface, the credit card companies appear to be very profitable and could very well be taking advantage of the retailers and the customers using their cards. The first thought that comes to mind is the possibility of retailers banding together, and rather than having their own private store card with the absurd 29 percent interest, perhaps they should create a card for all retail purchases offering rewards and incentives with all the retail companies participating owning the card company, therefore controlling the costs of the fees. The impetus for customers to get the card and to use it could be extra discounts and offers different from the standard ones provided by Visa, Mastercard, Amex and other favorite cards. In essence, instead of Amazon Prime, create Retail Prime with as many retailers as possible sharing in the development and costs of the program but also its control and profit. The best way to fight back is through strong competition.
This is obviously a very complex issue with many pieces at play. The fact that 92 percent of CC purchases are done using cards with rewards is telling enough that these types of cards aren’t going anywhere. Unless it is your first card and you want simplicity while trying to establish credit or on the flip side you have too much debt and are enlisting the help of a balance transfer credit card, there is little reason not to have a card that provides rewards.
The argument that Stephanie lays out about consumers also being hurt by the cost of the cards due to increased prices won’t get them very far. There are simply too many value-added services provided by today’s credit cards (rewards, fraud protection, mobile payment, etc.) to convince consumers that it is not beneficial to use them. So with that in mind it is going to be up to the retailers and card providers to hash things out.
If I had a magic wand, I would point it right at those pesky swipe fees and say “Avada Ke—” just kidding, I would never get that aggressive!
I know of no magic wand solutions for this battle. It has been going on for a long time and is likely to continue to do so. Consumers don’t feel the pain of the additional cost because it comes in small doses over time. Were they offered an incentive to use a less expensive rewards card that offered no reward I expect that many would decline.
IMHO one of the two alternatives mentioned is very unlikely to occur. Retailers who refuse to accept those cards with the higher associated cost would be doing so at their own peril. My expectation is the cost of the business lost versus the saving gained would prove this to be a bad course of action.
I’m a cash only retailer. Two years ago, after hurricane Irma, I decided to go cash only or go OUT. Two years of sacrifice. I generate half the revenue I used to. I have zero regrets. I am an experiment in retail for sure. I was fortunate to be in a position where I could risk the loss. I do not recommend it for those without the stamina for it.
Well, until a retailer comes up with their own card that rivals the marketplace penetration of the big cards, or acquires a big card, interchange fees will be a cost of doing business. Customers like the perks from the cards too much to stop.
Let’s be clear here: retailers aren’t being charged fees that have anything to do with “swiping” or “processing,” they’re being forced to subsidize rebates to their customers. Unfortunately, I don’t see what they can do about it since it isn’t any one card brand, so they can’t simply refuse to accept card X. (Amex used to be the exception, since they had dramatically higher fees, but as theirs have fallen and others risen, the gap has narrowed.)
The ultimate solution is the Aldi one — don’t accept ANY credit cards — but how many retailers can really do that? (And IIRC, even Aldi is abandoning this policy.)
I can’t imagine “selective” acceptance of cards. “Are you saying I can’t use my Visa card because I get cash back?!” would be a merchant’s nightmare. New software, increased checkout times, abandoned purchases at the counter, in-store restocking, and lower returns for merchant, bank, card network, and processor.
A better solution would be sharing the “reward” cost across merchant, processor, credit card companies, and bank. Some cross-industry payment standards might help. Not ideal, but it will end the dispute. Right now, it’s just plain messy and unfair.