On Tuesday, the nation's largest credit card company reached an agreement with merchants to cut so-called swipe fees that retailers pay to accept credit card payments, potentially saving retailers $30 billion.
These fees also fund credit card rewards programs that many travelers redeem for things like free flights and hotel stays, leading hawks to ask, “Are loyalty programs in jeopardy? ” I have doubts.
Here's what we know so far about the changes:
What are the trading terms?
Last year, credit card payments cost merchants an estimated $72 million in fees, which are typically passed on to customers in the form of higher prices. For nearly 20 years, merchants have asked Visa and Mastercard to reduce the fees they pay to process transactions where their cards are used.
The proposed settlement, which is pending federal court approval, would reduce those fees and cap them for five years. Merchants may also be able to charge consumers additional fees based on the card used for payment. For example, someone who pays with a premium card like the Chase Sapphire Reserve, which has a $550 annual fee, is likely to be charged more than someone who pays with the more basic Chase Sapphire Preferred card (which has a $95 annual fee).
Why is it important?
The majority of fees collected are returned to the bank that issues the credit card. These banks have used that funding to popularize premium credit cards that offer loyalty points that can be redeemed for free travel and other perks. The cards with the biggest benefits tend to be the ones that charge higher swipe fees.
While the reduction in collection fees sounds small, averaging at least 0.07 percent, it equates to an estimated $30 billion over a five-year contract period, and banks could try to make up for it by reducing points benefits. There is sex.
“That makes sense,” says Brian Kelly, founder of Points Guy, a news site focused on maximizing credit card points.
While he speculated that banks would be able to “find other ways to make up the difference”, he acknowledged there could be a point squeeze.
“Earning opportunities probably won't flourish,” he says.
The idea that merchants can overcharge holders of expensive, perks-packed premium cards could also deter consumers from using the cards. Some experts question the viability of this practice, given the potential for consumer backlash.
Does the new agreement relate to credit card competition law?
The legal action that led to the new credit card agreement dates back to 2005. However, the new Credit Card Competition Act proposed in 2023 aims to introduce more competition into credit card payment systems. The proposed bill is seen as a major threat to the benefits program by creating a cheaper alternative pipeline to process payments.
In response to the just-announced agreement between credit card companies and retailers, Sen. Dick Durbin, D-Ill., the chief sponsor of the Credit Card Competition Act, issued a statement urging passage of the law.
“I am concerned that this agreement is just a temporary concession negotiated behind closed doors by a few lawyers,” he said in a statement.
Other experts said the deal could ease pressure on Congress to pass legislation.
“I think this is a way for Visa and Mastercard to show that they're making a good faith effort to help merchants by lowering the fees that they've complained about for 20 years, and hopefully to the senators. “I think that's enough to let them know they're making an effort.” said Chris Hassan, social media and brand manager for Upgrade Points, a website that tracks credit card rewards. Masu.
Separately, Capital One's proposed merger with Discover, which is awaiting federal approval, could further increase competition among credit cards and improve benefits for holders of those cards. .
what should i do now?
The points and payment system will not change until the agreement is approved, which is expected in late 2024 or early 2025, according to a Mastercard news release.
However, this topic should remind travelers of the reality of playing with points. Rules change all the time. As the level of redemption increases, the value tends to decrease, but the companies that issue these currencies are free to adjust the level.
Experts like Sarah Lassner, travel and credit card expert at financial website NerdWallet, say if you have points, use them. “They are not trophies to collect dust and admire.”
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