By Wesley Grant, Payments Journal
Click here to read the entire article.
When the latest iteration of the settlement involving Visa, Mastercard, and various merchants was proposed in November, there was speculation that the deal could reshape the credit card rewards model. However, a group of retailers led by Walmart argued that the settlement doesn’t go far enough to create a meaningful impact for merchants.
Under the proposed deal, Visa and Mastercard would lower the credit card interchange fees that merchants have increasingly criticized, reducing fees from roughly 2%-2.5% to about 0.1% over several years.
Perhaps the more impactful part of the settlement is that merchants would gain the ability to decline certain credit cards—particularly high-fee rewards cards—that they were previously required to accept. Still, Walmart and other retailers emphasized that this latest settlement doesn’t sufficiently address the ongoing challenges merchants face.
“What’s being offered to merchants is not really a practical solution, allowing them to not accept higher-cost rewards cards,” said Don Apgar, Director of Merchant Payments at Javelin Strategy & Research. “That defeats the purpose of having a shared acceptance mark like Visa or Mastercard—that was the whole power of the brands when they started. For a store to say, ‘We accept some Visa cards, here’s a list of Visa cards we do and do not accept,’ is ridiculous.”
“Retailers don’t want to be put in a position of instituting fragmented payment policies that disadvantage consumers and add friction to the shopping experience,” he said. “Merchants, for the most part, acknowledge that card payments are fast and convenient, but the rising cost of interchange and network fees has damaged the value proposition for merchants.”
Perks with Payment
One of the factors driving calls for change is that rewards cards have shifted from being the exception to the rule. Once the domain of luxury credit cards—such as those issued by American Express—more card issuers have added benefits to attract cardholders.
As consumers have come to expect perks with their payments, rewards programs have become an integral part of the credit card landscape. However, even as consumers enjoy cash back and discounts, credit card companies pass a portion of these costs to merchants. This has intensified merchants’ calls for a reduction in interchange fees.