Merchants Would Like To Refuse Premium Reward Credit Cards

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In what could spell bad news for the industry, large merchants like Amazon and Walmart want the right to be able to refuse premium reward credit cards according to The Wall Street Journal. The key to the merchant’s desire is mitigating the interchange fees they pay for accepting various credit cards.

Credit Cards

Interchange Fees

The interchange fee is the fee paid by merchants to card issuers, with the biggest names being Visa, Mastercard, and American Express. Currently, merchants cannot discriminate which cards they accept or not. For instance, if they accept Mastercard, they have to accept all Mastercards, from a basic no fees card that costs them a small interchange fee, to a World Elite Mastercard that costs them a much higher interchange fee per transaction.

Essentially merchants would like the option only to accept (Mastercards for instance) that charge the lowest interchange fees and stop accepting the cards that charge higher fees. Most premium rewards credit cards fall into this category—after all, it costs the card issuer a lot of money to pay airlines and hotels for all those points, miles, and free night certificates.

A Lesson From Europe

The European Union capped interchange fees (the fees issuers charge merchants) at 0.3% in 2015, and the cap applies to all consumer credit cards. For complex legal reasons, the only exceptions to the cap are business credit cards and cards issued by American Express. This move has hit rewards credit cards in Europe pretty hard especially in the UK which had the most developed market.

As the reward cards became unprofitable, over a few short months the loyalty card market was devastated as cards were canceled and withdrawn. The UK market now only has around ten reward credit cards, with most of those issued by American Express. While there is currently no threat of a cap in the US, card profitability may be hit hard if the large merchants win.

Consider that Amazon alone is set to land 50% of all e-commerce in the US by the end of the year, it already accounts for 4% of all retail sales in the US. Losing the ability to use a premium rewards card at such a dominant market player could seriously hit the cards' bottom line.

Blatantly put, if a credit card becomes unprofitable, or not profitable enough, then the issuer is very likely to pull it from the market.

Our Take

If merchants win their battle, this could be a big hit for card issuers and would damage the premium rewards credit card industry. One possible glimmer of hope is that premium rewards cards tend to be in the hand of wealthier consumers, with high income and purchasing power to match. Retailers will have to ask themselves, do they really want to turn away card holders?

Source: Doctor Of Credit

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Comments

  • I would get rid of my premium cards for sure if this occurred. Maybe this is just a tactic to negotiate better rates, I can’t believe they would go thru with it…..

  • We have had this in the UK for a while now – many cards have vanished and a lot of benefits slashed.

    Stores can also no longer charge extra for credit cards which was common a year or two ago. The only exception is business cards.

    Maybe in the USA we will see fees for premium cards rather than refusal to accept them.

    What Amazon says maybe goes???

  • Back to the big .25% Discover Card rebate

  • Bill from Maine says:

    When businesses start restricting what kind of cards I can use, I will shift my business to those merchants who will take them. There’s more than Walmart and Amazon to buy things from. I only purchase things online when I can’t purchase the product I need from a local merchant and purchasing locally keeps the dollars in my own community. Go ahead Amazon, Walmart or others and overplay your hand.

    • Agreed, they’ll save a tiny amount on fees but lose all of a sale.

    • Bill, I love your optimism – and support for local merchants and keeping dollars local! – but I’m afraid it will prove unfounded. 🙁 Amazon got to 50% of all e-commerce by doing some powerful things very well, namely convenience, I’d say. I’d love if consumers actually voted with their feet – on any number of issues – but I can’t believe they will… because most of the time they simply don’t. The desire to shop at Amazon will prove much, much more powerful for most than any concern about what card they carry.

  • Wow, the stories about the premium American Express cards being rejected by the merchants who do accept AMEX cards are not isolated incidents after all!

  • I wouldn’t mind so much, except the European authorities continue to insist that it’s about “protecting consumers” when it does no such thing. Retail prices most definitely will not decrease if credit card processing becomes cheaper…

  • I agree that this would do nothing to protect consumers and prices would not go down. The only way to fight this would be to vote with your feet: if the merchant does not accept your card, say “thanks but no thanks” and don’t buy the product. I realize that this would be difficult, but this would be the only way. Giving up the cards is exactly what the merchants want. It is their choice however, and I understand why they are doing it _ it decreases their profit.

  • I’d personally avoid shopping at stores that did this as much as possible.

    • Agreed. It seems like many would, including myself. The issue, however, will always be: does that make enough difference to shift the current? And unfortunately, I’m thinking the answer is going to be no.

  • Gosh, maybe the end is near. I think that I would fly much less if I couldn’t use reward cards anymore.

  • Will this include cash back cards?

    I may have to start refusing merchants if they refuse my cards 🙂

  • Unlikely to happen. All posturing to try to lower processing rates – however the lower processing rates go the lower rewards generally will go because the bank’s cut of the transaction is what pays for the rewards.

  • Wow, this would be big news. I hope this doesn’t mean an end to great credit card rewards!

  • once the merchant refuses my card is the day I refuse to use that merchant any more and quite possibly the card as well

  • I think there is a real danger in the longer run of the fee caps that we now see in Europe (and maybe Australia?) eventually spreading to the US. The logic that it is in the consumer interest is flawed, as it won’t lead to lower prices.

  • Would not like this at all! I’m sure that if it did happen then we would all adapt but American society is consumer driven and I don’t think this will occur. I agree that companies wouldn’t really want to risk their more wealthy clients. On the other hand, would companies only refuse cards of people who do not do a lot business with them? Or maybe companies would have a spending amount of a customer to not refuse a prem card?

  • Ugh. Seems like this might lead to people getting additional credit cards so they have a backup to use at the merchants that were refusing the premium reward cards.

  • This would really complicate things more than they already are. I cannot remember which card to use in which store already (to maximize rewards)!

  • Carolyn Miller says:

    This seems like a major problem for users. How are we supposed to remember what cards we’re going to use or are “allowed to” use at different retailers? It’s already complicated with some places not taking American Express!

  • I makes good business sense that the merchants would try to do this, but this is it is wrong, in my opinion, that the end consumer should not be able to pick their credit card. For example AMEX needs to make their fees compatible with MC and Visa or risk losing clients. I don’t like this uncertainty about signing up for a get a premium credit card (AM Ex or other ) and not being able to accomplish the spend requirements using the “usual” types of large purchases. This needs to be worked out before being presented to the ;public.

  • Patrick Curran says:

    Are credit cards from US premium cardholders still accepted in Europe?

  • Patrick Smith says:

    As an entrepreneur, I’m always baffled at businesses who do this kind of thing. It’s like saying, “I don’t really want this sale.” It’s a bigger loss to lose the sale than pay a bit extra in fees. As a reward card user, I look for the best opportunities for my point earnings and to me, there are a lot of other places who will take my card.

  • Credit card companies should have a cap on what they charge per transaction – they earn so much from interest rates already. I’d be on the side of the small businesses who have to pay these fees more than the big corporate retailers like Walmart or Amazon. Where I’m living (Japan) most sales are still cash, so this isn’t even an issue, hah.

  • I might be in the minority here, but I believe the merchants deserve to be protected here.
    At least with Amex and Diners, the merchant knows they will lose a higher percent. This is just a way for MC and Visa to hide their fees.

  • I do hope this never happens, if so I will do my best not to support certain stores if this happens. I pick and choose already where I spend my hard earned dollars and while I think the credit cards likely overcharge for their services actually (ive never heard of a credit card going out of business they do take on the risk). I do enjoy my cards with benefits.

  • Stephen Jacobson says:

    Credit card users should understand it is the businesses that are willing to accept credit cards who are providing the financial rewards, not the credit card companies. Unfortunately all consumers are stuck paying higher prices from businesses who continue to accept credit cards.

  • I am a merchant and I accept credit cards. I resent that card issuers offer rewards they expect me to pay for them.
    If they want to offer incentives to use their cards they should put the bill, not the merchant.

  • Marlin Seevers says:

    I’ve been assuming all along that the card benefits have to be paid somewhere by someone. Most likely, all prices are set high enough for the vendors to pay the credit card fees. We are stuck paying the higher price anyway, so I’ve decided to find ways to get the most benefit. If that system dries up in the future I will adjust my habits to whatever works the best at that time.

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