Did you know that rewards cards cost a retailer more?

[Doppel]

I didn't, I figured it was all done on the card issuers' end, but this indicates otherwise:

http://money.cnn.com/2011/07/14/smallbusiness/rewards_credit_cards/index.htm?iid=HP_River

 

[ponyo]

Yes. Amex reward cards cost even more.

 

[zzuupp]

Yup, the retailers pay a few percent on the gross. Some of the processors charge a fixed per transaction fee.

 

[dullard]

Yes. It is fairly common knowledge. Many people on ATOT use that to claim that people using reward cards are just hurting themselves with higher prices. But their math doesn't add up.

Suppose I use a 1% cash back card. Then I get 1% back. If 30% of customers used 1% cash back cards, and the retailer covered the entire cost of that, then the retailer would pay 0.3% more. If that 0.3% was passed on to customers then I'd pay 0.3% more. I'd very gladly pay 0.3% to get 1%.

It is the suckers who don't use reward cards that are actually screwed.

 

[Dulanic]

This is not true. I work for a issuer and trust me it is not true. It is probably being confused with debit vs. credit. Credit cards DO cost more than debit transactions. However, the interchange fee doesn't know or care if it is a reward visa or a regular visa. This "reporter" is confused. It purely comes down to reward cards 99% of the time being a credit card and not a debit card.

Merchant's pay different rates for Visa, MC, Discover and AMEX depending on their bank. However, most don't charge separate rates anymore. But I can promise I see transactions all the time (ALL details of the tranactions, all flags etc..) and there is no "reward card" flag.

 

[SlitheryDee]

We get the same rate regardless of what kind of card it is. We use Intuit's merchant service to process CCs.

 

[Texashiker]

It is the suckers who don't use reward cards that are actually screwed.

There are no stores in my area that have rewards cads. If I wanted to use a rewards card, I have to drive close to 100 miles.

The joys of living in a small town.

For rural America, its either shop at places like walmart, or buy online.

 

[slayer202]

That article sucks. Not one detail or fact in it

 

[DrPizza]

Yes. It is fairly common knowledge. Many people on ATOT use that to claim that people using reward cards are just hurting themselves with higher prices. But their math doesn't add up.

Suppose I use a 1% cash back card. Then I get 1% back. If 30% of customers used 1% cash back cards, and the retailer covered the entire cost of that, then the retailer would pay 0.3% more. If that 0.3% was passed on to customers then I'd pay 0.3% more. I'd very gladly pay 0.3% to get 1%.

It is the suckers who don't use reward cards that are actually screwed.

Your fairly common knowledge appears to be wrong. And, in many cases, it DOES cost you more. I know a local business owner who, as the percentage of customers using debit/credit cards started rising, got so fed up with the fees that he raised prices across the board by nearly 5%.

 

[Dulanic]

That article sucks. Not one detail or fact in it

The problem is it is CNN so of course it must be fact

Shit like this even has merchant's falling for it.

 

[dullard]

Your fairly common knowledge appears to be wrong. And, in many cases, it DOES cost you more. I know a local business owner who, as the percentage of customers using debit/credit cards started rising, got so fed up with the fees that he raised prices across the board by nearly 5%.

The typical fee is about 3% (give or take a percent). His 5% was excessive. But that is besides the point, since that doesn't say a thing about reward cards vs regular cards vs the cost of bounced checks. It is just a red herring until you can tell us how much of that 5% was due to the reward card specifically.

 

[Texashiker]

I know a local business owner who, as the percentage of customers using debit/credit cards started rising, got so fed up with the fees that he raised prices across the board by nearly 5%.

Since card issuers do not earn interest on debit cards, they have to do something to make money.

The best thing to do is use cash. That way you cut the credit card interest and debit card fees out of the equation.

<in before "I dont pay credit card interest">

 

[Dulanic]

The typical fee is about 3% (give or take a percent). His 5% was excessive. But that is besides the point, since that doesn't say a thing about reward cards vs regular cards vs the cost of bounced checks. It is just a red herring until you can tell us how much of that 5% was due to the reward card specifically.

Close but depends on volume. A high volume merchant like Best Buy probably pays around 1% where as a small merchant is is closer to 2-3%. Anything more and they are getting ripped off by their acquiring bank.

 

[dullard]

There are no stores in my area that have rewards cads. If I wanted to use a rewards card, I have to drive close to 100 miles.

The joys of living in a small town.

For rural America, its either shop at places like walmart, or buy online.

I'm not sure what these reward "cads" are that you are talking about. We are talking about Discover credit cards that pay 1% back. Or Chase Freedom cards that pay 1% cash back. Or similar. Most stores in rural areas accept credit cards, so they mostly accept rewards cards. I live in Nebraska and shop in rural towns on occasion. You are right though, there are few shopping choices: walmart and online is often the only choice. But both accept reward credit cards.

 

[0roo0roo]

the fees were bs anyways, back when communications and computing were expensive the rates were set now its just entrenched bs

 

[dullard]

Close but depends on volume. A high volume merchant like Best Buy probably pays around 1% where as a small merchant is is closer to 2-3%. Anything more and they are getting ripped off by their acquiring bank.

The average interchange fee is about 1.9% (it varies with year). Then there are the average 0.1% network fee, 0.5% to 1% processor fee, the per charge fee (typically $0.00 to $0.50 depending on your agreement), the higher fee for reward cards, the monthly minimum fee if you don't meet your monthly sales, and sometimes the equipment rental fee. It is just easier to type 3%+-1% than to type all of those various fees.

Yes, the largest of the large stores will get better rates than average rates I posted here. But the small mom and pop stores (with maybe 1 credit card sale a day) are screwed worse than the average.

 

[Dulanic]

the higher fee for reward cards

Once again, this is bullshit. Provide proof please. And this article doesn't count. I have access to the Visa and Mastercard transaction guides, there is 0 in there about reward cards BTW.

 

[dullard]

On a related note, the Department of Justice settled with Visa and MC last October and the terms of the settlement were that merchants would now be allowed to reject reward cards while accepting regular cards. I think that settlement is pending an ongoing lawsuit with AmEx who refused to settle.

If merchants are allowed to reject reward cards, then this whole topic changes focus. If they accept the reward card, then they are ok with it and the larger purchases reward card users typically make and their lower non-payment rates. If they reject the reward card, then they don't like the higher fees.

 

[Dulanic]

On a related note, the Department of Justice settled with Visa and MC last October and the terms of the settlement were that merchants would now be allowed to reject reward cards while accepting regular cards. I think that settlement is pending an ongoing lawsuit with AmEx who refused to settle.

If merchants are allowed to reject reward cards, then this whole topic changes focus. If they accept the reward card, then they are ok with it and the larger purchases reward card users typically make and their lower non-payment rates. If they reject the reward card, then they don't like the higher fees.

How many times can you be wrong in one thread? The DOJ's settlement was for credit card interchange fees it is not specific to reward cards. I will say it again... the merchant's bank has NO POSSIBLE way to identify if a card is a reward card PERIOD. This data just is not available.

The proposed settlement requires MasterCard and Visa to allow their merchants to:

Offer consumers an immediate discount or rebate or a free or discounted product or service for using a particular credit card network, low-cost card within that network or other form of payment;
Express a preference for the use of a particular credit card network, low-cost card within that network or other form of payment;
Promote a particular credit card network, low-cost card within that network or other form of payment through posted information or other communications to consumers; and
Communicate to consumers the cost incurred by the merchant when a consumer uses a particular credit card network, type of card within that network, or other form of payment.

It mentions credit card networks, that has nothing to do with rewards.

 

[Dulanic]

BTW, feel free.... try to find it.

http://www.mastercard.com/us/merchant/pdf/MasterCard_Interchange_Rates_and_Criteria.pdf

Here is even a list of the different cards that get charged slightly different interchange rates for MasterCard.

U.S. Interchange Rates MasterCard Consumer Credit Core Value Cards
MasterCard Consumer Credit Enhanced Value Cards
MasterCard Consumer Credit World Cards
MasterCard Consumer Credit World High Value Cards
MasterCard Consumer Credit World Elite Cards
MasterCard Consumer Debit Cards
MasterCard PIN Debit POS Cards
MasterCard Commercial, Corporate, Purchasing and Fleet Cards
MasterCard Business Enhanced Cards
MasterCard World for Business Cards
MasterCard World Elite for Business Cards

P.S. None of those are specific to reward cards.

 

[Gunslinger08]

Oddly enough, my mom was telling me the same thing last week. She deals with some of the financials where she works (retail store) and told me that they were paying a more for rewards cards.

 

[dullard]

How many times can you be wrong in one thread?

I typically allow myself one mistake per thread. Then I'll post my recognition of my error, edit my mistakes, and often give credit or explaination why I was wrong. So far, I'm 100&#37; correct in this thread. Are you willing to fess up and edit your erroneous posts here?

This issue is easiest to see if we look at Visa's fee structure. Suppose you are a restaurant. What fees are charged? See page 3 of that link (4th data row from bottom):
* 2.4% + $0.10 for a Visa Signature Preferred card. (premium reward for highest spenders, by invitation only)
* 2.3% + $0.10 for a Visa Signature card. (premium reward)
* 1.95% + $0.10 for a Traditional reward card. (reward)
* 1.54% + $0.10 for a Standard card. (non-reward)

Fees are similar to this structure but vary with type of merchant. But in all cases, notice how the standard (non-reward) card is cheapest? The cards with the most rewards and benefits (Signature Preferred) charges more. Mastercard is similar but doesn't have it as clearly laid out.

Alternatively, you can get something like 3-tier pricing (2-tier and 6-tier are also rarely available). With tiered pricing, all companies pay the same percent for each tier. There is a cheap tier, medium price tier(s), and expensive tiers. The type of card and transaction determine the tier.

The cheapest tier is for the non-reward cards that sre processed as agreed (normally a card is swiped, with a signature). Other transaction methods (such as a keypad typing of the card numbers instead of a swipe) or card types (such as a reward card or corporate card) will change to a higher-priced tier. Reward cards are usually in the second tier. See the links below that I got in Google's order. I stopped after page 2. Do I need to post more?

http://www.practicalecommerce.com/articles/2678-Credit-Card-Pioneer-on-Lowering-Processing-Expense

There are a number of abuses that particularly stand out and most of them are inherent to the three-tier [i.e. "qualified," "mid-qualified," "non-qualified"] billing system that most small ecommerce merchants are set up on. Number one is downgrading rewards and corporate cards to nonqualified rates. The actual interchange cost for an ecommerce rewards card is just about 2.06 percent, but many merchant account providers are downgrading rewards cards and actually charging over 4 percent.

http://truecostofcredit.com/400926

Rewards interchange rates are typically around 0.30% higher than the rate for a regular card. However, many smaller businesses actually get charged more than 0.30% additional for such transactions because it triggers a downgrade, which allows their credit card processor to charge them as much as an additional 1.50%.

http://feefighters.com/blog/merchant-account-costs/

Factors that influence Interchange:...What kinds of credit cards your customers use &#8211; for example, a rewards credit card costs you, the merchant, more than a standard credit card

https://www.unibulmerchantservices.com/interchange-plus-pricing

For example, a Visa card transaction that received a CPS / e-Commerce Basic is interchange fee program classification...the merchant will be charged a total of 2.25% + $0.25 for the transaction. If the card was a Visa rewards card and received a CPS / Rewards 2 classification... 2.40% + $0.25.

http://www.creditcardassist.com/blog/merchants-fight-interchange-fees/

For consumers that use rewards credit cards or business credit cards, these fees are likely to be even higher. Most credit card issuers extract the rewards that they pay their consumers for using their cards with the interchange fees that they charge their merchants. So all of those cash back rebates and airline miles rewards come right out of the merchants pockets.

http://www.paynetsecure.net/interchange-plus-pricing/

And the interchange rates for rewards cards are much higher than cards that are not linked to any reward

http://www.bookrags.com/wiki/Interchange_fee

Interchange rates are established at differing levels for a variety of reasons. For example, a premium credit card that offers rewards generally will have a higher interchange rate than do standard cards.

http://www.westernpacificlending.com/learn-more.php

The use of "rewards cards" can be as high as 40% of transactions. So it is important that the financial impact of this fee be understood. So therefore, merchants will be charged the qualified plus the mid qualified rate. Example) If your qualified rate is 1.5% and the mid qualified rate is 1 %, your effective rate would be 2.5 %.

http://www.interchangeplussolutions.com/faqs.html

Because there are over 400 Interchange MasterCard & Visa Rate Categories, most processors "simplify" the complexity of Interchange by "bundling" merchants' Visa/MC rates into the ARTIFICIAL CATEGORIES of Qualified / Mid Qualified / Non Qualified. This allows processors to successfully hide what we believe are excessive profits by forcing inexpensive cards like Debit cards into the Qualified category, and Rewards & Corporate cards into Mid Qualified and Non Qualified categories.

http://www.ehow.com/info_8310959_average-credit-card-processing-fee.html

Interchange fees come in many different varieties...Card networks also differentiate interchange fees based on the type of card used. Cards with premium rewards or purchase insurance charge higher interchange fees to cover provider costs.

http://veracrash.net/preserve-money-working-with-merchant-account-credit-card-processing/

It is shocking how numerous merchants are unaware that they are getting charged a higher fee every single time a rewards card is swiped in their establishment. Frequently times rewards card are swiped at a 3%-4% fee, an grow of as very much as 2 to 3 points above their original processing fee.

http://en.wikipedia.org/wiki/Merchant_account

Second Tier - Mid-qualified RateAlso known as a partially qualified rate, the mid-qualified rate is the percentage rate a merchant will be charged whenever they accept a credit card that does not qualify for the lowest rate (the qualified rate). This may happen for several reasons such as:
A consumer credit card is keyed into a credit card terminal instead of being swiped
A special kind of credit card is used like a rewards card or business card
A mid-qualified rate is higher than a qualified rate. Some of the transactions that are usually grouped into the Mid-Qualified Tier can cost the provider more in interchange costs, so the merchant account providers do make a markup on these rates.
The use of "rewards cards" can be as high as 40% of transactions. So it is important that the financial impact of this fee be understood. So therefore, merchants will be charged the qualified plus the mid qualified rate. Example: If your qualified rate is 1.5% and the mid qualified rate is 1 %, your effective rate would be 2.5 %.

http://www.wepay.com/blog/2011/03/1...-banks-and-business-consumers-are-casualties/

Good luck stockpiling those Sky Miles &#8211; Merchants have traditionally been forced to pay high fees when consumers swipe their rewards credit cards in order to fund these programs. They will soon be able to refuse rewards cards or credit cards altogether.

 

[QueBert]

I shop in LA at mostly cash only places and the prices are way lower, partially because they don't have to pay &#37;'s out for merchant services, and probably partially so there's no paper trail. Either way the $$$ I save's lovely.

 

[iGas]

..

 

[dullard]

The DOJ's settlement was for credit card interchange fees it is not specific to reward cards. I will say it again... the merchant's bank has NO POSSIBLE way to identify if a card is a reward card PERIOD. This data just is not available.

From the Department of Justice itself:

By preventing merchants from rewarding consumers when they use less expensive credit cards to make a purchase, American Express, MasterCard and Visa have inhibited merchants&#8217; ability to reduce card acceptance costs, and therefore their retail prices to consumers.

Notice the less expensive credit card part? I have a hard time seeing your argument that the credit cards are all the same cost, when it clearly says there are less expensive credit cards. Reward cards are more expensive cards within the network, as I showed in the post above. You are correct that the settlement wasn't about reward cards only (corporate cards are also more expensive for merchants than other cards in the network). It was about different fees depending on what card the customer pulls out of his wallet (which includes reward cards).

The settlement lets merchants do these things:

• Offer consumers an immediate discount or rebate or a free or discounted product or service for using a particular credit card network, low-cost card within that network or other form of payment;
• Express a preference for the use of a particular credit card network, low-cost card within that network or other form of payment;
• Promote a particular credit card network, low-cost card within that network or other form of payment through posted information or other communications to consumers; and
• Communicate to consumers the cost incurred by the merchant when a consumer uses a particular credit card network, type of card within that network, or other form of payment.

You are correct at the moment it is nearly impossible to tell from a 16 digit number if a card is a reward card or not (like what an online store sees). But, the settlement may make that a requirement. Also, if you are a B&M store, you can usually tell by looking at the card if it has rewards (assuming you pay attention the the onslaught of credit card commercials and mailings).