A recent settlement between the world's two largest processors of debit and credit card payments and a number of merchant groups has some experts worried about how rewards programs might be affected.
The settlement between merchant groups and both Visa and MasterCard will likely have a significant impact on the latter two companies' bottom lines in the near future, and some feared that they and many lenders would try to mitigate the effects by fundamentally altering credit card rewards programs, according to a report from the Wall Street Journal. The settlement called for Visa and MasterCard to pay merchants a combined $6.6 billion, and will temporarily reduce swipe fees they charge for every transaction, in addition to the much-publicized ability of retailers to impose higher costs on those paying with these cards.
But now, some experts believe that because of the large amount of revenues lenders generate from rewards credit card accounts, they will be very unlikely to alter any programs and risk driving away borrowers, the report said. The average active rewards card holder spends at least $40,000 per year on the account and many don't carry balances on them, meaning that changes to rewards redemption rates would impact them significantly.
Further, it's believed that surcharging will be a very rare occurrence, the report said. Similar laws have been in place in Australia since 2003 but the most recent data - from 2010 - shows that just 30 percent of merchants actually pass these fees on to consumers, and in all just 5 percent of all credit card transactions made in the country actually carried them. In addition, there are 10 states across the country, many of them rather populous, that already prohibit credit card surcharges by law. This includes New York, California, Texas, Massachusetts, and several more.
Another factor that would likely prevent merchants from permanently altering rewards accounts is that the reduced swipe fees they will be able to charge merchants are only temporary, the report said. While payment processors and lenders will likely take a financial hit over the course of several months because of the reduced fees, it probably still would not be enough to make them take drastic action that would in any way turn off some of their most creditworthy and reliable customers. Some might instead choose to boost annual fees or interest rates as a means of making up the lost revenues, and could do so for all accounts, not just those that grant users rewards.
Rewards cards are popular with both the affluent and those who have the best credit ratings because these accounts allow them to earn perks for spending they might have done anyway. A number of surveys have shown that rewards borrowers see the points, cash back or miles they earn for spending on these cards as "free money."