In the past year, credit card reform has largely focused on protecting Main Street consumers from those money-grubbing, bailout-taking card companies on Wall Street. But a recent development earlier this week could potentially have a much more far-reaching impact on how Americans pay for their purchases.
The battle over plastic
On Monday, Visa
Despite the hype over the settlement, it's unclear whether it will actually have any significant effect on merchants or consumers. Currently, merchants have the right to offer discounts to customers who use cash, and some apparently steer buyers to use PIN-based debit card transactions, rather than more costly signature-based ones.
But beyond the occasional gas station offering a lower cash price, different prices for different payment methods haven't really caught on among major merchants. A quick check of large retailers from Home Depot to Amazon.com didn't reveal any discounts available for cash or the right kind of debit card. Instead, the most obvious discounts come from using proprietary store-branded credit cards.
Another hit for rewards cards
If merchants do start being more active about encouraging customers to use lower-cost forms of payment, then the big losers will be people who use credit cards that offer big rewards, such as airline miles or cash rebates. Such cards often carry higher interchange fees, which card companies use to help finance the paybacks to cardholders. If merchants offer discounts to customers in exchange for not using those rewards cards, then cardholders will have a sophisticated calculation to do in figuring out whether the value of the merchant discount outweighs the lost reward from their credit card.
Such a move could also threaten a new revenue source for card companies. Capital One
Notably absent from the antitrust discussion is Discover Financial
After the proposed settlement is approved, you'll want to look out for changes at the stores you visit. Being flexible with your payment options may be somewhat less convenient than simply using your favorite card everywhere. But if merchants actually follow through on the issues they've complained about for years, they may well make it worth your while. Until that happens, though, keep using the rewards cards that give you a piece of the action -- as long as they keep paying the rewards you deserve.
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