New Visa-Mastercard Deal Could Change How You Earn Credit Card Rewards
An accord reached in a 20-year feud between credit card issuers and stores could change the way you rack up loyalty points every time you swipe your card at a sales terminal.
The agreement, first reported last week by the Wall Street Journal and which has to be approved by the Eastern District Court of New York, stems from a lawsuit brought in 2005 by a group of merchants who objected to the requirements imposed on them by payment networks like Visa and Mastercard.
These networks charge merchants a fee for transactions they process, a portion of which they pay to the banks that issue the cards. How much a merchant pays per swipe varies based on the amount and type of the transaction (in-person sales are handled differently than online or other “card not present” purchases, for instance) and the type of card, with averages ranging between roughly 1% and 3%.
This last factor is at the heart of the disagreement. As a general rule, the more generous the perks are for cardholders, the more the store has to pay per swipe.
The number of people using rewards cards has risen sharply since the credit card landscape was reshaped in the years following the Great Recession. The Consumer Financial Protection Bureau says that since 2019, more than 90% of credit card spending has been on rewards cards, up from 82% in 2007. This means retailers’ tab to process those card transactions has also jumped.
The deal between issuers and merchants would lower the amount of fees that merchants will have to pay over the course of several years by, on average, about 0.1 percentage point, according to the Journal. Although a small number on its face, this could be a win for big retail chains that handle billions of dollars in transactions. In 2023, banks that issue Visa and Mastercard credit cards alone earned $72 billion in interchange fees.
Stores could pick and choose which cards they accept
The agreement is more likely to make waves, though, because of a provision that unwinds a current rule imposed by the payment networks. Historically, they have required retailers to take an all-or-nothing approach to accepting their cards: If a store accepts Visa, for instance, that means it must accept all Visa cards.
Under the new accord, retailers would have more latitude to accept just some cards and reject others. Stores would also have more flexibility when it comes to adding surcharges if customers want to pay with certain credit cards. (Some small businesses already do this, as do certain organizations, like colleges and state tax departments.)
There’s also legislation under consideration that has the potential to shake up the credit card status quo. The bipartisan Credit Card Competition Act, first introduced in 2022, would eliminate the requirement that if a customer paid for a purchase with, say, a Visa card, the transaction would have to be processed via Visa’s network.
Although the mechanics are different from the agreement that was just hammered out by merchants and networks, both frameworks aim to give merchants more flexibility in accepting and processing credit cards. Either could have an impact on how much money banks earn from swipe fees.
They could also make for a potentially confusing experience at the cash register. “It does make you wonder, are more stores going to say, ‘You can’t use these cards’?” says consumer finance expert Andrea Woroch.
She says retailers might adopt a “carrot” rather than a “stick” method to coax customers to use their preferred cards. For instance, she says, a store could offer an extra discount to customers who use a particular preferred card — perhaps a co-branded one. “I anticipate there will be some creative strategies,” Woroch says.
Stores have to walk a tightrope, though; they don’t want to provoke customer ire or do anything to dissuade customers from walking away from a purchase or going to a competitor instead. As a result, the upshot for shoppers might be considerably less dramatic.
In fact, credit expert John Ulzheimer says it’s likely customers might never notice. “Ultimately, a merchant doesn't want an unpleasant shopping experience with their customers,” he says.
Allowing retailers to choose their processing network would “decoupl[e] who’s sponsoring the card with who’s getting the fees,” Danielle Zanzalari, assistant professor of economics at Seton Hall University, told Money earlier. While there’s no guarantee that stores would pass along the savings by lowering prices, Zanzalari found that when airlines unbundled ticket prices by adding baggage fees, airfares overall fell slightly.
Credit card rewards could get stingier
Since banks use some of the money they earn from interchange fees to fund their reward programs, another potential outcome of the agreement is that card issuers could cut back on the perks they offer cardholders, either by trimming benefits like airport lounge access or by making their reward structure less generous.
“The credit card companies make all this money on the swipe fees, [so] there’s definitely the possibility of this impacting the rewards card structures," Woroch says.
But Ulzheimer says there might be reluctance by banks to rock the boat. History offers a cautionary tale: When new rules around payment cards were introduced after the Great Recession, regulators roughly halved the amount banks generally collected per debit card transaction, imposing a roughly 21-cent maximum (later raised to 24 cents) on what had been an average 44-cent charge per debit card transaction.
This might sound like small change, but banks collectively earned $19 billion from these fees in 2009. In response to the change, Bank of America announced in 2011 that it would begin charging some customers $5 a month for debit card transactions. Other big banks quickly followed suit, announcing monthly fees of $3 to $5 for debit card use.
If you’ll notice, you don’t pay a monthly fee to use your debit card now. That’s because bank customers threw a collective fit loud enough to be heard on Wall Street. More than 200,000 people voted with their wallets and joined credit unions. After about a month — and a deluge of bad press — banks backed off the poorly received idea.
That’s not to say banks didn’t find other ways to make up the difference: Debit rewards programs virtually vanished, and fees for things like “account maintenance” crept up.
The implication for credit card swipe-fee rule changes — whether voluntary or legislative — is that credit card-issuing banks will find a way to make up for lost profit. But according to Ulzheimer, customers will probably have to look closely to figure out how.
“A dollar is a dollar, however they earn it,” he says. “Bank revenue is only limited by the creativity of the bank.”
Rather than make overt changes cardholders would be likely to notice and complain about, “There are other, less controversial, ways to make up for lost revenue,” Ulzheimer says. For instance, card issuers might instead make incremental tweaks to their terms and conditions — say, dropping “concierge” service or eliminating fee-free foreign currency transactions.
"Those structures are so confusing anyways that if you did make a change to it, it would probably go largely unnoticed," Ulzheimer notes.
Already, keeping up with the shifting menu of reward options, such as categories of accelerated spending or discounts on third-party goods and services like food-delivery apps, falls somewhere between a hobby and a part-time job for an untold number of cardholders.
Some cardholders have been motivated to get more benefits out of their cards because they're paying more for them today. Annual fees for some of the high-end rewards cards that offer the most lavish perks have crept up toward the $1,000 mark.
“As a consumer, when you're thinking about your rewards card, it’s really important to make sure that the card you’re using is giving you the maximum rewards back," Woroch advises. "Figure out where you spend the most money and find a rewards card that fits those categories."
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