WASHINGTON–In the wake of statements by credit unions that the Credit Card Competition Act will hurt card rewards programs, the Merchants Payments Coalition has released its own research that states the proposed legislation should have “virtually no impact on credit card rewards and that banks could easily afford to continue offering rewards.”
In a new research paper, the MPC said global payments consulting firm CMSPI estimated that credit card rewards would be reduced by less than one-tenth of 1% “at most” if the legislation becomes law.
The legislation would require that credit cards issued by the nation’s largest banks be able to be processed over at least two unaffiliated networks – Visa or Mastercard – plus a competing card network or one of several independent networks like Star, NYCE or Shazam. Merchants would then be allowed to choose which of the two networks to use, prompting networks to compete over fees, security and service.
The CCCA, which is currently before both the House and Senate, is strongly opposed by credit unions.
What One Estimate Shows
According to the merchants’ organization, CMSPI estimated earlier this summer that the legislation would save merchants and their customers $15.2 billion a year in swipe fees banks charge to process credit card transactions. The savings would be nearly 70 times the amount of any reduction in rewards, according to the new study, the association said.
“This analysis shows the expected savings from competition over swipe fees would have almost no impact at all on credit card rewards and that the card industry has far more than enough profits to make up the difference,” MPC Executive Committee member and National Association of Convenience Stores General Counsel Doug Kantor said. “This is proof that claims that rewards would go away are nothing more than idle threats and scare tactics, the same as they have been in every market around the world where swipe fees have been addressed.”
Down Under Example Cited
The MPC said that when credit card swipe fees were capped at 0.8% in Australia in 2003, banks’ revenue fell but “rewards were hardly impacted. Based on the proportion between the reduction in swipe fee revenue and the minor reduction in rewards, the drop in U.S. rewards per dollar would be a miniscule 0.097%, according to CMSPI.”
The organization further stated CMSPI found that six out of the 10 largest U.S. card issuers have a 30%profit on swipe fees (the other four do not report swipe fee revenues or expenses.)
That amount would be “more than sufficient margin” to offset the reduced revenue and “maintain current reward levels,” the consultants said.
‘Aren’t Going Anywhere’
“Rewards are banks’ top marketing tool for getting consumers to choose a card from one bank over another and they aren’t going anywhere,” Kantor said. “Small businesses and consumers desperately need relief from high swipe fees and it’s now clearer than ever that they can have relief and still get rewards.”
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