Q&A: Perks for using certain cards now possible

NEW YORK — Paying with certain credit cards may soon earn you perks at the register.

Under a settlement with federal regulators announced Monday, Visa and MasterCard agreed to let merchants offer customers discounts and incentives for using a particular type of card. American Express is fighting the government lawsuit.

The settlement lets retailers express preference for a particular card issued by Visa or MasterCard, such as a Visa rewards card, or for cards from another brand such as Discover.

If you’re surprised to learn that merchants care about the cards customers use, you’re not alone. It’s a complicated topic that doesn’t get a lot of attention.

Here are some questions and answers about the case and what it means for consumers.

Q: Why do merchants prefer that customers use a particular credit card?

A: For any credit card purchase, merchants pay a fee to the banks issuing the card. These fees vary depending the type of card that’s used. Discover cards on average tend to have lower fees, and American Express cards on average have higher fees, said Mallory Duncan, general counsel for the National Retail Federation.

Even within a network such as Visa, there’s variance in the fees merchants pay. Generally, the fees are higher for premium or high-end rewards cards. The higher charges stem from banks needing to spend more money on perks and rewards for those cards.

Merchants generally prefer that customers use debit cards rather than credit cards because they have lower fees.

Q: What type of incentives might be offered for using a particular card?

A: The first change will likely be that customers will be steered toward an alternative form of payment that bears lower costs for the merchant, such as debit cards or cash, said Duncan of the National Retail Federation. Eventually, merchants may make more subtle distinctions in stating a preference for more basic credit cards, he said.

“It’s going to evolve over time,” he said.

The incentives may be discounts on purchases or a small perk, such as free delivery or gift wrapping. It’s still too early to tell how widespread any changes will be, but Duncan said he expects merchants will be eager to offer incentives that defray their costs.

Q: Does this mean merchants will stop accepting rewards and other cards that cost them more?

A: No. Visa and MasterCard can still require merchants that use their payment networks to accept all cards within their brands. But now retailers will be able to offer discounts for lower-cost cards or other forms of payment.

Merchants already have the right to refuse acceptance of cards from an entire payment network, of course. American Express and Discover for example, aren’t as widely accepted as Visa and MasterCard. But Visa and MasterCard are so universal that merchants generally agree to the companies’ terms.

The American Bankers Association said in a statement that it’s examining the potential impact of the settlement on banks’ ability to offer products customers want, such as rewards programs. Peter Garucci, an ABA spokesman, said it has the potential to impact the rewards banks offer on credit cards.

Q: Didn’t the overhaul of the financial regulations address this issue?

A: Yes, but different aspects of it. Under the new regulations signed into law in July, merchants will be allowed to require a $10 minimum purchase for credit card purchases. Many smaller merchants already set such minimums anyway in violation of the rules.

In addition, the Federal Reserve will issue the new rules in the spring regarding the fees merchants have to pay on debit cards. And merchants will be able to give discounts for payment with cash, check or debit card.

Talk to us

More in Herald Business Journal

Members of Gravitics' team and U.S. Rep. Rick Larsen stand in front of a mockup of a space module interior on Thursday, August 17, 2023 at Gravitics' Marysville facility. Left to right: Mark Tiner, government affairs representative; Jiral Shah, business development; U.S. Rep. Rick Larsen; Mike DeRosa, marketing; Scott Macklin, lead engineer. (Gravitics.)
Marysville startup prepares for space — the financial frontier

Gravitics is building space station module prototypes to one day house space travelers and researchers.

Orca Mobility designer Mike Lowell, left, and CEO Bill Messing at their office on Wednesday, Aug. 16, 2023 in Granite Falls, Washington. (Olivia Vanni / The Herald)
Could a Granite Falls startup’s three-wheeler revolutionize delivery?

Orca Mobility’s battery-powered, three-wheel truck is built on a motorcycle frame. Now, they aim to make it self-driving.

Catherine Robinweiler leads the class during a lab session at Edmonds College on April 29, 2021. (Kevin Clark / The Herald)
Grant aids apprenticeship program in Mukilteo and elsewhere

A $5.6 million U.S. Department of Labor grant will boost apprenticeships for special education teachers and nurses.

Peoples Bank is placing piggy banks with $30 around Washington starting Aug. 1.
(Peoples Bank)
Peoples Bank grant program seeks proposals from nonprofits

Peoples Bank offers up to $35,000 in Impact Grants aimed at helping communities. Applications due Sept. 15.

Workers build the first all-electric commuter plane, the Eviation Alice, at Eviation's plant on Wednesday, Sept. 8, 2021 in Arlington, Washington.  (Andy Bronson / The Herald)
Arlington’s Eviation selects Seattle firm to configure production plane

TLG Aerospace chosen to configure Eviation Aircraft’s all-electric commuter plane for mass production.

Jim Simpson leans on Blue Ray III, one of his designs, in his shop on Friday, August 25, 2023, in Clinton, Washington. (Ryan Berry / The Herald)
Whidbey Island master mechanic building dream car from “Speed Racer”

Jim Simpson, 68, of Clinton, is using his knowledge of sports cars to assemble his own Mach Five.

An Amazon worker transfers and organizes items at the new PAE2 Amazon Fulfillment Center on Thursday, Sept. 14, 2023, in Arlington, Washington. (Ryan Berry / The Herald)
Amazon cuts ribbon on colossal $355M fulfillment center in Arlington

At 2.8 million square feet, the facility is the largest of its kind in Washington. It can hold 40 million “units” of inventory.

A computer rendering of the North Creek Commerce Center industrial park in development at 18712 Bothell-Everett Highway. (Kidder Mathews)
Developer breaks ground on new Bothell industrial park

The North Creek Commerce Center on Bothell Everett Highway will provide warehouse and office space in three buildings.

Dan Bates / The Herald
Funko president, Brian Mariotti is excited about the growth that has led his company to need a 62,000 square foot facility in Lynnwood.
Photo Taken: 102312
Former Funko CEO resigns from the Everett company

Brian Mariotti resigned Sept. 1, six weeks after announcing he was taking a six-month sabbatical from the company.

Cash is used for a purchase at Molly Moon's Ice Cream in Edmonds, Washington on Wednesday, Aug. 30, 2023. (Annie Barker / The Herald)
Paper or plastic? Snohomish County may require businesses to take cash

County Council member Nate Nehring proposed an ordinance to ban cashless sales under $200. He hopes cities will follow suit.

A crowd begins to form before a large reception for the opening of Fisherman Jack’s at the Port of Everett on Wednesday, August 30, 2023, in Everett, Washington. (Ryan Berry / The Herald)
Seafood with a view: Fisherman Jack’s opens at Port of Everett

“The port is booming!” The new restaurant is the first to open on “restaurant row” at the port’s Waterfront Place.

Tanner Mock begins unwrapping new furniture that has been delivered on Thursday, Aug. 24, 2023 in Everett, Washington. (Olivia Vanni / The Herald)
In Everett, new look, new name for mainstay Behar’s Furniture

Conlin’s Furniture, based in South Dakota, bought the huge store and celebrates with a grand opening this week.