NEW YORK — Credit unions may soon be dealing with new interchange challenges as well as new questions from members over their credit cards, especially if a merchant charges a higher price for an item when bought with a CU card versus that from another issuer.
That’s just one potential scenario CU leaders could face in the wake of a proposed settlement by Visa and Mastercard in a long-running legal dispute with merchants and retailers over how much they charge merchants to accept their cards.
Specifically, the settlement could directly affect how customers use their Visa- and Mastercard-issued credit cards, and may result in some consumers getting denied at the point-of-sale for purchases.
It will likely also affect points programs.
As the CU Daily reported here, Visa and Mastercard have been in litigation with a class-action group of merchants for nearly 20 years over the costs they impose on merchants to use their payment networks. Among other issues, the settlement addresses the “honor all cards” rule, which states that if a merchant accepts Visa or Mastercard as a form of payment, they are required to accept all iterations of Visa and Mastercard products, regardless of who issues it and the cost to the merchant.
Tiered Pricing?
That decision could usher in a new era of tiered pricing at the register, giving businesses more power to charge fees depending on the credit card the customer uses, noted analysts.
The settlement could also change that practice by allowing merchants to pick and choose which categories of cards to accept within a network.
“Analysts say the groupings are broad enough that merchants are unlikely to start refusing any one of the categories, including those that offer rewards,” reported the Wall Street Journal, citing an analysis by TD Cowen. “The categories would lump in midmarket cards with more premium cards, meaning they would get blocked together.”
The report added, “A more likely outcome is that people will start to see more fees, according to analysts. Some merchants already tack on small fees when customers pay with a credit card instead of cash, but those tend to apply broadly across credit cards.”
‘A Step Further’
The Wall Street Journal said the settlement would even go a step further, allowing different surcharges depending on the category the card falls into. A basic, no-frills credit card, for instance, might come with a surcharge of 2.5% of the transaction amount, versus 3% for a rewards card, the report added
The settlement would require banks to add clear visual markers to cards to help consumers and merchants determine what category a card falls into, but that could take years to update, analysts said.
While adding a surcharge would help merchants offset their costs, but it also risks alienating customers, according to the Journal, citing a recent survey commissioned by TD Cowen that found roughly two-thirds of consumers would switch payment methods if faced with a 3% to 4% surcharge.
Interchange Reduction
The settlement also requires an average 0.1 percentage-point reduction in interchange fees phased in over five years.
Credit unions and their trade groups, along with the banking industry has long argued that limiting interchange fees would threaten rewards for consumers, a point frequently made in opposing the Credit Card Competition Act.
“Analysts, however, say that the reductions spelled out in the settlement aren’t enough to result in sweeping changes to card rewards or annual fees,” the Wall Street Journal said. “That means the travel points, cash-back bonuses, and lounge access that have come to define rewards and premium cards are likely to stay put.”
