AMEX loses lawsuit on not joining industry agreement

[go_FICO_self]

---

@yfan wrote:

---

@go_FICO_self wrote:

that's a possible guess!

but again your bolded statemeant is like saying: we know that 4% swipe fees don't translate to more rewards than 3% swipe fees. that means 2% swipe fees won't lead to lower rewards either. but that's clearly not the case.

---

This actually makes a few assumptions that are not in evidence: First, that swype fees are now 3%, that they will go down to 2%, and that each individual's swype fee has to cover that individual's rewards. We don't know any of those to be the case.

We don't know how much the swype fees will go down as a result of these rulings. Remember that even a tiny reduction for each swype can add up to major savings for merchants given the volumes of transactions, without seriously affecting reward:swype ratios. In the above example, the swype fees may well go from 3% to 2.9% rather than all the way down to 2%.

Also, an issuer has sources of income other than the swype fee for each individual. If you only use 5% categories on a card and PIF, then your rewards clearly outweigh the swype fees collected currently, and the issuer has to compensate - and is able to compensate because others will use it for non-bonus categories and/or carry a balance, giving them interest income. Let's be clear here: the high level of rewards are possible in part because a huge number of customers either don't use the cards to their full bonus potential or carry balances. That happens right now, and I expect it will continue to happen. And if it suddenly stops, it will mean that more people are being responsible with their credit, which is an overall good thing.

---

it's just an example. my point is that your argument "because higher fees don't lead to more rewards, means lower fees won't lessen rewards" doesn't hold water.

as for interest fees, and not lowering rewards: we know by now, that the no fee unlimited 2% card is not sustainable. how many 2% cards have come and went? and there's only 2 out there now - fidelity amex, thanks to amex's fees, and even they make a decision yearly whether they'll continue it. and citi double which has just been introduced, so the jury is still out. no amoutn of interest fees has been able to overcome the difference. so if the fees go down, the base level unlimited reward will most likely go down!

so come to think of it, maybe the category bonuses will stay (though capped!), but the baseline will go back down.

[yfan]

---

@go_FICO_self wrote:

it's just an example. my point is that your argument "because higher fees don't lead to more rewards, means lower fees won't lessen rewards" doesn't hold water.

---

Sure it does. Just because one can imagine one scenario where the rule may not hold doesn't mean that it hasn't been holding in the real world now and that it won't in the future. My point is that your example extrapolates to an end that isn't likely to happen.

---

@go_FICO_self wrote:

as for interest fees, and not lowering rewards: we know by now, that the no fee unlimited 2% card is not sustainable. how many 2% cards have come and went? and there's only 2 out there now - fidelity amex, thanks to amex's fees, and even they make a decision yearly whether they'll continue it. and citi double which has just been introduced, so the jury is still out. no amoutn of interest fees has been able to overcome the difference. so if the fees go down, the base level unlimited reward will most likely go down!

---

Lol, you can't in one instance use the current market as your guide and then refuse to acknowledge its other indication that a lower swype fee hasn't necessarily meant lower reward, yet. That is selective reasoning. We'll see what happens to the Double Cash, but the fact of the matter is that 2% cards aren't the only ones to get nerfed. Plenty of others do too, which indicates it's more than just the swype fees dictating the terms - it's the whole business of the card - what it's bringing in total (swype, interest, AF if there is one) vs. what is going out (rewards, benefits).

[go_FICO_self]

---

Sure it does. Just because one can imagine one scenario where the rule may not hold doesn't mean that it hasn't been holding in the real world now and that it won't in the future. My point is that your example extrapolates to an end that isn't likely to happen.

---

i'm saying your argument is not logically consistent. but ok, i'll bite... how come it isn't likely to happen?

---

Lol, you can't in one instance use the current market as your guide and then refuse to acknowledge its other indication that a lower swype fee hasn't necessarily meant lower reward, yet. That is selective reasoning. We'll see what happens to the Double Cash, but the fact of the matter is that 2% cards aren't the only ones to get nerfed. Plenty of others do too, which indicates it's more than just the swype fees dictating the terms - it's the whole business of the card - what it's bringing in total (swype, interest, AF if there is one) vs. what is going out (rewards, benefits).

---

you can't just complicate things and then throw up your hands and say, "look, it's complicated! I give up!" this is why i specifically looked an unrestricted no-AF 2% card. as i tried to extract simply from swipe fees vs interest fees. there's no strategic shopping, no this and that. and historically, 2% cards are not sustainable. that is, the interest rate alone is not enough to cover for the margin between swipe fee and 2%. and guess what will happen if that margin gets smaller?

[yfan]

---

@go_FICO_self wrote:

i'm saying your argument is not logically consistent. but ok, i'll bite... how come it isn't likely to happen?

---

Because merchants aren't the only people with market power here. Issuers and payment networks hold a tremendous amount of market power, with may have been tempered by these rulings but not evaporated by them, because they are the payment method of choice for customers. Networks can simply say "Okay, don't accept our cards, we'll see what the customers want" just like merchants can say "Okay, we will offer discounts to someone not using your cards". So merchants are not likely to just be able to command rates. Perhaps the issuers and networks are less able to command now too, but they are by no means powerless.

---

@go_FICO_self wrote:

i specifically looked an unrestricted no-AF 2% card. as i tried to extract simply from swipe fees vs interest fees. there's no strategic shopping, no this and that. and historically, 2% cards are not sustainable. that is, the interest rate alone is not enough to cover for the margin between swipe fee and 2%. and guess what will happen if that margin gets smaller?

---

Oh but there is strategic shopping, and there is this and that. Because the 2% card is not the only card one likely holds, and as such one may well be using it only when they cannot get a better rate on other cards - or a 0% intro card for a big purchase to avoid interest. But yes, if the product as a whole isn't profitable, it will be nerfed. What I am saying though is that not being sustainable is not ONLY an issue for the 2% cards. It happens to others too and you simply cannot ascribe a single reasoning to them (swype fees) while you can't to others.

[go_FICO_self]

Re 1st: I thought you had an actual example or knew a case. But if it's theoretical, as I said it's not logically consistent. It's not a simple linear extrapolation, as by your argument just because lower fees means no less or better rewards, then 0 swipe fees should also mean no reduction in rewards. Right? I mean where does it stop? Re 2nd: right, it's the default after you maximize your other cards. But to the card issuer there's no strategy which bonus categories to pick, how much to set them, what's the cap etc. every purchase come at the same rate. So it's purely driven by swipe fees and interest fees. And if the interest fees are not sufficient, it's nerfed. For the other cards, the bonus category is strictly higher than swipe fees and so abuse or overcharging leads t nerfing. In this case it doesn't matter how much is charged on the card if the overall pattern fits a sound business strategy. Btw, how do you do those nice lines? Can't figure out.

[yfan]

---

@go_FICO_self wrote:
Re 1st: I thought you had an actual example or knew a case. But if it's theoretical, as I said it's not logically consistent. It's not a simple linear extrapolation, as by your argument just because lower fees means no less or better rewards, then 0 swipe fees should also mean no reduction in rewards. Right?

---

Wrong. I said what we see with current data in current market condition. Of course at some point that stops working - heck, even the law of gravity stops working at some point (true fact, physics). You are the one extrapolating it to the absurd - or are assuming the absurd will happen just because of these rulings. I am saying that's the logically inconsistent thing. Payment processors and issuers retain plenty of market power.

---

But to the card issuer there's no strategy which bonus categories to pick, how much to set them, what's the cap etc. every purchase come at the same rate. So it's purely driven by swipe fees and interest fees. And if the interest fees are not sufficient, it's nerfed. For the other cards, the bonus category is strictly higher than swipe fees and so abuse or overcharging leads t nerfing. In this case it doesn't matter how much is charged on the card if the overall pattern fits a sound business strategy.

---

All cards' sustainability is driven by swype fees and interest fees; having a constant rewards rate is irrelevant to that. Just as with bonus category cards, selective buying leads to nerfing, so does a constant rewards card. Because the swype fees are not the same at every merchant or for every type of transaction. Certain merchants, like travel, restaurants etc. pay higher fees, online transactions also typically cost higher fees in the form of card-not-present, and if you are not using the constant rewards card for those, then the issuer is in fact getting a smaller fee overall. If the merchant paid 3% and the card gave you 2%, they are making money from the swype. But if the merchant paid 2%, they are not. This is why I'm saying that fixed rewards rate cards are not exempt from the nerf of selective spending but very much victim to it.

---

Btw, how do you do those nice lines? Can't figure out.

---

Haha, I just do the quote, and take out the parts I'm not responding to.

[go_FICO_self]

If thinking cards will get nerfed is absurd then count me as absurd. Anyways, we're going around in circles, so let's agree to disagree.

[Open123]

---

@go_FICO_self wrote:
If thinking cards will get nerfed is absurd then count me as absurd. Anyways, we're going around in circles, so let's agree to disagree.

---

While consumers may not lose, they certainly will not benefit.  

This only serves to increase Merchants leverage during negotiations and potentially allow them a higher profit margin.  I've never known of or heard of Merchants passing the savings to their customers, and I certainly don't take umbrage with free enterprise.

As always, they do what they do, and I'll do what I'll do.  For example, in SF some restaurants charge a 4% health tax.  What do we customers do?  Just deduct it from our original tip; so, instead of 20%, it's 15%.  Don't like it?  I suggest servers complain to (1) their bosses, or (2) legislators.

Same principle whenever a Merchant tries to dicate what payment I should use.

[go_FICO_self]

In the end the consumers might very well come out ahead. With lower fees the product prices might come down. This is after all, what the government purports and that's why they're going after Amex. But that doesn't mean the rewards will stay the same. So consumers get lesser price but also lesser reward. So I don't think the rewards will stay the same, but I don't think the consumers will be hurt by it.

[Revelate]

---

@yfan wrote:

---

@go_FICO_self wrote:

i'm saying your argument is not logically consistent. but ok, i'll bite... how come it isn't likely to happen?

---

Because merchants aren't the only people with market power here. Issuers and payment networks hold a tremendous amount of market power, with may have been tempered by these rulings but not evaporated by them, because they are the payment method of choice for customers. Networks can simply say "Okay, don't accept our cards, we'll see what the customers want" just like merchants can say "Okay, we will offer discounts to someone not using your cards". So merchants are not likely to just be able to command rates. Perhaps the issuers and networks are less able to command now too, but they are by no means powerless.

---

I think the networks lose on that one, and they likely know it.

I know I'm an observer of one but I've noticed the vast majority of people carry some amount of cash in easily accessible proximity for the times they wind up going somewhere that doesn't take credit cards at all.

Generally speaking humans are creatures of habit and payment form really doesn't factor as relevant for the overwhelming majority of Americans: certain diehards / loyalists to a rewards program (Amex MR as the obvious example) might change their behaviors on it if they're just talking themselves, but many of us are unwilling to be the jackass that says "no we're not eating here, they won't take my Amex" when we're in a group situation.  I think this applies to more than just restaurants easily, like I'm going to tell my theoretical wife on some legit expense no over 1-2% in the margins of my financial life?  Doubtful, in the extreme.