WSJ: Potential new legislation to add competition to credit card networks

[Anonymalous]

The Wall Street Journal discusses potential new legislation that could require larger banks to enable a second network for processing credit cards, allowing merchants to choose whether to send a transaction over the card's network (like VISA or MasterCard), or over the alternative network, creating competition and potentially lowering fees. This is similar to the Durbin Amendment that created alternative networks for debit cards in 2010, though unlike that bill, the new proposal doesn't have interchange fee caps. This is a response to interchange fees rising, and the pressure on merchants, and could ultimately gut rewards programs. Also has a basic summary of how the payment networks work, and the fees along the way.

https://www.youtube.com/watch?v=Z1dgvwpxud8

Earlier articles:

https://www.wsj.com/articles/winners-and-losers-from-card-fee-proposal-are-hard-to-figure-1165952744...

https://www.wsj.com/articles/senate-bill-takes-aim-at-visa-mastercard-credit-card-fees-11658941614

[gdale6]

Gut reward programs, never going to happen as use of CCs would plummet. For many of us its the game that keeps the banks issuing cards.

[Anonymalous]

If the law gets passed, they won't have a choice. Not to mention, people who maximize their rewards are a tiny minority. I think we're living in a golden age of credit card rewards, but I'm not sure it's sustainable.

[Lou-natic]

It's sustainable (mostly) as long as the Government stays out of it. Generally if a program isn't sustainable it gets changed, nerfed, or dropped altogether. If a program is changed for the worse or nerfed dramatically people generally will stop particpating and move on.

The problem here is that the Government is getting complaints from business owners that (generally) love their CC rewards (I think a good number of us here know this or at least should) but despise the customers that want to benefit from the same because "it cost us money". CompletelyConveniently forgetting that they control the prices of the goods they sell. If credit cards add 5% to your cost, raise prices 5%. That's how it works. Almost everything in America is commoditized to the extreme which can make this difficult...that means that there is too much supply and not enough demand though. Which means someone has to be the loser. But instead they run to the Government to prop things up...but it's really just a band-aid on a gushing wound so whatever. The whole thing stinks but Government is going to Government until it all comes crashing down.

[Anonymalous]

I don't think an argument based on the idea that businesses despise their customers is a good one.

Consumers do like their credit card rewards, and I think for a lot of people the convenience factor of paying with plastic is even more important. But do they really benefit? Credit cards, via rewards and obfuscating away the pain of parting with money, are designed to encourage consumers to spend more, and to rack up debt. Some consumers do benefit, if they use their cards responsibility. They gain a small percentage of rewards, and other advantages like zero liability. And tiny percentage can get outsize benefit by churning or using specialized benefits like travel rewards. But most end up buying more than they would have otherwise, and paying interest on debt, so it's a net loss to consumers as a whole.

The primary beneficiaries of credit cards are the payment networks, banks, and retailers. And I think saying this is one side running to the government is a bit misleading. It's a highly regulated industry. All sides have run to the government many, many times. It's a continual tug of war, not a case where one side is innocent and the other is unfairly trying to get the government to give them favors.

And like most legislation, it's mostly designed to address a special interest group, rather than to benefit their broader constituency. The likely tanking of rewards if it does pass is probably more a side effect than anything.