The Truth Behind Rewards Cards and Credit Card Transaction Fees
Updated: Sep 14
MERCHANT ACCOUNT SECRETS REVEALED – ONLINE SERIES – PART 4
Have you ever seen a commercial where VISA or MasterCard encourages the viewer to get a credit card that they can use to get frequent flyer miles or cash back or diner’s club rewards? Of course, you have. These are the infamous Rewards cards. Customers love them. The dark side is that there is little benefit to the business owners who have no control over which card is presented to them. Why is that?
Simply because customers use these cards so they can earn money or rewards while spending money. It's a great way to get something for free by simply putting the purchase on plastic. The problem is that the merchants are the ones who have to pay higher credit card transaction fees for accepting card types. Consider: The standard swiped MasterCard credit card has an interchange rate of 1.58%, while the MasterCard World Rewards version of the same card is 1.73%. If a merchant is on a tiered model, that card will fall under the Mid-Qualified or Non-Qualified category rather than the lowest discount rate. If you accept credit cards for your business, what would happen if all your customers decide to use rewards cards instead? The super-low discount rate would mean nothing to you as no card would qualify.
Why do Visa and MasterCard charge more for these cards? Notice the following statement by MasterCard in the document entitled Interchange and the Payments Industry – Facts Sheet as of 2009 on page 3:
“By providing incentives for card issuers, interchange encourages banks to innovate and develop new payment options, broaden the range of card programs available to consumers and invest in cutting-edge security and fraud prevention measures. Interchange helps to spur new types of card programs to meet different consumer needs and a wide variety of payment card reward and incentive programs that help people get more out of every dollar they spend. Moreover, these programs incent card usage, which ultimately benefits merchants.”
In other words, they need to be able to pay out those special rewards to the customers to keep them using their credit cards to earn rewards. In reality, the merchant is the one who pays the customers those frequent flyer miles or cash back when they use these cards. But there is not too much you can do to counteract this. Sure, it doesn’t sound fair, but you cannot refuse to accept rewards cards and you need to accept credit cards to establish your business as customer-friendly and convenient.
WHAT YOU CAN DO TO LOWER CREDIT CARD TRANSACTION FEES?
Since Rewards cards are here to stay, just ensure you get the best deal for your business to minimize your fees as much as possible. Indeed, Rewards cards are gaining a foothold in the industry! Therefore, make sure your merchant account is set to have Rewards cards fall under the Mid-Qualified rate rather than the Non-Qualified rate, or even better: get Interchange-Plus pricing! TO BE CONTINUED IN PART 5