5 ms·

It has been asserted elsewhere in this HN discussion that Visa charges merchants higher amounts for transactions with higher-end rewards cards. Assuming this i

It has been asserted elsewhere in this HN discussion that Visa charges merchants higher amounts for transactions with higher-end rewards cards. Assuming this is true, and these anti-steering provisions prevent merchants from discriminating, what prevents Visa from issuing cards with 200% fees? What's holding the cash back level at a mere 1-2%?

spiznnx 8y ago
I'm speculating that if that happened, we'd see more stories like this one.
so33 8y ago
Competition with MasterCard, Discover, and Amex should hold them back from doing this, because at such punitive rates merchants would definitely stop accepting them. I believe Amex is only able to get away with its highest-in-the-industry rates because of the association of Amex cards with business expense accounts and high income earners. This is changing now (https://www.ft.com/content/715d785e-23fc-11e8-ae48-60d3531b7d11 https://www.ft.com/content/715d785e-23fc-11e8-ae48-60d3531b7...) especially after years of competition from banks like Chase, who have been working on creating what is essentially a structural clone of American Express’ network (https://www.reuters.com/article/us-jpmorganchase-creditcards-insight/jpmorgan-uses-its-might-to-cut-costs-in-credit-card-market-idUSKCN0R80B620150908 https://www.reuters.com/article/us-jpmorganchase-creditcards...).
- jackweirdy 8y ago
  Some of the Amex fee changes will likely have been as a result of a nudge from the EU ruling that includes their double-branded cards (e.g. British Airways AmEx) in the 0.3% fee cap in Europe which previously only affected visa and MasterCard.
zmk_ 8y ago
In Europe at least, this would be regulation. There are max amounts on fees.
endorphone 8y ago
Everyone would immediately stop taking all Visas. They charge what they can get away with, and generally they can, or rather could, get away with the higher rates. A couple of percentage points was worth it if it made the sale, especially if there was a high likelihood that your customer only had that one method of payment. Now almost everyone has multiple cards, and many retailers are pushed to much lower margins, so we see the results that we see.
stevesimmons 8y ago
Visa actually does that from time to time, though not to the degree you suggest :). Here is one example from Australia, where 15 years ago I worked on credit card pricing and product design... When Platinum cards were introduced to Australia, the banks agreed to a high interchange rate for Platinum and an offsetting reduction in interchange on other cards. I forget the exact interchange rates; they were on the order of 150bp (1.5%) and 50bp, giving a weighted average around the then regulatory cap of 65bp. My bank was ready for this, so we moved most of our high-spending customers to Platinum ("in recognition of their status") and reaped a windfall from the higher interchange. Part of that was used to fund more loyalty rewards on Platinum. But most was pure profit... Over time, regulators got wise to this, and reduced the overall interchange rates to the minimum (possibly 35bp in Australia now). Essentially in Australia it is enough to covers the scheme running costs and disputes/fraud. Loyalty has to be funded in other ways (annual fees, cross-subsidies from other customer revenue, points caps, reduce value of points, making it harder for customers to redeem points, etc). This means customers in shops are no longer paying the cost of loyalty schemes even if they pay with cash. (Amex operates under slightly different rules from Visa and MasterCard because the legal relationship between the merchant, scheme, issuing and acquiring banks and customer is not the same. That is why Amex can often offer better rewards that Visa/MC in regulated markets like Australia, UK and Europe)

spiznnx 8y ago

I'm speculating that if that happened, we'd see more stories like this one.

so33 8y ago

Competition with MasterCard, Discover, and Amex should hold them back from doing this, because at such punitive rates merchants would definitely stop accepting them. I believe Amex is only able to get away with its highest-in-the-industry rates because of the association of Amex cards with business expense accounts and high income earners. This is changing now (https://www.ft.com/content/715d785e-23fc-11e8-ae48-60d3531b7d11 https://www.ft.com/content/715d785e-23fc-11e8-ae48-60d3531b7...) especially after years of competition from banks like Chase, who have been working on creating what is essentially a structural clone of American Express’ network (https://www.reuters.com/article/us-jpmorganchase-creditcards-insight/jpmorgan-uses-its-might-to-cut-costs-in-credit-card-market-idUSKCN0R80B620150908 https://www.reuters.com/article/us-jpmorganchase-creditcards...).

jackweirdy 8y ago
Some of the Amex fee changes will likely have been as a result of a nudge from the EU ruling that includes their double-branded cards (e.g. British Airways AmEx) in the 0.3% fee cap in Europe which previously only affected visa and MasterCard.

zmk_ 8y ago

In Europe at least, this would be regulation. There are max amounts on fees.

endorphone 8y ago

Everyone would immediately stop taking all Visas. They charge what they can get away with, and generally they can, or rather could, get away with the higher rates. A couple of percentage points was worth it if it made the sale, especially if there was a high likelihood that your customer only had that one method of payment. Now almost everyone has multiple cards, and many retailers are pushed to much lower margins, so we see the results that we see.

stevesimmons 8y ago

Visa actually does that from time to time, though not to the degree you suggest :). Here is one example from Australia, where 15 years ago I worked on credit card pricing and product design... When Platinum cards were introduced to Australia, the banks agreed to a high interchange rate for Platinum and an offsetting reduction in interchange on other cards. I forget the exact interchange rates; they were on the order of 150bp (1.5%) and 50bp, giving a weighted average around the then regulatory cap of 65bp. My bank was ready for this, so we moved most of our high-spending customers to Platinum ("in recognition of their status") and reaped a windfall from the higher interchange. Part of that was used to fund more loyalty rewards on Platinum. But most was pure profit... Over time, regulators got wise to this, and reduced the overall interchange rates to the minimum (possibly 35bp in Australia now). Essentially in Australia it is enough to covers the scheme running costs and disputes/fraud. Loyalty has to be funded in other ways (annual fees, cross-subsidies from other customer revenue, points caps, reduce value of points, making it harder for customers to redeem points, etc). This means customers in shops are no longer paying the cost of loyalty schemes even if they pay with cash. (Amex operates under slightly different rules from Visa and MasterCard because the legal relationship between the merchant, scheme, issuing and acquiring banks and customer is not the same. That is why Amex can often offer better rewards that Visa/MC in regulated markets like Australia, UK and Europe)