V/MC Steering Antitrust Settlement, A Win for Big Retail?

The proposed settlement agreement between Visa and MasterCard and the Justice Department allows merchants to offer discounts or other incentives for paying with credit or debit cards with lower processing fees.

Merchants would be allowed to:

  • Offer consumers an immediate discount or rebate for using a particular credit card network, low-cost card within that network or other form of payment.
  • Express a preference for the use of one credit card network or form of payment over another.
  • Promote a particular credit card network, card or other form of payment through posted information or other communication with customers.
  • Communicate to consumers the cost incurred by a merchant when they use a particular credit card network, type of card or other form of payment.

The first rule of the proposed settlement states:

[Allow merchants to] offer consumers an immediate discount or rebate or a free or discounted product or service for using a particular credit card network, low-cost card within that network or other form of payment

This means that merchants will be able to offer a discount for using lower-priced card or a debit card rather than a charge for using a rewards card or a credit card. It remains to be seen if this type of discounting is likely to sway a cardholder from using a rewards card. A 1-2% savings off a price that the cardholder is already prepared to pay vs points, miles, etc. or a cash back reward that may even be higher than 2%. It seems likely that most cardholders will just stick with the rewards program they already know and use.

As in all recent credit and debit card regulatory attempts, larger merchants will have the most to gain because they can combine this discount with their own loyalty scheme or credit card that they issue themselves, offering for example double points or double savings for using a Walmart or Target Visa/Mastercard. The larger retailers could make this a card with very high interchange (which they will pay to themselves) and very high value rewards (that are the most rewarding when spent at Walmart and Target).

Smaller merchants are likely to be at a disadvantage. They are in a constant battle for customers against the larger retailers, so setting payment hurdles higher is likely to just make sales lower. Smaller merchants could even see higher processing fees if high interchange retailer-issued rewards card proliferate.

Smaller merchants don't have the ability to recognise and reward customers in a meaningful way either due to purchase frequency or the running costs around a loyalty solution, but in theory they do get some relief with this provision:

[Allow merchants to] communicate to consumers the cost incurred by the merchant when a consumer uses a particular credit card network, type of card within that network, or other form of payment.

This tugging on the heart strings for a small mom and pop store is likely to be more motivating than any discount on other payment mechanisms. However, it puts the small merchant in the uncomfortable position of essentially complaining to their customer about how they are spending money in their store, rather than thanking the cardholder for choosing to spend there.