Goliath vs Goliath: Retailers & Banks

It’s Amazon vs MasterCard

One possible change would be that high-end Visa and Mastercard rewards cards could become more like American Express: accepted at fewer retailers. But another likely effect is retailers, especially giant retailers like Amazon, would gain more leverage to negotiate down the fees they pay to accept premium cards.

If that happens, banks may have to cut back the generosity of rewards programs to adjust to lower transaction-fee income.

That’s what happened after Australia capped credit-card interchange fees in 2003: Merchants’ costs to process cards fell sharply, as did the generosity of rewards paid to credit-card holders. Annual credit card fees went up.

Philip Lowe, then an economist at the Reserve Bank of Australia and now its head, said he was “confident that these lower costs will flow through into lower prices for goods and services,” estimating they would lower consumer prices overall by 0.1 or 0.2 percent.

I am more sympathetic to the retailers position, though the ones they list (Amazon, Target, Home Depot) don’t exactly inspire me. But a lot of retailers aren’t those big shots. This seems like a bit of an extension of the question of whether retailers can do a surcharge. All of this rides on the scarcity of card providers.

Which actually makes me wonder if the biggest of the big, like Amazon and Walmart, can’t at some point circumvent the credit card companies altogether. Feel free to tell me in the comments why that is so off-base.

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3 thoughts on “Goliath vs Goliath: Retailers & Banks

  1. I could totally see some place like Wal-Mart going to their own proprietary payment system, and maybe even offering a pittance of a discount for using it at first. But then going to “use our app or don’t shop here”

    I heard on the news that near Dallas a Wal-mart is opening where pay-by-app is the ONLY option – no cash, no checks, no credit cards. We will all be assimilated eventually.

    (The store has no cashiers but apparently an at-least-minimal human presence, for when the inevitable technological fish-ups happen. Though given my record with self-check-out, I would not expect buying stuff at a store like that to ever go smoothly for me)

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  2. I’ve only read the quoted portion and not the whole article, so maybe this point is made there. But I suspect one contributing factor for rewards programs now and in the last, say, 10 years, is the low rate of inflation, so that the cards are a way of giving (some) consumers a loan with a “negative” interest rate.

    I’m not sure how well my theory holds out, and I’m not accountant or economist. And of course, the merchant fees (and interest for later than grace period payments) are an important money maker for cards.

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