Merchants Could Soon Reject Rewards Credit Cards — But Will They?

A settlement between merchants and Visa and Mastercard would give businesses the power to reject certain types of credit cards — including the ones that give us airline miles, hotel points, cashback, and transferrable points.

To be clear, this isn’t the proposed legislation that a couple of the clowns in Congress introduced a few times during the past several years.

Per the Wall Street Journal (subscription required), this stems from a dispute in the mid-aughts. Here’s the super-condensed version:

• Merchants threw a hissy about the fees Visa and Mastercard charged per transaction.
• The settlement would divide credit cards into different tiers, each with different rates.
• Rewards cards charge higher rates than non-rewards cards. That’s not too surprising.
• Merchants could pick and choose which card tiers they accept.
• If merchants don’t want to accept rewards cards, you’ll have to use a credit card with no rewards, a debit card, or pay cash. (Or if you’re in the Midwest, pay by check. 😉 )

Again, that’s the gist. Gary Leff, who’s actually a finance guy, wrote a great piece that goes into more detail.

But here’s the thing: would merchants stop accepting rewards cards?

Whenever I’m out and about, I love spotting which credit cards people use to pay. I’m seeing far fewer debit cards than in the past — and way more rewards cards.

Rejecting rewards cards would be bad news for many businesses (at least, I think so). Companies that continue accepting rewards cards could use that to promote their business (think: “Shop here with your rewards credit cards!”)

I could see merchants adding credit card surcharges, just like many gas stations do.

Heck, plenty of restaurants bake in surcharges for staff members’ benefits (uh huh, sure) and gratuity. What’s another 3 or 4%, right? (Restaurants are becoming the new budget airlines of the world. Here’s a fee for this. Here’s a fee for that…)

In fact, a friend of mine in the nightclub industry says a bunch of places already charge a fees for credit card payments.

If we see fees on credit card purchases, airline and hotel cards will be pretty bad options. Their points/miles are already worth less than a penny each. (Hyatt and maybe Delta, in very few situations, could be outliers). Flexible points and cashback cards — and maybe the merchants’ cobranded cards, if they don’t charge swipe fees — would be the only ones worth considering.

Merchants will burn that bridge when we come to it.

What’s your take? Please share in the Comments section below!