I don't think their rewards system is as valuable on you might think. When the cost of visa transactions are ultimately pushed to the consumer (~3%), they will eventually realize, those rewards are not worth the cost.
Off course, this will probably take some time. But in my opinion, Visa's moat is thin and mostly reliant on the behavior of their users. For US, I expect Visa to still be dominant, but not so much in other countries in Europe and Asia where people are much more savvy with their money habits.
Visanet takes 0.1-0.2%, the rest goes to issuing banks to handle loyalty programs and loan origination and servicing. The value to merchants is a roughly 20% increase in average ticket size for card transactions, not having to handle risks associated with cash and crypto (theft and fraud respectively).
For what it’s worth the bulk of the spread between processing fees and origination is returned to customers in North America, certainly in the US with 2% cash back no annual fees like the Citi Double Cash.
In Europe interchange is capped at 0.2% for debit and 0.3% for credit and has been since 2015. I’m not sure off hand but I believe Australia has interchange caps too.
> I’m not sure off hand but I believe Australia has interchange caps too.
Australia had interchange caps since around 2006, with several subsequent changes forcing the rates even lower.
I was head of portfolio management for one of the big Aussie credit card companies at the time. Lower interchange fundamentally changed how loyalty products got funded. Annual fees for rewards programs had to be increased. The benefits were cut. High spenders were encouraged to move to products which still attracted higher interchange, etc, etc.
> they will eventually realize, those rewards are not worth the cost.
Debit cards in the US have been available and basically free to use for all merchants and purchasers for many decades. Yet, merchants willingly do not give people that buy with a debit card a discount. That seems like proof to me that merchants are betting that they earn more money from the use of credit cards, even after the fees associated with them, so I don’t see why another no or low fee purchase mechanism would change the situation.
Yes, but that’s a small amount of all transactions. And small business restaurants/shops might do the same, but I don’t see any major business or retailer going with a discount strategy for debit cards.
And you can get a minimum 2% cash back on no fee cards, so unless the discount is at least that much, I don’t see a reason to not use a credit card.
Not only is that not true, it's against the terms of service of credit card companies for a business to do that.
You might only see them in gas stations, but it is much more likely that those are the local businesses you go to the most, since those are the ones working around the credit card merchant contracts.
No, it’s not. It is not against the terms and conditions of any credit card network in the US for a merchant to offer a cash discount. Terms of service which prohibit that are illegal under 15 USC 1666f [1]. This changed a number of years ago (more than 5 but less than 10, I don’t recall which year, but I was working in the payments space at the time [edit it was the FBCA in 2013]).
For what it’s worth I believe cash discounts have never been against terms of service, specifically what was, were credit card surcharges, minimum transaction sizes and various other forms of discrimination against credit.
So they can’t have a surcharge, but they can just raise everything 10¢/gal then “discount” cash purchases. It’s the same thing, so why is one illegal but not the other?
Not to mention that many government services charge an outrageously large “processing fee” (in the multiple dollar amount) for card purchases. They literally would rather I write them a check and go in person than just go online and use a card. How does that work with the law you cited?
> So they can’t have a surcharge, but they can just raise everything 10¢/gal then “discount” cash purchases. It’s the same thing, so why is one illegal but not the other?
That was the case prior to 1666f. Now, both "credit surcharges" and "cash discounts" are permitted.
It was just a perspective thing, card brands didn't want to have cards feel "disadvantaged" relative to cash. Instead they had cash "advantaged" related to credit. It was never illegal to do either, this change just rendered terms of service which included them unenforceable.
The costs are all already pushed to the consumer. We just don't see it, because it was impossible to see the extra 1-5% gradually added to the cost of everything as inflation also lifted prices higher.
Off course, this will probably take some time. But in my opinion, Visa's moat is thin and mostly reliant on the behavior of their users. For US, I expect Visa to still be dominant, but not so much in other countries in Europe and Asia where people are much more savvy with their money habits.