That's a good way of putting it.. "we have to continue playing the game otherwise we lose."
But we didn't create it. Visa and the banks did.
Visa was able to win over so many banks by offering the highest interchange fee. Remember, card network customers are banks, not you, so they're actually competing to raise the fee that merchants pay (interchange) that gets passed back to the bank that issued the card. In a masterful example of leveraging network effects, Visa was able to come up with the highest fee that still had wide acceptance by merchants.
This pissed merchants the hell off. Theoretically it may have increased prices by 2% in general, but it's hard to say. That's part of the "genius" too, it's designed to be a small enough fee to be a rounding error that merchants just eat.
It did have one advantage for consumers: it made Visa accepted absolutely everywhere by further driving its network effects. (And Mastercard too which followed the same model.) As compared to networks like AmEx or Diner's Club, for example.
What happened then is the banks started competing with one another with reward programs. This basically took the margin out of the interchange and returned it to the consumers. But only if they "play the game" and know how to play it well.
So what we're left with is a silly game consumers have to play to get their 2% back, which merchants really hate.
This has been "fixed" through legislation in other countries. Australia for example. But guess what? They did a study and found that merchants did not lower prices. They just kept prices the same and enjoyed an extra 2% margin.
But we didn't create it. Visa and the banks did.
Visa was able to win over so many banks by offering the highest interchange fee. Remember, card network customers are banks, not you, so they're actually competing to raise the fee that merchants pay (interchange) that gets passed back to the bank that issued the card. In a masterful example of leveraging network effects, Visa was able to come up with the highest fee that still had wide acceptance by merchants.
This pissed merchants the hell off. Theoretically it may have increased prices by 2% in general, but it's hard to say. That's part of the "genius" too, it's designed to be a small enough fee to be a rounding error that merchants just eat.
It did have one advantage for consumers: it made Visa accepted absolutely everywhere by further driving its network effects. (And Mastercard too which followed the same model.) As compared to networks like AmEx or Diner's Club, for example.
What happened then is the banks started competing with one another with reward programs. This basically took the margin out of the interchange and returned it to the consumers. But only if they "play the game" and know how to play it well.
So what we're left with is a silly game consumers have to play to get their 2% back, which merchants really hate.
This has been "fixed" through legislation in other countries. Australia for example. But guess what? They did a study and found that merchants did not lower prices. They just kept prices the same and enjoyed an extra 2% margin.