The Top 500 apparel chain plans to expand its reserve online, pick up in store program, as well as its presence in China.
Credit card rules change
Visa and MasterCard will allow rebates to consumers who use lower-cost payment forms.
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Topics: Allen Weinberg, American Express Co., BetterBuyDesign, credit card, Debit card, Eastern District of New York, Glenbrook Partners, Mallory Duncan, Mastercard Inc., National Retail Federation, no-reward card, online payments, reward card, Seve Mott, U.S. Justice Department, Visa Inc.
Visa Inc. and MasterCard Inc. agreed today to allow retailers to offer rebates to consumers who use a lower-cost payment form, for example, a debit card instead of a credit card, or a credit card that does not offer rewards and thus does not cost the merchant as much to accept.
The two big card brands announced they were making the changes as part of a settlement of a lawsuit filed today in federal court by the U.S. Department of Justice against Visa, MasterCard and American Express Co. American Express refused to settle and say it will contest the lawsuit.
It remains to be seen how much online retailers will benefit from this settlement.
Payments consultant Steve Mott of BetterBuyDesign says it will free online retailers to accept payment options such as PIN-debit should such systems gain traction, and will open up competition in the burgeoning field of mobile payments.
“More choices and more competition is a very good thing for all merchants,” Mott says.
But Allen Weinberg of Glenbrook Partners, another payment consulting firm, is skeptical that many online retailers will find it worthwhile to steer a shopper to a lower-cost card, at least for a single purchase. The exception might be when a shopper has a card on file with a web merchant and makes repeat purchases—in that case, Weinberg says, the retailer might realize meaningful cost savings by encouraging the consumer to put a lower-cost card into her wallet on the retailer’s site.
That’s because it costs an online retailer substantially more to accept a card that offers the cardholder significant rewards, such as Visa’s Signature Preferred card, than a no-reward card. For online retailers, the difference between the two is 60 basis points, or 0.6%, which means a merchant would pay 60 cents less on a $100 web transaction to accept a plain-vanilla card versus a rewards card.
But in most cases merchants won’t want to take the risk that the consumer will be confused about what the retailer is asking for and abandon the transaction, agrees Jason Pavona, executive vice president of product sales and marketing for Litle & Co., a processor for online and other direct-to-consumer retailers. “Are you really going to ask a consumer to figure out what type of card you’re asking them to use, without someone walking them through it?” Pavona says. “Merchants want someone to check out as soon as possible.”
Today’s settlement goes beyond provisions in a law signed this summer that prohibits card companies from prohibiting merchants from offering discounts for cash, check or debit cards, but did not address credit cards, the National Retail Federation, a retailer trade association, noted today in welcoming the settlement.
“Allowing merchants to offer a discount for lower-cost forms of payment will begin to inject competition into the credit card market, a step that the card companies have resisted for far too long,” says Mallory Duncan, senior vice president and general counsel of NRF.
The settlement is subject to the approval of a federal court. But Visa says it will not enforce its current rules while the court reviews the settlement, effectively opening the door for retailers to offer discounts now. The settlement does not allow merchants to charge consumers more for using credit cards. MasterCard says the settlement is consistent with MasterCard’s longstanding practice “and will require MasterCard only to modify its rules to more specifically conform to its business practices.”
Credit cards remain a dominant form of payment online. All 500 of the retailers in the Internet Retailer Top 500 accept MasterCard, while 498 accept Visa and 487 American Express.
American Express says it refused to join in the settlement because the agreement will give an unfair advantage to Visa and MasterCard. Those two brands charge merchant interchange fees that are lower than those of American Express.
“American Express, the choice of higher-spending card members, partners with merchants who want to build business among these customers,” American Express said in a statement.
The Justice Department filed the civil antitrust lawsuit against Visa, MasterCard and American Express today in the Eastern District of New York. The attorneys general of seven states joined the suit. The Justice Department says the card brands and the banks that issue their cards collect $35 billion in fees each year from retailers.