Rewards cards: Consumers Love ‘Em, Retailers Don’t

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Forty to 70 percent of transactions, depending on the region, are made with rewards cards, according to Phil Hinke, founder and president of MerchantFeeSavers, a company that helps small business owners understand processing fees. However, it turns out that it costs a merchant more each time a consumer pays with a rewards card than when a consumer pay with a basic credit card. And that hurts the bottom line of retailers, because reward cards make up the bulk of credit card transactions.

So that small mom-and-pop retailer doesn’t have much love for your rewards card because they are footing the bill for those free airline tickets and other perks. The “small business owner is paying more — not only to use a rewards card — but just to use plastic in general,” and they may actually be getting a worse rate than larger companies.

Rewards cards holders are a valuable group of spenders though, so retailers have the option of trying to steer customers to other forms of payment, or they can be happy the rewards card user is most likely also spending more money.

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Comments (scroll down to add your own):

  1. If retailers don’t like it, they should band together and produce an alternative. It won’t work if they try to be proprietary about it. But if they create something that drastically lowers rates, is usable by all retailers, and then use their contact points with consumers to get the new cards into their hands, they can take on Visa/MC/Amex for sure. *I* certainly can’t, however. Consumers are just dust in the wind in this game. All I can do is decide whether my purchases are going to subsidize card users, or be subsidized *by* non-card users. I’ll get subsidized myself, thanks.

    Comment by Ethan — Sep 12th 2011 @ 11:26 pm

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