Originally Posted by
phltraveler
I realize I'm way into my diatribe now, but my point is that the card networks are not our friends. I look at this settlement very passively because, as I've stated multiple times, I don't see it changing much. Visa gives a temporary and very small reprieve on interchange rates (4 basis points for three years), which is why a lot of retailers don't like it. What the smarter retailers realize is that basically this doesn't change the status quo, but it ends the lawsuit. Courts are slow as hell. Visa gets to end this lawsuit, get a 5 year reprieve on getting sued over swipe fees, and if they raise them again in five years - the retailers can sue again. Oh no! Except this lawsuit has been going on for 18+ years. If the settlement ends this lawsuit and Visa starts hiking base interchange back up in three years/average overall fees by 7 basis points in five years, Visa can spend the next 15+ years dragging out the next lawsuit.
The one upside for smaller merchants is that they would be able to just surcharge 1% across the board (after dropping AmEx, of course) and call it a day. Any amount extra, especially if it ends up becoming standard practice at most businesses, would be enough to significantly cut credit volume as most people aren't into the rewards game.
The downside is that issuers might end up
increasing rewards to compensate. Meaning that more people may very well decide that paying the extra 1% is worthwhile, thus still costing smaller businesses more money.
Originally Posted by
phltraveler
Some would say that this settlement is an example of why the credit card competition act is needed. Essentially, the oligopoly of Visa/MC/token competition from Amex & Discover is a broken system that doesn't actually compete. The Credit Card Competition Act strikes me (personally) as the worst of both worlds, in that it would exempt Amex and Discover (maybe merged Cap1/Discover if that's allowed to go through) from the secondary network requirement on cards they issued themselves. Especially with a merged Cap1/Discover, these issuers would be too large to realistically drop by merchants, and thus Amex/Discover would have more fat in interchange to offer rewards, but way less competition as Visa/MC issuers have secondary networks and would have to cut rewards rates. Less competition overall on credit card rewards would mean that Amex/Discover would not have to compete as hard, just offer better rewards than the larger Visa/MC issuers (Visa/MC issuers with <$100B assets would be exempt. Rise of the credit union rewards cards?) . Essentially as I see it, the Credit Card Competition Act is a "worst of both worlds".
Ultimately, the only thing that has been shown to actually reduce interchange so far is a hard legally-mandated cap. I don't think we're politically there yet but I can see the US getting to that point eventually if people get fed up enough (even if we don't end up capping to as low levels as the EU).