Originally Posted by
tmiw
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.
The surcharge doesn't net the issuer that much money. Let's take an example of my earlier 1.85% + $0.10 on a services transaction on a non-preferred Visa signature, and your 1% surcharge.
Without surcharge: $100 charge, 1.85% of $100 USD is $1.85, + 10 cents is $1.95.
With 1% surcharge: $100 charge, $1 surcharge, $1.85% of $101 USD is $1.8685 USD, round to $1.87, plus ten cents, $1.97 swipe fee.
If the issuer awards at the same rate - let's say 2% everyday spend for the sake of argument - then yeah, it's 2 cents rounding up, thus equal-ish for the merchant, but I'm taking a 1% hit on the chin to get net 1%. I'm making ~$1 instead of ~$2 in rewards. The issuer doesn't have incentive to increase rewards rates drastically because their net did not drastically change.
Originally Posted by
tmiw
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).
It's not something I would personally love, but I view it more favorably than secondary network requirements that just lead to hellish unintended consequences like Amex/Discover being given a huge blank check on the credit market if the CCCA passes.