NEW DEBIT CARD REWARDS PROGRAM HURTS MERCHANTS

By Art Lieberman For those readers of my many articles on the costs of processing credit cards, you are already aware of the penalties put on merchants by banks for accepting rewards cards. Banks that issue credit cards to consumers have been offering rewards on credit cards for years. It might have started with American Express, which offered its premiere cards with rewards for many years. Of course there were certain qualifications for a consumer to get these reward cards. First, their credit had to be outstanding and, perhaps even more important, they could not carry a balance. All transaction made during a month had to be paid for, in full, after they received their monthly invoice. In effect, as a cardholder you were getting 30 days’ worth of credit. But on the other end of that transaction, the merchant paid for those rewards because the rates for American Express Cards were almost double the rates of a Visa or MasterCard. Discover cards also offered rewards, but their cardholders could pay out the credit with interest over months. Their rates also were higher to merchants, but since Discover was making interest from cardholders, their rates weren’t that high. Like American Express, Discover also billed merchants separately for accepting their cards. Then, several years ago, it all started to change. American Express offered a BLUE Card, which didn’t require a very high credit standing from their cardholders and they could pay off the credit charges over several months. Discover changed from Novus to its present form and they became part of the standard package of credit cards offered by processors. They also reduced their rates to merchants and they are now compatible with Visa and MasterCard in Interchange rates. American Express also reduced their rates a few years ago and now, although just a little higher, their “Opt Blue” rates are very similar to the other card rates. Now let’s be clear. We have been discussing CREDIT CARDS. Debit cards have been a different matter since their inception. Unquestionably, when a merchant accepts a debit card WITH A PIN-PAD, the rates on the Interchange are the lowest rates available from the card companies. On the Interchange chart, the lists of different debit card transaction fees are very inexpensive. Of course, by the time the actual rate reaches the merchant, those rates have been increased by the banks and sales reps. But, nevertheless, pin debit transactions don’t make processing banks much money – and merchants can just accept a debit card like a credit card and pay higher rates. No pin-pad required. But now, perhaps because banks are starting to realize that the new chip cards transactions are eventually intended to be chip and pin, not chip and signature, they are offering debit card holders REWARDS if they do not use their pin number on a debit card transaction, but rather do a chip and signature transaction instead. That way, they can charge the merchant more – THAT’S YOU! Issuing banks have started to send out notices to debit card holder, which is basically almost all people who have a checking account, that they will receive rewards if they “…sign the receipt. Purchases made using your PIN number do NOT qualify” The notice goes on to say, “Make just 3 signature-based purchases totaling $500 or more on or before December 31, 2016 to earn your award” The rewards are monetary and listed in the notice. This is just wonderful for the banks, who can now charge the higher Interchange rates on the transactions, fabulous for the consumer who can earn cash rewards and terrible, of course for you, since YOU pay the reward. But there is one other implication that should bother you as it bothers me. Signature based transactions are LESS SECURE than PIN debit transactions. It is part of the reason for this entire chip – EMV terminal debacle which continues to baffle us all. Security was the name of this game. Greed is the name of the Debit Rewards program! MCPS is a credit card processor sponsored by Woodforest Bank NA. Company President, Art Lieberman has been in the industry for over 18 years and has been conducting free webinars online and seminars on credit cards in many State and Regional Association Conventions. He can be contacted at 877-858-9010 or at rvcreditcards@yahoo.com.)