Q&A: What the MasterCard, Visa settlements mean for consumers

Breaking down the MasterCard, Visa settlements

NEW YORK — Paying with certain credit cards may soon earn you perks at the register.

Under a settlement with federal regulators announced Monday, Visa and MasterCard agreed to let merchants offer customers discounts and incentives for using a particular type of card.

The settlement lets retailers express preference for a particular card issued by Visa or MasterCard, such as a basic card versus a rewards card, or for cards from another brand such as Discover.

If you’re surprised to learn that merchants care about the cards customers use, you’re not alone. It’s a complicated topic that doesn’t get a lot of attention.

Here are some questions and answers about the case and what it means for consumers.

Q: Why do merchants prefer that customers use a particular credit card?

A: For any credit card purchase, merchants pay a fee to the banks issuing the card. These fees vary depending the type of card that’s used.

Discover cards on average tend to have lower fees, and American Express cards on average have higher fees, said Mallory Duncan, general counsel for the National Retail Federation.

Even within a network such as Visa, there’s variance in the fees merchants pay. Generally, the fees are higher for premium or high-end rewards cards. The higher charges stem from banks needing to spend more money on perks and rewards for those cards.

Merchants tend prefer that customers use debit cards rather than credit cards because they have lower fees.

Q: What does the settlement with the Department of Justice mean?

A: The Justice Department said in its lawsuit that Visa, MasterCard and American Express were trying to insulate themselves from competition with their previous policies.

Although Visa and MasterCard reached a settlement, American Express says it will fight the lawsuit. The company, which tends to cater to a richer clientele, says it doesn’t want its customers’ transactions to be disrupted at the point of sale by being steered toward another form of payment.

American Express also said that the much larger number of Visa and MasterCard credit cards makes it unlikely that merchants would steer customers away from those brands.

Q: What type of incentives might be offered for using a particular card?

A: The first change will likely be that customers will be steered toward an alternative form of payment that bears lower costs for the merchant, such as debit cards or cash, said Duncan of the National Retail Federation.

Eventually, merchants may make more subtle distinctions in stating a preference for more basic credit cards, he said.

“It’s going to evolve over time,” he said.

The incentives may be discounts on purchases or a small perk, such as free delivery or gift wrapping.

It’s still too early to tell how widespread any changes will be, but Duncan said he expects merchants will be eager to offer incentives that defray their costs.

Q: Does this mean merchants will stop accepting rewards and other cards that cost them more?

A: No. Visa and MasterCard can still require merchants that use their payment networks to accept all cards within their brands. But now retailers will be able to offer discounts for lower-cost cards or other forms of payment.

Merchants already have the right to refuse acceptance of cards from an entire payment network, of course. American Express and Discover for example, aren’t as widely accepted as Visa and MasterCard. But Visa and MasterCard are so universal that merchants generally agree to the companies’ terms.

The American Bankers Association said in a statement that it’s examining the potential impact of the settlement on banks’ ability to offer products customers want, such as rewards programs. Peter Garucci, an ABA spokesman, said it has the potential to impact the rewards banks offer on credit cards.

Q: Didn’t the overhaul of the financial regulations address this issue?

A: Yes, but different aspects of it. Under the new regulations signed into law in July, merchants will be allowed to require a $10 minimum purchase for credit card purchases.

Many smaller merchants already set such minimums in violation of their agreements with payment processors.

In addition, the Federal Reserve will issue the new rules in the spring regarding the fees merchants have to pay on debit cards. And merchants will be able to give discounts for payment with cash, check or debit card.