New Study: Credit Card Rewards Won’t Be Lost to Swipe Fee Bill Passage

WASHINGTON, D.C. — New research indicates that the passage of the Credit Card Competition Act should have virtually no impact on credit card rewards, and that banks could easily afford to continue offering them.

The bipartisan bill, which was introduced in June, would mandate that retailers in specific transactions have the right to route payments through networks unaffiliated with credit card providers, potentially lowering the swipe fees they would have to pay.

In a paper released last week, global payments consulting firm CMSPI estimated that credit card rewards would be reduced by less than one-tenth of one percent "at most" if the legislation becomes law, according to the Merchants Payments Coalition (MPC).

"This analysis shows the expected savings from competition over swipe fees would have almost no impact at all on credit card rewards and that the card industry has far more than enough profits to make up the difference," said MPC Executive Committee member and NACS General Counsel Doug Kantor. "This is proof that claims that rewards would go away are nothing more than idle threats and scare tactics, the same as they have been in every market around the world where swipe fees have been addressed."

CMSPI estimated earlier this summer that the legislation would save merchants and their customers $15.2 billion a year in the swipe fees banks charge to process credit card transactions. 

The firm noted that the average profit margin for general retail was just under 2.4 percent as of January 2023. By comparison, the money center banks that issue the vast majority of credit cards have an average overall net profit of 27 percent, while Visa and Mastercard — which control more than 80 percent of the market — saw profits last year of 50 percent and 45 percent, respectively.

The card industry has repeatedly threatened to eliminate or reduce rewards in other places that have reduced swipe fees but nevertheless continued to offer them even after reform took effect, with banks in Australia and Europe still offering significant perks, the study showed. 

[Read more: Retail Groups Say Swipe Fees Will Push Easter Holiday Costs Higher]

Meanwhile, without direct competition between payment networks for transaction routing, swipe fees for Visa and Mastercard credit cards rose from an average 2.02 percent in 2010 to 2.24 percent as of 2022, with the amount paid by merchants rising from $26 billion to $93 billion, according to CMSPI.

In addition to lower fees, the Federal Reserve has also stated that many of the potential competing networks have lower rates of fraud than Visa and Mastercard's networks.