Clark Warns Major Changes To Credit Card Rewards Are Coming Soon

Did you know major changes are coming for the way credit card processing fees are handled in America?

And, as a result, the way you think about earning credit card rewards could change forever.

Credit card processors Visa and MasterCard recently reached a $30 billion dollar settlement on an antitrust lawsuit that accused the payment giants of charging inflated “swipe fees” to merchants.

As a part of the settlement, there are some new rules that will allow merchants to have more control over the transaction process.

Money expert Clark Howard is an avid credit card user with several rewards cards in his wallet. But he says these changes could disrupt that rewards earnings system as soon as this summer.

“We’re going to be in a whole different era of potential complexity,” Clark says. “And I know this is weird, but I’m actually in favor of it.”

Clark discussed these changes on a recent episode of The Clark Howard Podcast. In this article, we’ll walk through why Clark is embracing the changes, take a look at what you should anticipate and evaluate how to potentially move forward.

---

Merchants May Soon Charge Customers Varying Fees for Credit Cards

Before we dive too deep into things, let’s start with the basics: Every time you swipe your credit card, the merchant (or business) that facilitated that purchase will owe a fee to the processor of that transaction.

Usually, these transactions are processed with cards branded as Visa or MasterCard. Those companies typically charge the businesses a flat “per transaction” rate with a percentage of the transaction tacked on as a fee as well. But the percentage charges for handling those transactions can vary based on the type of credit card that is used.

So, for example, Visa might charge a higher interchange fee if a customer uses a high-dollar annual fee credit card than it does if you use a debit card. The transaction has traditionally cost the same for the customer either way, but the merchant was feeling the pain of your card choice.

The fallout of the settlement includes a cap on what MasterCard and Visa can charge merchants for their interchange fees over the next few years, as well as some increased merchant control over the transactions.

One of those levers of control is the ability to offer discounts or impose surcharges on credit cards based on their interchange fees.

You could start seeing these variable fees at the point of sale as soon as this summer.

Clark says merchant-imposed variable fees could result in “at the register” decisions on which credit card to use.

“When these start appearing, [we] are going to have to pay attention,” Clark says. “We’ve seen this for a while with like school websites or government websites where you go to pay a bill and it’ll say: ‘You want to use this credit card? It’s 2.7%. Or this one’s 1.8%.’ So we’ve already experienced some in our lives with the online bills that we’re paying for different things. But now it may migrate to being just part of routine, everyday life.”

---

Credit Card Rewards Programs Could Complicate Things

If merchants decide to set variable processing fees based on the type of credit card you swipe, you’re going to have some potentially confusing decisions ahead.

This is especially true for credit card points enthusiasts who may carry several rewards credit cards in their wallets.

Clark says that the high-end travel rewards cards with big annual fees, high-end rewards offerings and elaborate lists of benefits are the cards that are most likely to carry a higher processing fee. It’s ultimately going to lead to a value decision.

“You’ll have to make a choice,” Clark says. “Is it worth it for you to get those Chase or Capital One or American Express points from one of their premium cards?

“Are you going to be willing to pay 2 or 3% extra to use that card versus another card you have with a 1% fee or a debit card that might be free to use?”

It’s still “to be determined” if individual merchants will decide to implement variable fees and, if they do, how much they’ll charge.

But Clark says that it’s fair to start pondering the usefulness of some rewards cards like the co-branded airline cards under this new fees structure. They usually cost you money with an annual fee. And with rewards that are typically geared toward travel, he says it’s hard to see a scenario where they’re the best choice for everyday purchases.

“The only time it would even marginally be worth it is if you’re close to the next level of whatever airline status and you’ve just got to do a little more credit card charging to get to it,” Clark says. “Maybe you can justify the cost against the benefit. But everyday use? No way.”

---

Clark Says This May Encourage Innovation in the Space

Is it weird that Clark is actually in favor of these changes? After all, he’s the kind of consumer who maximizes credit card rewards on every purchase he makes.

But he says the setup we’ve been operating under simply isn’t fair to merchants. Payment processors have been forcing them to subsidize these rewards programs by paying higher fees on your choice of credit card.

And rather than sit back and take that hit, merchants now will be able to do something to encourage consumers to use a lower fee card at the register.

Clark says that’s not necessarily just to pass the costs along to consumers.

These changes could lead to some consumer-friendly innovations in the credit card space. The kind of changes that could actually save you money on certain transactions in the long run.

“There will be other business models that emerge,” Clark says. “It is not beyond reason that we might have big retailers that come out with their own payment platform.”

Clark used Amazon and Walmart as examples of retailers who could develop some sort of payment portal that lowers processing fees (or even avoid them altogether) when you to make purchases with them.

“These are the kinds of things that can happen if you let the free market work,” Clark says. “You let experimentation come forward.”

---

Are you worried about how these processing fee changes could impact your credit card rewards? We’d love to hear your thoughts in the Clark.com community.