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Who Pays for Reward Card Points, Why and What To Do About It

Not long ago, award travelers had plenty of options for earning points and miles from both credit cards and rewards debit cards. However, debit options have become scarce, and the remaining debit rewards programs aren’t nearly as rewarding as they used to be. Why, you ask?

In 2010 Congress passed the Durbin Amendment which essentially lowered and capped rates on all pin entered debit fees. This caused banks to lose billions in revenue so they retaliated by aggressively promoting the use of credit cards with huge incentives through Rewards programs. Understandably, credit cards are now the preferred form of electronic payments due to rewards incentives. For the first time ever, points issued by a Visa card exceeds American Express.

Almost half of people that opened a rewards card account did so because of a sign on bonus. Yet, eighty five percent said the ongoing features and benefits were most important in their decision.

In the first quarter of 2017 credit card issuers spent $6.2 billion on rewards. Just one year prior, in the first quarter of 2016, $5.1 billion was spent. A twenty two percent growth in only one year. The question is, who pays for the majority of this?

  • The Consumer

  • The Banks

  • Visa / MasterCard / Discover / AMEX

  • The Merchant

The merchant pays through merchant fees which are steadily rising. The largest credit card issuers issued an estimated $110 billion in card rewards from 2010 thru 2016. Rewards credit cards now exceeds the use of common credit cards. The irony? Banks claim merchants have pocketed more than $42 billion in profits since the Durbin amendment was passed in 2010. Really?

So what does this mean for businesses across America? Rates and additional fees will continue to rise more frequently. Business must learn to adjust to these trends to survive.

A solution is to take advantage of what the amendment also allows. Businesses can offer a discount to customers who pay with cash and enforce minimums for credit card transactions (since interchange fees eat up a large portion of small transactions).

So businesses can escape the high cost of accepting credit cards by implementing the Cash Discount program. The Cash Discount program was developed using the legal and regulatory authority provided under the Durbin Amendment.

The Durbin Amendment specifically states, merchants can impose a $10 minimum on credit card transactions and can offer cash discounts at the register for cash purchases. This was previously banned in VISA® and Mastercard® merchant agreements. The Dodd-Frank Bill & The Durbin Amendment are federal law and supersede state & local laws and Visa/ Mastercard regulation.

The Cash Discount concept is based on the cash discount being built into the current price of the merchant’s goods and services. In other words, the posted price for an item in the merchant’s place of business is what the customer will pay if they are using cash or cash equivalent (check, ACH, etc). If the customer is using a credit card, they do not qualify for the cash discount, thereby increasing the cost back to the “original” amount.


How Does a Merchant Benefit?

A merchant benefits from Flat Rate pricing that is offset by the adjustment made at the point of sale.

A merchant would be priced at a Flat Rate of 3.75%. This rate encompasses all discount rates, transaction fees, statements fees, etc. This 3.75% is offset by the customer paying 3.75% more for using her card. This means that the merchant will pay virtually nothing in processing fees on a monthly basis.

Merchants will only pay any monthly or ancillary fees that are associated with the merchant account.

So, a merchant could go from paying hundreds, even thousands of dollars per month in fees, to paying a low flat fee, or a very small percentage of what the normal fees are.


When a merchant chooses to participate in the Cash Discount Program there are a few things they need to do to remain in compliance:

There must be signage displayed at the point of sale and (for brick & mortar) the entrance to the business disclosing that the merchant offers a discount to customers paying with cash.

There must be a separate line item on the customer’s receipt that displays the difference in cost. Cash Discount software automatically adds this separate line to the receipt so the customer can distinguish between the cost of the good or service and the adjustment made as a result of choosing to use their card. 

For more information visit Coastal Payment Systems

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