Target May Reject Rewards Credit Cards

The Wall Street Journal this morning (Sept. 25) reports that Target and other large merchants including Amazon.com and Home Depot Inc. are pushing for the right to reject some rewards credit cards, which typically carry higher fees for merchants. [Verbatim] They are likely to opt out of a roughly $6.2 billion settlement Visa, Mastercard and several large banks recently reached with merchants and continue to make their case in court, according to people familiar with the matter.

The retailers are trying to end the card networks’ “honor all cards” rule, which requires merchants that accept Visa- or Mastercard-branded credit cards to take all of them. If merchants could pick and choose among Visa or Mastercard credit cards, those with the highest merchant fees—and most generous rewards—likely would be on the chopping block.

The stakes are high all around. Rewards credit cards are wildly popular among consumers for their perks like cash back, airfare and hotel stays. Some 92% of all U.S. credit-card purchase volume is currently charged on rewards credit cards, up from 86% in 2013 and 67% in 2008, according to estimates from Mercator Advisory Group Inc., a payments research and consulting firm.

Yet merchants say rewards credit cards are cutting into their profits. When shoppers pay with Visa or Mastercard credit cards, merchants are charged interchange fees that are set by the card networks and funneled to the banks that issued those cards. These “swipe” fees are higher on rewards credit cards—sometimes around 3% of the cardholder’s purchase price.

Here’s the full story.