BACK

Panupat Ratanawechtrakul/iStock/Getty Images Plus

Research and Statistics

Merchants have a big incentive to lure you away from credit cards

Summary

As general market credit cards become costlier to accept, retailers are under pressure to lure cardholders away from premium rewards cards. That could mean discounts for using gift cards, store cards and other payment methods.

The editorial content below is based solely on the objective assessment of our writers and is not driven by advertising dollars. However, we may receive compensation when you click on links to products from our partners. Learn more about our advertising policy.

The content on this page is accurate as of the posting date; however, some of the offers mentioned may have expired. Please see the bank’s website for the most current version of card offers; and please review our list of best credit cards, or use our CardMatch™ tool to find cards matched to your needs.

If you’re looking for a way to save some extra money this year, you may want to check out what your local gas station and other frequently used merchants are doing with their store cards, gift cards and mobile payment apps.

As general market credit cards become costlier to accept, retailers are under increasing pressure to lure cardholders away from using premium rewards cards – which typically charge steep fees that eat into merchants’ profits.

As a result, you may find even sweeter deals and sharper discounts in exchange for using store credit cards, debit cards, gift cards and store-branded payment apps that have been linked to a customer’s checking account – all of which are cheaper to accept.

Credit cards are poised to become even more expensive for merchants to process

The Wall Street Journal reported Feb. 15 that three of the major card networks are planning to hike the credit card processing fees that they charge merchants.

Discover, for example, is planning to increase the amount it charges for certain rewards card transactions. Meanwhile, Visa and Mastercard are planning to hike a number of fees, including the swipe fees they charge to merchants.

That could force some retailers to not only raise prices, but also look for other ways to minimize their costs.

According to the National Retail Federation, card companies currently charge an average of 2 percent for every transaction. Meanwhile, some premium rewards cards cost merchants as much as 4 percent – an amount that retailers say can quickly add up.

Retailers typically pass at least some of these costs onto consumers. For example, the Wall Street Journal reports that merchants increase prices by as much as 1 to 2.5 percent to help cover the costs of processing card payments.

However, if the card networks start charging even larger interchange fees, retailers may feel the need to hike prices even more.

In addition, some retailers may feel a bigger incentive to nudge customers into using alternative forms of payment.

See related: Can a business offer discounts to customers who pay with cash?

A silver lining for consumers: Possibly better deals

One tried and true method that retailers have long used to cut down their processing costs: offer discounts and other incentives to shoppers who use a cheaper form of payment, such as a store card that doesn’t charge any interchange fees or a mobile payment app that’s linked to a checking account rather than a card.

For example, retailers have offered steep discounts for years to consumers who use store-branded credit cards instead of general market cards. Some retailers, such as Target, Lowe’s and Amazon, for example, offer as much as 5 percent back when you use your store card. Others, such as Kohl’s, offer store cash and other special promotions.

Now, according to a recent report in Bloomberg, retailers are increasingly looking to store-branded mobile payment apps to lure customers away from more expensive forms of payment.

For example, the gas station chain Cumberland Farms offers customers a 10 cents-per-gallon discount if they use the chain’s SmartPay app, which can only be funded with a checking account or prepaid NetSpend card.

In a December interview with Bloomberg, Cumberland Farms executive Charles Jarrett said the chain implemented the policy, in part, to cut costs.

“It just doesn’t make financial sense in the convenience store sector at all to pay these interchange fees,” said Jarrett.

Other merchants have also lowered their processing costs by nudging customers toward payment apps, including ones that accept credit cards.

For example, Seth Priebatsch, CEO of the app maker LevelUp, told Bloomberg it helps partnering restaurants negotiate lower credit card processing fees than they would have been able to lobby for themselves. As a result, credit card payments made through the app are cheaper for the restaurant than payments from a physical card.

As card processing fees become steeper, retailers may also look for other ways to steer shoppers toward less expensive payment methods. For example, they may offer special promotions on gift cards. Or they may load their existing offerings – such as their store cards or payment apps – with even better discounts and can’t-beat promotions.

See related: Why not accepting credit cards makes no business sense

The bottom line

It’s too early to tell how merchants will respond to higher processing fees. However, it’s a good bet that many retailers will be on the hunt for creative ways to cut costs.

If you’re looking for ways to minimize expenses, check to see if any of the merchants you frequent most are offering special deals for using their payment apps or store cards.

Compare those savings to what you earn using a rewards card and consider whether it’s worth changing how you pay.

That said, be aware that store cards charge notoriously high interest rates; so if you can’t afford to repay your store card in full, it’s probably not worth the extra savings.

What’s up next?

In Research and Statistics

Can a private preschool charge card convenience fees?

A number of states ban card surcharges. But, depending on the type of business you run and your location, you might be allowed to charge convenience fees or offer cash discounts.

Published: February 25, 2019

See more stories
Credit Card Rate Report Updated: June 19th, 2019
Business
15.61%
Airline
17.54%
Cash Back
17.68%
Reward
17.57%
Student
17.79%

Questions or comments?

Contact us

Editorial corrections policies

Learn more

Join the Discussion

We encourage an active and insightful conversation among our users. Please help us keep our community civil and respectful. For your safety, do not disclose confidential or personal information such as bank account numbers or social security numbers. Anything you post may be disclosed, published, transmitted or reused.

The editorial content on CreditCards.com is not sponsored by any bank or credit card issuer. The journalists in the editorial department are separate from the company’s business operations. The comments posted below are not provided, reviewed or approved by any company mentioned in our editorial content. Additionally, any companies mentioned in the content do not assume responsibility to ensure that all posts and/or questions are answered.