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Americans don’t like all the credit card “tricks and traps” that make them think they’re getting something for free, but they do like their reward points.
This summer, families used these credits to travel nationwide while finding places to stay. Considering that the 20,000 members of the Asian American Hotel Owners Association own 60 percent of U.S. hotels, we know a thing or two about the rewards point system.
That’s why it’s frustrating that American consumers are being misled about credit card reform. One ad claims that the proposed federal bill, the Credit Card Competition Act, would – according to another ad – “kill credit card rewards programs.”
They maliciously proclaim, “Don’t let Congress get away with your credit card rewards.”
We know that this is not the case.
The cross-party legislation has nothing to do with bonus points, but with free competition in the market. Whether in hotels, supermarkets, restaurants or other sectors – a dynamic market with healthy competition helps to keep prices reasonable for consumers. It gives companies incentives to offer better products and services.
The Credit Card Competition Act aims to apply this thinking to the payments industry. More specifically, it requires large banks with over $100 billion in assets to provide a single additional processing network for the cards they issue. In practice, additional competition means that companies have more options for processing customer transactions.
The credit card market is consolidated under the giants Visa and Mastercard, sometimes to the detriment of consumers and small businesses. The “tag team” controls 80 percent of the market and acts as a duopoly – setting the “swipe fees” that banks charge merchants so they don’t compete on price.
“Swipe fees” are fees charged to businesses each time a customer swipes, inserts or taps their credit card to purchase something from a toothbrush to a hotel room.
As unilaterally charged fees for price fixing have skyrocketed, companies have no choice but to factor the inflated fees into their prices. How much money is involved? Visa and Mastercard credit card fees alone totaled over $100 billion last year, and they have tripled since 2010.
These costs are then passed on to consumers in the form of higher prices for everything from guest rooms to groceries. This impacts every family and amplifies the effects of inflation. Thanks to these invisible costs, families end up paying $1,024 more annually.
Despite the banking industry’s scaremongering, credit card reward points will continue to be a big thing if there is competition in the credit card market. An independent fact-checking service found that the credit card industry’s claims that reward points were being harmed were false.
Furthermore, an analysis by a payments industry expert found that the Credit Card Competition Act would impact rewards points by less than one-tenth of 1%. That’s just common sense. The United States has the highest swipe fees in the world, but the rest of the world still has rewards points and airline miles. The excitement that rewards would be negatively impacted is scaremongering.
Other arguments that the law would endanger safety are equally ridiculous.
According to the Federal Reserve, independent payment networks such as Star, Shazam and NYCE – which could compete under this legislation – have a fraud rate that is only one-eighth that of Visa and Mastercard. Increased competition would prompt credit card companies to improve their security even further to attract more customers.
In addition, the bill proactively excludes foreign state-run or controlled networks such as China UnionPay.
The US credit card market needs competition. Small businesses like independent hotels are being crushed by inflationary “swipe fees.” Introducing free market competition into the payment processing space is a strategy to keep costs in check without undermining the reward points or payment security of the credit card.
Extensive rewards programs and secure transactions will continue to be the norm, but lowering credit card fees through competition will be a critical win for everyone.
Laura Lee Blake is president and CEO of the Asian American Hotel Owners Association. She wrote this for InsideSources.com.
