Some Merchants Want to Reject Rewards Credit Cards
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What news highlights open the episode and set the economic context?
With your money briefing, I'm J.R. Whalen at The Wall Street Journal in New York. Who doesn't love the perks from credit card rewards programs? Well, it turns out some big retailers and store chains would just as well do away with them. We'll explain why in a moment. First, these money and market stories you should know. Consumers' outlook on the U.S. economy improved further in September as a strong economy and robust job growth bolstered Americans' consumer sentiment. The conference board, which measures how consumers feel, expects the historically high levels of confidence to continue and will result in continued healthy consumer spending. which will be welcome news for retailers as they prepare for the holiday season.
And the Wall Street Journal real estate desk reports a Beverly Hills estate that was prominently featured in the movie The Godfather and has been on and off the market for at least a decade is back on the market, this time for $135 million.
Why are big retailers like Amazon and Target questioning rewards credit cards?
The estate is known as the Beverly House, and the elaborate Spanish colonial-style mansion was featured in The Godfather in a scene in which an enemy of Vito Corleone finds a severed head of a horse in his bed. In real life, it was owned at one point by newspaper magnate William Randolph Hearst. The property has six different structures, totally 50,000 square feet, including the Hearst property, which dates back to 1927, and a seven-bedroom house and a second parcel. There are more than 20 bedrooms and suites, depending upon the use of the rooms. The property also has a near-Olympic-sized swimming pool, a lighted tennis court, two screening rooms, a commercial-grade kitchen, and a and terraces to accommodate 400 or more people for a seated dinner.
We've all done it, built up points and rewards from using credit cards. But while consumers can make out with some sweet discounts or vacations as a result, lots of merchants would rather reject the use of some of the most generous credit cards tied to rewards programs. And Wall Street Journal reporter Anna Maria Andriotis is here to explain why. So, Anna Maria, we're not talking about small merchants up and down Main Street that have fallen out of favor with some of these credit cards. We're talking about large merchants like Amazon, Target, and Home Depot, and it comes down to fees involved.
As U.S. consumers increasingly transition from paying... for things with cash to paying for more of the purchases with credit cards and debit cards, the merchants are looking at the fees that they're incurring and becoming increasingly bothered by them. In particular, on the credit card front, because over the past decade or so, rewards programs on credit cards have become a lot more commonplace. It's so rare for consumers nowadays to not be carrying rewards credit cards in their wallets, especially people with good credit.
It's the theme of the advertising, essentially.
Right. So it's become this sort of thing that's expected now by consumers. that their banks are going to give them not only rewards, but generous rewards. And in the last, in particular, five, six years or so, there's also been this increase in these premium cards, which are like the top of the top. There are these credit cards with high annual fees for cardholders, but in exchange, the cardholders get really big sort of perks in terms of airfare, hotel stays, travel reimbursement, access to Exclusive events. Well, a big way that all of these perks are being paid for is the interchange fee, this fee that merchants have been incurring for decades. They pay when people use their cards to shop. And the fees are set by the card network's Visa and MasterCard.
And the money that the merchants are paying, the fees are going to the banks.
So I guess this is the old adage, there's no such thing as a free lunch. The money has to come from somewhere.
Exactly.
So many retailers have an issue with the honor all cards rule. What is that?
One of the longest standing rules in the credit card sector in place by Visa and MasterCard has been that if you merchant...
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