Credit Card Swipe Fees Are Going Down. Are Points Going With Them?

The largest credit card companies in the United States reached an agreement with merchants this past week to reduce the so-called swipe fees retailers pay for accepting credit card payments, potentially saving the retailers $30 billion.

These fees also help fund the credit card rewards programs that many travelers redeem for things like free flights and hotel stays, leading points hawks to wonder: Are loyalty programs at risk?

Here’s what we know so far about the changes.

Sign up for The Morning newsletter from the New York Times

What are the terms of the deal?

Last year, credit card payments generated an estimated $72 billion in fees paid by merchants, which are generally passed along to customers in the form of higher prices. For nearly 20 years, merchants have been seeking reductions in the fees they pay Visa and Mastercard for handling transactions where the cards are used.

The proposed settlement, awaiting approval in a federal court, reduces and caps those fees for five years. It would also allow merchants to potentially charge consumers more based on the card they pay with. For example, a person paying with a premium card like the Chase Sapphire Reserve, which costs $550 a year, could be charged more than someone paying with the more basic Chase Sapphire Preferred card, with an annual fee of $95.

Why does it matter?

The majority of the fees collected go back to the banks that issue the credit cards. Those banks have used the funds to push premium credit cards that offer loyalty points, which can be redeemed for free travel and other perks. The cards with the biggest benefits tend to be those that charge higher swipe fees.

While the reduction in the fees collected sounds small — averaging at least 0.07% — they represent an estimated $30 billion over the five-year term of the deal, which banks could try to make up by reducing points perks.

“It’s reasonable to think that,” said Brian Kelly, founder of the Points Guy, a news site devoted to maximizing credit card points.

While he speculated that banks will be able to “find other ways to make up the difference,” he acknowledged that a points squeeze could emerge.

“Opportunities to earn probably aren’t going to flourish,” he said.

The idea that merchants could charge more to the holders of premium, perks-rich cards, which are expensive, might also deter consumers from using them. Some experts question the viability of the practice given the potential for consumer backlash.

Is the new agreement related to the Credit Card Competition Act?

The legal actions that led to the new credit card agreement date back to 2005. But the newer Credit Card Competition Act, proposed in 2023, aims to introduce more competition in the credit card payment system. By creating a cheaper alternative pipeline for processing payments, the proposed legislation is seen as a greater threat to rewards programs.

Responding to the just-announced agreement between the credit card companies and retailers, Sen. Dick Durbin, D-Ill., the lead sponsor of the Credit Card Competition Act, released a statement urging the act’s passage.

“I fear that this deal only provides temporary concessions negotiated by a few lawyers behind closed doors,” he said in the statement.

Other experts said the agreement may ease the pressure on Congress to pass the act.

“I think it’s a way for Visa and Mastercard to show that they are making a good-faith effort to help out merchants by lowering the fees they’ve been complaining about for 20 years, and hopefully enough to let senators know they’re doing their part,” said Chris Hassan, social media and brand manager for Upgraded Points, a website that tracks credit card benefits.

Separately, the proposed merger between Capital One and Discover, which is pending federal approval, could introduce more competition among credit cards and potentially improve rewards for holders of those cards.

What should I do now?

The points and payments systems won’t change until the agreement is approved, which is expected in late 2024 or early 2025, according to a news release from Mastercard.

But the topic should remind travelers of the reality of playing with points: The rules always change. Values tend to fall as redemption levels rise, which companies issuing these currencies are free to adjust at will.

If you have points, spend them, say experts like Sara Rathner, a travel and credit card specialist at the financial website NerdWallet. “They’re not a trophy to dust and admire.”

c.2024 The New York Times Company