No. of Recommendations: 6

You wrote, I hope the cap goes through. As a small business person the fees on rewards cards are way to high and I can not refuse to take a rewards card.

Every time I hear or read a post about how wonderful a bank is for offering such a wonderful rewards card I think it should be the business the customer is making the purchases from that should be thanked. They are the ones forced to pay for the reward!

But very few customers know that. And as consumers, should we opt for the lowest cost to the merchant ... or to ourselves?

I hate to say it, but this is an area where capitalism can't possibly work well - the incentives are all wrong. I think there might need to be regulations that require payment processors to charge a single rate based on the type of card used and the fraud risk associated with the merchant, not based on factors the merchant cannot control - like the issuing bank or what type of features the card has. Those items are not services being provided to the merchant and in almost all cases they fail to drive any additional business to the merchant.

I began using credit cards years ago almost exclusively as a payment method because of the rewards. But that benefits mainly myself, the banks and the payment processors - not the merchants. If there were no rewards cards, I would have probably stayed with cash or paid by check. I used to burn through $600/month in cash when I was married with children. Now I probably spend more like $50/month.

Of course these days I value the relative safety of credit cards, so I might be reluctant to carry too much cash or start carrying around my checkbook again. But you can certainly bet I'd start paying at fast food places and restaurants with cash again. I'd also probably switch back to bill-pay for my utility bills. Credit cards would probably be relegated to travel, car rentals, online purchases and large store or restaurant bills.

Eliminating rewards cards - or cutting their incentives enough for me to drop them - would probably make me change about 40% to 50% of my roughly $1,500/month in credit card purchases. (There was a time that would have been more like 80%.) But again, that's just money the credit card banks and payment processors would never get a piece of ... not that I wouldn't spend it. But if that's what it takes to bring a fair playing field for merchants, I'd be fine with it.

- Joel
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