Q&A: What credit-card suit means

NEW YORK - Paying with certain credit cards may soon earn you perks.

Under a settlement with federal regulators announced Monday, Visa and MasterCard agreed to let merchants offer customers discounts and incentives for using a particular type of card.

The settlement lets retailers express preference for a particular card issued by Visa or MasterCard, such as a Visa rewards card, or for cards from another brand such as Discover.

Some questions and answers:

Question: Why do merchants prefer that customers use a particular credit card?

Answer: Because merchants pay a fee to the banks issuing the card, which vary depending on the type of card that's used.

Discover cards on average tend to have lower fees, and American Express cards have higher fees, said Mallory Duncan, general counsel for the National Retail Federation. Even within a network such as Visa, mechants' fees vary.

Merchants generally prefer that customers use debit cards rather than credit cards because they have lower fees.

Q: What does the settlement with the Department of Justice mean?

A: Although Visa and MasterCard reached a settlement, American Express says it will fight the lawsuit and argues that the much larger number of Visa and MasterCard credit cards makes it unlikely that merchants would possibly steer customers away from those brands.

Q: What type of incentives might be offered for using a particular card?

A: The first change will likely be that customers will be steered toward an alternative form of payment that bears lower costs for the merchant, such as debit cards or cash.

Eventually, merchants may make more subtle distinctions in stating a preference for more basic credit cards, Duncan said. Incentives may be discounts on purchases or a small perk, such as free delivery or gift wrapping.

Q: Does this mean merchants will stop accepting cards that cost them more?

A: No. Visa and MasterCard can still require merchants that use their payment networks to accept all cards within their brands. But now retailers will be able to offer discounts for lower-cost cards or other forms of payment. Merchants still have the right to refuse acceptance of cards from an entire payment network, though.

Q: Didn't the financial-regulations overhaul address this?

A: Yes, but different aspects of it. Under the new regulations signed into law in July, merchants will be allowed to require a $10 minimum purchase for credit-card purchases.

by Candice Choi Associated Press Oct. 5, 2010 12:00 AM


Read more: http://www.azcentral.com/business/articles/2010/10/04/20101004biz-creditcards1005side.html#ixzz11wPjpTgx


Q&A: What credit-card suit means