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Scott: $90 billion dollars a year is at stake. That’s the amount retailers pay in credit card “swipe fees.” Could your credit card travel rewards be at risk over this bigger trend?
Kroger is the 2nd largest retailer in the US behind only Wal-Mart. So when Kroger makes a move, see if the industry follows.
Many readers ask us variations of questions like, “I love traveling using credit card points — but how do these credit card companies afford this when I pay all my bills on time?” To understand, you need to know how credit card companies make money.
You know Visa, MasterCard, American Express and others make money off interest payments. But not everyone realizes they also earn revenue each time you use your card for a purchase. These are sometimes called “swipe fees.”
You don’t pay these — the retailer does. It costs Kroger and other retailers a percentage of your purchase each time you use a credit card.
Kroger is livid over what they believe is Visa’s greed. Kroger has already decided to stop accepting Visa credit cards at 21 stores and 5 fuel centers at its Foods Co. Supermarkets division in California.
Bloomberg News quoted Kroger spokesperson Chris Hjelm, “It’s pretty clear we need to move down this path, and if we have to expand that beyond Foods Co., we’re prepared to take that step. When the amount retailers pay in card fees gets out of alignment, as we believe it is now, we don’t believe we have a choice but to use whatever mechanism possible to get it back in alignment.”
Visa says it’s trying to work out a solution with Kroger.
Retailer Trend to Watch
1. You might recall that in 2016, Costco (the nation’s 3rd-largest retailer) stopped accepting American Express in favor of exclusivity with Visa. In part, this was due to lower swipe fees. And they created the Costco Anywhere Visa credit card.
2. Visa and MasterCard have been accused of collusion with banks like Bank of America to keep the swipe fees where they want them. There’s an antitrust lawsuit with merchants that, according to various news outlets such as the Wall Street Journal, is about to be settled in favor of merchants for approximately $6.5 billion.
3. In March 2018, American Express announced it’s sharply reducing its swipe fees in order to gain more acceptance at merchants.
How Does This Impact Miles and Points?
If Kroger successfully negotiates a lower swipe fee for itself, Visa makes less money and so might the banks aligned with them, such as Chase.
Chase Ultimate Rewards points are our favorite travel points currency because of ease of use, flexibility, and value. I’ve had my Chase Sapphire Preferred® Card for years and use it all the time to earn and burn points for travel. We strongly recommend it as the #1 credit card for those of you starting out in the travel points hobby.
Our “Big Travel with Small Money” hobby thrives when banks compete for us as customers by offering us generous travel points programs. Banks don’t make money from us off interest payments — because that is rule #1 for us — always pay your bills in full and on time or else it’ll negate the value of your points! Instead they profit from us, because as a group, we use credit cards for nearly every purchase instead of cash or debit cards.
And many of us are OK with paying credit card annual fees because we know how to get much more value back in travel.
If this does ignite a swipe fee war between major retailers and the credit card companies, we’ll watch carefully to see if the banks pull back on generous award programs and report our findings.
In any case, our hobby isn’t going anywhere! Credit card miles and points have been around for a LONG time and Million Mile Secrets has been making it easy for you to figure out how to use your miles since 2011. But the details DO change — sometimes they get better for us and sometimes there are dry spells.
That’s why our advice is always to enjoy your miles — do NOT hoard them for years and years. And when you see a fantastic travel credit card offer that can make your dream trip come true — get it. Because it’s not promised to stick around forever.