Know the rates you’re paying for rewards cards

In 2018, sixty-eight percent of consumers ranked rewards as the most attractive feature of their credit cards, this according to TSYS’ most recent U.S. Consumer Payment study.1 Indeed wide swaths of the buying public love their so-called rewards cards, which are credit cards that offer one or more incentives or rewards for using them, like airline miles, hotel points, or cash back.  

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Know the rates you’re paying for rewards cards

Jan 28, 2019

Know the rates you’re paying for rewards cards

In 2018, sixty-eight percent of consumers ranked rewards as the most attractive feature of their credit cards, this according to TSYS’ most recent U.S. Consumer Payment study.1 Indeed wide swaths of the buying public love their so-called rewards cards, which are credit cards that offer one or more incentives or rewards for using them, like airline miles, hotel points, or cash back.

In fact, there’s a whole community of people who self-identify as “travel hackers”—people who go to great lengths to maximize their points and miles in an effort to earn free flights, free hotel rooms, and free rental car days. One of their preferred tactics is to apply for and utilize as many reward credit cards as possible, to take advantage of the frequently generous sign-up bonuses.

Anyway, the bottom line is that there are a lot of reward credit cards out there in the world, so much so that it’s been described as a golden age for credit card rewards. As a merchant, how does this affect you? Well, one can argue that there are both positive and negative ramifications for small- and medium-sized business owners.

On the plus side, rewards cards can drive customers to your door, as the benefits incentivize card holders to make purchases, sometimes in an effort to meet minimum spend requirements that trigger the aforementioned sign-up bonuses. On the downside, you might be getting charged a higher rate for accepting a rewards card as compared to a non-rewards card, so those cards might be costing you a bit more.

To take a step back a second, there are a lot of factors that typically go into how much you are charged for credit card processing, including: how a transaction is processed (card present or card not present), the amount being charged, and the type of business you’re engaged in.

Moreover, the rate being charged for a particular card is determined, in part, by the risk to the card issuer. For example, a PIN-based debit card—where the money is immediately debited from the customer’s account—presents less of a risk to the issuer than a rewards credit card or business card. So as a merchant, you are typically charged less for accepting the debit card.

But because rewards cards are so common you want to make sure that you’re being charged reasonable rates on these cards. (This is especially true if have a business frequented by frequent travelers, who are especially likely to utilize rewards cards.)

Right about now you might be asking yourself: How do I know if a credit card is a rewards card? The answer is: you probably don’t. There are hundreds of different credit cards out there in the world and it wouldn’t be practical to try to identify which cards are which.

Moreover, even if you could identify the rewards cards, would you risk alienating a paying customer by telling him or her you’d prefer if they paid with another card? Or that you’d prefer they use another form of payment? That’s a dicey proposition, especially in the face of someone who really wants the rewards their rewards card provides.

But what you can do is find out how you are being charged for rewards cards—and what rates you are paying on those cards. From there you can discern whether you’re paying competitive rates, or whether you might do better with another processor.

Of course, there is more that goes into choosing a merchant account provider than rates alone. For example, some processors provide many more value-added services—like assistance with PCI compliance, 24/7/365 customer service, and help with implementing cutting-edge payments technologies. And, of course, you want to beware of any prospective provider who offers rates that seem too good to be true. Chances are those rates will increase dramatically after a short introductory period, or there are hidden fees that will become self-evident after you’re up and running.

Have questions about rewards cards? Want to learn more about how TSYS can help you get more competitive rates on rewards cards? Give us a call at 1.888.845.9457.

1 A Closer Look at Existing & Emerging Payments, published by TSYS, https://www.tsys.com/2017uspaymentstudy/#Rewards

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