By James Kwak
Most provisions of last year’s CARD Act restricting certain types of behavior by credit card issuers go into effect today. Card issuers, of course, are adapting by seeking out new ways to make money. One, pointed out by Felix Salmon, is expanding their usage of rewards cards, since (according to the Times) they get a higher interchange fee on rewards cards than on other cards. (This baffles me, but whatever.) Rewards programs, as it turns out, are subsidized by everyone in the form of higher prices for all goods bought at retail.
Put another way, this is the credit card industry (partially) shifting its sights from consumers, who benefit from (modest) legislative and regulatory protections, to the retailers, who don’t. It’s also what you would expect when you have extremely high concentration among card issuers (and transaction networks) and low concentration among retailers. Perhaps consumers aren’t the only constituency that needs a little protection.