Mar 15, 2007

Priceless? The cost of credit card merchant restraints

I have never met Adam Levitin, but he keeps coming up with new papers that fit exactly the thought process that Welcome is going through. I stumbled on what appears to be his latest paper while doing a Google search (Priceless? The Social Costs of Credit Card Merchant Restraints). I hadn’t noticed anywhere that the paper had been published.

Who pays for credit card rewards? Merchants of course, through interchange fees. Rewards cards have risen from less than 25% of new card offers in 2001 to nearly 60% in 2005. Two-thirds of all cardholders now have a reward card, up from half in 2002. Rewards cards also make up a disproportionate amount of credit card spending. Eighty percent of credit card transactions in 2005 were made on rewards cards. Because rewards programs are a major component of interchange costs, as rewards programs have grown, so too have interchange fees and hence merchant discount fees.

So far, nothing new for regular readers of my blog, other than lots of facts and figures that add colour and detail to the story that we are familiar with. But Adam now takes the concept further than he has in the past, in an area that coincides exactly with where Welcome is going with our new product, which we haven’t announced yet. I’ll save that for tomorrow’s blog post.

If you're interested in Adam's work, do a search on my blog to see the prior posts.

1 comment:

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