How Will the Future of Credit Cards Affect Me?

Credit cards are changing. Rewards cards are offering more perks, but since retailers hate them, they may drastically change in the coming years.

Rewards cards have been driving the market for years, but those clients who learned how to manipulate the system were able to garner terrific benefits such as being able to travel around the world on their bonus points. Other popular benefits are cash back and hotel stays. Unfortunately, high bonus points for signing up for rewards cards are diminishing.

Personal Credit Cards
At the frenzy’s peak, JPMorgan’s Chase Sapphire card offered 100,000 bonus points. Now, the Sapphire Preferred card offers 60,000 bonus points. Banks are looking into ways to reduce the up-front bonus points and to limit the use of rewards. As merchants challenge the swipe fees, which run up to 3 percent on the highest rewards cards, banks are trying to find a good balance point to make the cards sustainable. Two methods are lowering bonus points and encouraging consumers to use the cards more.

The largest credit card networks, Visa and MasterCard, are under increasing pressure from merchants to share more of their interchange fees, which are the fees the merchants pay the banks when clients use their credit card. Processing fees paid by banks to the networks are also going up. The cost of goods and services consumers pay ranges from 1 percent to 2.5 percent, since these fees are passed on to the consumer. Consumers often pay these fees whether they pay with cash or card and they don’t generally notice this small cost, but the merchants do. When multiplied over their entire operation, the fees add up to considerable sums; and merchants want a larger share of the pie.

In reality, there is little that the small merchants can do about these fees. Bigger players such as Amazon, Walmart and Costco are negotiating to reduce the fees and to have a larger percentage of the fee. Merchants such as Amazon, Target and Home Depot are fighting over the right to decide which cards they will or won’t accept in their stores. Several lawsuits are pending regarding credit cards and their pricing policies.

Merchants would like the option to pick and choose the cards they accept. However, banks and card networks fear that this would upset the customer who wants to use any card anywhere. Even the Supreme Court has weighed in on this issue, stating that American Express company policy that prevents merchants from offering customers discounts and other benefits to pay with cheaper cards is legal if the merchant accepts AmEx.

Business Credit Cards
To the uninitiated, business credit cards may appear to be the same as personal credit cards. They offer sign-up bonuses, rewards and fees, but there are some substantial differences you need to be aware of. The major difference is that the card usually has a personal guarantee clause that states you are personally responsible for the debt even if your business fails. The application will most likely show up on your personal credit report. After all, the lender wants to be sure you are financially sound before issuing you a credit card.

The card is not covered by the Credit Card Act of 2009. The issuer may offer this protection as a courtesy, but it is not required by law to do so. As a small business owner, your net profit may be on a smaller scale. When your income increases, it may be time to request a corporate credit card, which would offer more protection against personal financial liability.

Deciding what business credit card can be daunting, but it will pay off if you carefully analyze what each card offers. If your business has lots of travel involved, you might want to go for the cards that offer travel rewards such as the different airline cards, perhaps CitiBusiness AAdvantage Platinum Select World MasterCard for American flyers or Southwest Rapid Rewards Premier Business Credit Card for Southwest Flyers. If your expenses aren’t in travel, consider a card that offers flat-rate rewards such as Chase Ink Business Preferred Credit Card. These are not endorsements; choose the card that works for you.

To get the best out of your business credit card, always use it to pay for business purchases. Know when your introductory APR ends, especially if you were able to get a card with 0 percent APR. To be sure you qualify for the sign-up bonus, keep up with the amount you have spent. Your card will help you track fees and interest for your tax return if the card is used only for business.
The ins and outs of credit cards, business credit cards, bonuses, rewards, and APR fees are just one more task for the individual or small business owner. Yet, those rewards make it all worthwhile. ■

Sources: wsj.com, nerdwallet.com and thepointsguy.com.