Summary: Merchants Win the Credit Card Wars
http://www.fool.com/how-to-invest/personal-finance/credit/2010/10/07/merchants-win-the-credit-card-wars.aspxThe article that I read was about the credit card war between merchants and credit card companies. At first, credit card companies banned merchants from discriminating among the various credit cards from the same company. Then, on October 4, 2010, Visa and MasterCard agreed to let merchants encourage the use of credit cards with cheaper interchange fees by letting them offer incentives such as discounts to customers. However, American Express did not agree to the settlement. They justified it by saying that it would restrain free trade because it would mean customers would be discouraged from using American Express cards. Therefore, the U.S. Department of Justice filed a lawsuit against them for not letting consumers have right to choose from lower prices. In the end, the overall effect was unclear because major merchants do not really say that they have any discounts offered for different payment methods. A negative effect that could occur would be that people who pay high interchange fees for credit cards that have rewards would stop using them and make credit card companies lose revenue.
Connections
The connection between this article and chapter 14 is that a credit card is a type of payment that can be used in today’s ever expanding society. There two types of credit cards, merchant credit cards that can only be used for one store and credit cards from companies such as Visa, MasterCard and American Express that can be used in any store that accept credit cards. There are four steps in accounting for a credit card transaction. The first step is to write a voucher by running the credit card through an imprinting machine that will show all the information required for the sale slip and have the customer sign it. The second step is for the merchant to put the sales slip in a safe place. The third step is to prepare the credit card slips by totaling it, recording it in Merchant Deposit Summary, and placing it in an envelope for a bank deposit at the end of each day. The fourth step is to include the credit card slips as transactions in the accounting entries every day. As you can guess, the bank charges a fee for credit card services. For merchants, it is an annual fee which is deducted every month as a “credit card discount expense.”
The connection between this article and chapter 14 is that a credit card is a type of payment that can be used in today’s ever expanding society. There two types of credit cards, merchant credit cards that can only be used for one store and credit cards from companies such as Visa, MasterCard and American Express that can be used in any store that accept credit cards. There are four steps in accounting for a credit card transaction. The first step is to write a voucher by running the credit card through an imprinting machine that will show all the information required for the sale slip and have the customer sign it. The second step is for the merchant to put the sales slip in a safe place. The third step is to prepare the credit card slips by totaling it, recording it in Merchant Deposit Summary, and placing it in an envelope for a bank deposit at the end of each day. The fourth step is to include the credit card slips as transactions in the accounting entries every day. As you can guess, the bank charges a fee for credit card services. For merchants, it is an annual fee which is deducted every month as a “credit card discount expense.”
Reflections
Many people seem to like the idea of using a credit card rather than carrying cash because it is more convenient. However, there is an increasing awareness on how tricky credit card companies can be and how to deal with them in order to avoid getting tangled up in their rules. From the article that I read, I learned that merchants also have problems with credit card companies that have been going on for quite a long while. Now that merchants have won over “the credit card war” with Visa and MasterCard, they will have more freedom to choose to encourage their customers to use the credit cards with the lowest interchange fees. I think that it would be nice to receive discounts or other types of incentives for using a credit card with cheap fees. So it would look more appealing to use those cheaper cards rather than credit cards with reward points that are have fees that are quite expensive. Those people using credit cards with rewards would lose out from this settlement because merchants will not like to accept those cards. Therefore, credit card companies could potentially end up losing revenue as well. If it becomes too drastic it could really affect the economy because credit cards play an important role in this society.
I enjoyed reading your blog. It was interesting. I agree with your article. I think if the customers had to pay high fees, they wouldn't stay with their company any longer and the company would lose revenue. I think you are right when you say that credit cards appeal to everyone because it's more convenient than carrying cash around everywhere. Although, I personally don't like credit cards. I think they are tricky and I think they are a easy way to be in debt and then get into a lot of trouble. In my opinion, I think it'd be easier to use those cheaper cards because it's safer than using credit cards and getting tangled with credit card company's rules.
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