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I recently ate at a restaurant that accepts Visa but has a policy that specifically excludes accepting Costco Visa credit cards. I have never heard of such a thing.

While the Costco Visa credit card does offer a higher cashback rate than most other cards for restaurants, I have always assumed that the cashback would come out of the Visa merchant fee and that Visa's merchant fee would be the same regardless of card issuer.

  1. Why would a merchant specifically exclude Visa cards from a specific issuer?
  2. Is accepting some Visa cards but not others allowed by Visa's merchant agreement?

(I am asking out of curiosity, not because I have any desire to file a complaint. I am not going to dine at that establishment again.)

  • 1
    Is your Costco card branded "Visa Signature?" – quid Mar 23 '18 at 19:49
  • There’s an issue with the Visa Costco cards where they don’t work to tap in most locations, but that’s very different from not taking it at all. – Bobson Mar 23 '18 at 22:05
  • @quid Yes, it is a Visa Signature card. – jamesdlin Mar 23 '18 at 23:14
  • I suspect it has more to do with Visa Signature than the Costco branding... – quid Mar 23 '18 at 23:17
  • 3
    Then I suspect this is just some philosophical bone they're picking with those two companies and has nothing to do with merchant fees. – quid Mar 24 '18 at 0:04
41

Initially, I thought that sounded like a clear violation of Visa Core Rules and Visa Product and Service Rules:

1.5.4.2 Honoring All Visa Cards
Visa Merchants may not refuse to accept a Visa product that is properly presented for payment, for example, on the basis that the Card is foreign-issued, or co-branded with the Merchant's competitor's Mark. Merchants may attempt to steer customers who initially present a Visa Card to an alternative method of payment, such as by providing discounts for cash, but may not do so in a confusing manner that denies consumer choice

However, there is a also this section specific to the US:

In the AP Region (Australia), Canada Region, and US Region, a Merchant may decline to accept certain categories of Visa products for domestically issued Cards. In the Europe Region, a Merchant in the European Economic Area (EEA) may decline to accept certain Product Categories.

Further down, we see:

Limited Acceptance – Europe Region and US Region:
In the US Region, a term describing a Merchant’s option to accept one category of Visa Cards and not another. Categories consist of both:
● Visa Credit and Business Category
● Visa Debit Category

So, even though the fees are higher for some rewards cards than others, my cursory reading suggests that it is a violation of their merchant agreement to decline one type of Visa Credit while accepting other Visa Credit.

14

I used to have a small business that accepted credit cards, and I paid the same fees regardless of what card was used. I got many offers from other credit card clearing houses, and those I read all described their fees as one number, no mention of it being different for different cards. (Some had tiered fees: lower rates the more money you ran through them, but nothing about different rates for different cards.) Of course I only studied the offers from a handful of clearing houses, I can't say that all or even most operate this way.

So unless the deal this restaurant had was very different from the deals I was offered, it wouldn't make any difference what rewards were offered, etc. I always assumed that the cost of rewards programs came out of the profits of the bank issuing the card, not from the merchant.

If anyone has accepted credit cards with different terms, I'd be amused to hear about it.

  • 1
    The tiered policies typically have interchange categories based on card-type, ie higher fee for bigger rewards. – Hart CO Mar 23 '18 at 21:19
  • @HartCO, I think Jay's point is that you'd have to be a pretty substantial merchant to get the sort of agreement that's that granular. Most small business has a deal with a bank or service that manages the specific agreements and charges the merchant a fee arrangement similar to paypal. The merchant's bank or service handles the credit card network agreements and absorbs fee variances. – quid Mar 23 '18 at 21:45
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    In the US, small local businesses doing card transaction volumes around $50k per month can easily get that kind of granular processing. Source: experience working with them. – R.. Mar 24 '18 at 3:38
  • I don't have hard data but see a number of articles referencing tiered being the most common pricing method, at least a few years back, but I know square and other services have altered that landscape a bit. – Hart CO Mar 24 '18 at 4:47
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    @Hart CO In India Visa Signature/Infinity is levied more commision compared to silver. (0.5% ,more). Visas arguments - former category of customer will give larger long term profit. I understand that is not the contract n your jurisdiction. Still most merchants accept all cards due to opportunity cost. Thanks for the answer because I though Visa had similar contracts in all markets. I guess not. Also, even for airline they have different tier I heard (not confirmed). – Rahul Mar 24 '18 at 15:57
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Tackling the question of fees.

Different cards do carry different fees, even if they are on the same network. This causes a number of issues. In Canada, merchants have recently been given the privilege to charge more for premium cards because the fees can be 50-200 basis points higher (2-3% fees as opposed to 1.5-2% for non-premium cards).

Just as a note, I've seen merchants advertise it as a discount for debit card users instead of a surcharge for (premium) CC users.

  • 3
    Certainly in Texas, the law is that the price is the price, whether you use a credit or debit card, or you pay in cash. The law does allow for offering a discount for debit card or cash, but it is illegal to charge more than the actual price based on a payment method. – Ron Maupin Mar 24 '18 at 16:33
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    I always giggle at those laws or policies about a surcharge not being allowed but a discount being allowed (or vice versa). – Lan Mar 24 '18 at 18:46
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    It's rather interesting that it currently costs many businesses as much or more to handle cash now than is charged for card transactions, so such discounts are actually rare. A cash discount now only makes sense for small businesses. – Ron Maupin Mar 24 '18 at 19:42
2

The Minneapolis/St. Paul Business Journal had an article related to this recently (which cited a paywalled Wall Street Journal article).

Large merchants including Target Corp., Amazon.com Inc. and Home Depot Inc. are pushing for the right to reject some rewards credit cards, which typically carry higher fees for merchants, The Wall Street Journal reports.

The retailers are trying to end the credit-card networks' "honor all cards" rule, which requires merchants that accept Visa or MasterCard to take all of their credit cards

So currently it is a disallowed to accept some Visa cards but not others, but it is the case that not all Visa cards have the same merchant fees.

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