US card issuers, your 1.5% cash back card could soon lose money on every single purchase.
If it runs on Visa Traditional Rewards or Mastercard Enhanced Value, the proposed Visa/Mastercard settlement would cap its interchange at 1.25%. Pay cardholders 1.5%, earn 1.25%. Every swipe is underwater before you've paid for funding, fraud, processing or network fees.
And this time there's no small-issuer exemption. Durbin's debit cap spared banks and credit unions under $10 billion. This doesn't. Both networks, every issuer.
Most coverage assumes the cap only hits no-frills cards. It doesn't. In the agreement, "standard" means Visa Traditional and Traditional Rewards, and Mastercard Core and Enhanced Value. That's where a lot of community bank, regional bank and credit union rewards cards sit.
Do the math on your own portfolio. For every $100 million of annual spend on a standard-tier rewards card, going from about 1.9% blended to 1.25% takes roughly $650,000 a year out of interchange. Over eight years, that's more than $5 million. Your rewards bill doesn't shrink with it.
Bonus categories are worse. Visa's utility rate is already a flat $0.75, about 0.5% on a typical bill. A 3x bills bonus loses about $2.50 per $100 today, before any cap.
The big banks are already planning for it. Capital One told investors last month that the interchange it expects to lose from the settlement should roughly offset its remaining Discover synergies.
The fairness hearing is next week, and the judge said in June he expects to grant final approval. The cap could start as soon as April 2027. KBW has said appeals could drag final implementation out to 2029, but the rate caps key off the date the judgment is entered, not the end of appeals. An appeal alone doesn't stop the clock. If you need to change card tiers, rework a rewards program or reprice points, that isn't much time.
Three questions to ask this week:
- What network tier are our rewards cards on?
- Which products and categories go negative at 1.25%?
- What is a move to Signature or World worth, net of network fees and the risk that merchants decline or surcharge premium cards?
We're running these numbers for issuers now. If you want yours, send me a DM.