‘Would you like to spend your time when you make a purchase begging to do it on the network that you paid to be a part of? It will be the retailer’s choice. This bill is taking the choice from the consumer.’
By Craig Colgan
Brian Kelly knows credit cards. The web business he founded by himself in 2010, residing at ThePointsGuy.com, is now the center of a vast platform, run by 100 employees, who scrounge the universe hunting for deals and insights for travelers and consumers of all types.
Lately, Kelly’s attention has been aimed at the federal policy universe, particularly at the proposed Credit Card Competition Act. Co-sponsored by Sens. Roger Marshall (R-Kansas) and Dick Durbin (D-Illinois), the CCCA is aimed at allowing merchants to select which credit card network would process each transaction. American Bankers Association has pointed out the act’s mandates could limit banks’ credit card offerings, expose card users to data security risks and as Kelly has noted often to his legion of followers, could very well spell the end of credit card points programs.
The CCCA will not increase competition in the credit card marketplace, but instead will benefit multi-national retailers at the expense of consumers and community financial institutions, including those serving members of the military, notes a letter ABA joined with other trade associations. For more information, go to aba.com/protectmypoints.
At ABA’s recent Washington Summit, Kelly joined Rob Nichols, ABA president and CEO, for a conversation about the bill and what it would mean to consumers. Here are edited highlights of that discussion:
Rob Nichols: One of the many threats facing the banking industry right now is the so called Credit Card Competition Act, a deceptively titled piece of legislation championed by Senators Dick Durbin and Roger Marshall that seeks to impose Durbin Amendment style price controls on credit card transactions.
Every banker sitting here today remembers what a disaster the Durbin Amendment was for debit cards rewards programs. Which is why we need to do everything we can to stop this bill from moving forward. As we did in the last Congress. Because we know that if passed, it could be the death knell for credit card rewards programs that consumers value.
And in fact, we, we know just how much they value their points and rewards. According to our ABA Morning Consult poll, eight in 10 consumers have at least one credit card that offers rewards and an overwhelming majority—88 percent—told us that they value their credit cards and rewards programs. By a more than 2-to-1 margin, consumers say they would be disappointed to lose those reward programs due to regulatory changes.
These findings clearly demonstrate that Americans value and understand the benefits that their credit cards provide, and it underscores how out of touch the bill’s champions are with the realities of the credit card market.
So before we get into rewards and points and your expertise and the immense value you bring to this debate: How did The Points Guy come about?
Brian Kelly: How does one become The Points Guy? That’s a question I ask myself. I got into points in the ‘90s. When I was 12 years old, my dad got a job for a start-up. So he was working from home, and he always had a secretary. And he had to do everything from home. So one of my first jobs was booking his travel. And he thought it was a very complicated process but that was the year that Travelocity and Expedia launched.
So it took me two minutes to book his flights and I think he was paying me $20 per booking. So it was actually one of my most lucrative gigs. And then we realized one day he had all these loyalty points and he said, If you can figure out how to use these, you know, we’ll go on a trip.
So that was like my education. Then fast forward after college, I started working at Morgan Stanley in August of ‘07. … So you know after I survived the great recession it was tough, but in 2010 I started The Points Guy as a passion project, and it wasn’t even a blog. I would basically solve your points issues. You would say, I’ve got 200,000 Amex, I want to take my husband to Paris on a special trip and I’d charge $100 for both tickets, and (I would) tell you exactly how to do it.
And it just blew up. You know, the New York Times discovered this site about nine months after my first blog post. Chase and Amex came to me and basically signed me up as a partner, an affiliate, so I was able to monetize the content, helping people navigate how to use their points, explaining the value prop, and it just blew up from there.
Nichols: That’s great. Well, I’ve been I go to The Points Guy myself with incredible frequency to learn some of these things. Tactics and tips. So let’s now talk a little bit segue into public policy. The Durbin-Marshall bill. I don’t even like calling it the Credit Card Competition Act because that’s misleading. So let’s just call it the Durbin-Marshall bill. What are the stakes, Brian, with this legislation? And then how is your network responding to this threat?
Kelly: Points and loyalty is huge business, especially in the United States. There’s no better country in the world, more value for consumers, protections. Ask any of your friends in any other country in the world and tell them the credit card offers we have, the purchase protections, the travel protections, if your flights are delayed.
We are in the golden age of loyalty points and credit cards in the United States. Basically, the Credit Card Competition Act will force most issuers, VISA and MasterCard specifically, to put a no frills sort of debit network on your card. So imagine this. So you know, I have Chase Sapphire Reserve.
You get triple points on travel and dining. So every time you go, they’re going to run it on the Visa network. You get your triple points, protections, etc. If this bill passes, Chase will be forced to put on, let’s say, Pulse. Some random debit network no frills where you do not earn any points.
So every single time you go to use your credit card, you need to get in a fight at the point of sale to say, no, no, no, ‘You run it on the VISA.’ So this bill is taking the choice from the consumer, who today can say, I want to bank with Chase, I’m going to spend $550 on this credit card because I’m getting all these perks, rewards, I have protection, I have peace of mind.
I get fully reimbursed. I will spend more knowing I have that protection. So today, consumers have that choice and we’ll get to the whole competition. There are more than any other country in the world. Hands down, there is no better country in the world for credit card competition than United States.
So I agree with you that the name of this bill is ridiculous, making it seem as if there are no choices. Whenever you go, every single time you go out to dine, you will have to get in an argument, or with a small business, every single time you make a purchase. So whenever you explain that to consumers, (the question is) is this a choice you would like to have?
Would you like to spend every single time you make a purchase, begging them to do it on the network that you paid to be a part of? Clearly not. And I don’t think most lawmakers know that. So when you have time with them today, I really want you to drive home that you are taking choice away from the consumer.
So whenever you run the card, it will be the retailer’s choice, which they run it on. So this is an anti consumer bill for that alone. So having this random network you didn’t want, and by the way, these small networks that will be forced to come on the card are very small. So all of a sudden, millions of credit cards are being run.
We have no idea what’s going to happen with fraud data, you know, etc. There’s a lot of unknowns there, but also let’s talk about the points ecosystem. So interchange is what funds the purchase protections, the points, (protections against) cyberfraud, all that. So points will be dramatically reduced.
It’s just the fact of the matter. And why do I know this? Because a decade ago, when I was still blogging as a points guy, you used to be able to earn valuable points on debit cards. One of my favorites: When my credit was nascent and I couldn’t quite get the platinum card, I had a Chase Bank Continental Airlines debit card.
So I was able to participate in banking, earn rewards for debit purchases. Well, Dodd-Frank came along and, and Durbin, along with that, they killed debit card rewards overnight. Literally, by a week after that bill being signed, there was no ways you could earn points on debit cards. And, you know, their whole notion was: “Don’t worry, the retailers, they’re going to be really nice and trickle that down to consumers, just you wait.”
Which is very similar to what they’re saying with this Credit Card Competition Act. Just let the retailers decide. Trust us. They’re gonna’ just drop the prices of everything across the board. Well, the Federal Reserve did a study years after the debit card rewards were destroyed. So consumers lost and guess what type of consumers lost the most when debit cards the interchange was regulated?
Low income consumers who didn’t have access. So all of a sudden we cut out the ability for low income Americans to participate in rewards. And eventually fees went up higher elsewhere. So the merchants won and the consumer paid with higher fees on accounts and less rewards earning. And that is exactly what they are salivating with this bill on a much larger scale.
And when you explain that to consumers, they are enraged. And I think this is another point, you know, there’s always unintended consequences with legislation. A lot of the senators that I’ve talked to mean well. They haven’t really done the research here. And when you start explaining to them, Hey, this is what’s going to happen and by the way, consumers are very smart.
When all of a sudden the reward rates go down because of this legislation, they’re gonna have that on their hands. And this is very bipartisan, by the way. You know, at The Points Guy, I actually think our audience skews a little liberal, urban and almost unanimously consumers when they realize what this is about are against it.
So in such a tight election year, my question to any legislator is with all the things we’ve got going on: You want to focus on points? That’s like the one last thing Americans love, right? And I, you know, they’ll say, “Oh, it’s the 1 percent” BS.
Nichols: That’s what I was going to ask you. He’s like the critics. Saying, oh, points are just for rich people.
Kelly: Yeah. So this is what I encourage all of you when you’re in (Congressional) offices. Turn to their staffers, who we all know are grossly underpaid, heavily overworked, and say, Hey, do you participate in credit card points and rewards? Because I know for a fact so many of them read The Points Guy. And that is the only way so many working people can travel. It’s by points and leveraging this lucrative ecosystem for consumers.
So if you rip that out from underneath them, we’ve seen how high airfares have risen. Normal people will travel less. Period. That is the message that you have to let them know. That this legislation will hurt everyday people. Who want to travel to see their families when travel prices are going up.
Oh, and by the way, let’s talk about unintended consequences. So much of the aviation industry and hotels and tourism and driven by loyalty. These loyalty programs are the most profitable part of airlines. So what do you think’s going to happen when these airlines, which have billions of revenue from co-branded partnerships?
This legislation comes in and slices, let’s just say, that revenue in half. How do you think an airline is going to make up for that lost revenue? Who do you think is going to pay the bill? Clearly, the consumer is going to get double hit. So not only do they not have their points that they’ve been used to in earning, they then are going to be hit with higher fees to cover the cost of all that missing revenue, revenue that went directly to retailers.
So you should look lawmakers in the eye (and ask): “Who are you really serving here?” Because this bill, no matter how you slice it, will not help consumers. In fact, it’s taking a baseball and smacking them over the head in my opinion.
Nichols: So you touched on this briefly, but I’ll ask you a little more formally. How would you describe the level of competition in the U. S. credit card markets? The critics say the cards and the rewards are just for rich people. You just dispelled that. And then this question of (is the U.S.) a competitive market.
Kelly: These rewards are more than just Amex, Chase, Citi. Well over half of Americans have some form of rewards, (often) through their community banks. And to a lot of people, cash back rewards.
I mean, look at how Americans are struggling. Wages have not kept up. For many people, rewards are how you keep it together, whether to get gift cards for family events or to use for travel. But to take away a part of American’s bottom line, many families have baked in these rewards as part of. How they get by and then to promise to take away value that consumers get today tangibly and in promise of trickle-down economics of the retailers will give it to the retailers. And I’m sure the retailers will give most of it back. It’s just ridiculous and consumers and voters know this and that’s why we’re in partnership with the Electronic Payments Council and ABA.
We are amplifying this. We have our Hands Off Our Rewards campaign that has had hundreds of thousands of letters written into Congress. And we’re just getting started. But back to your question. There are so many credit cards in the U. S. There are new credit card launches every week.
Nichols: So let’s talk just, just a little bit tactically here. Your platform has millions of people that view it on a monthly basis. So what are you doing to kind of mobilize and organize the readers and those who utilize The Points Guy?
Kelly: Our readers are smart. So we give them the information and let them decide and overwhelmingly when you give them the facts of the matter and explain: Hey, do you think this is in your best interest to have? (Allowing the) government to decide a random network to put on your credit card and a retailer gets to choose for you? Is that a good system for you?
I don’t know a single person would be like, “Yeah, that sounds fun.” And, you know, we explained what, what could happen. And we have our Hands Off My Rewards campaign, which as I’ve said, we’ve gotten hundreds of thousands of letters to Congress.
And you know, we have our site, we have our newsletters, we have our social media. And then we’re teaming up with the Electronic Payments Coalition to amplify that even further. So we’ve got a lot of tactics in the works. I wanted a Super Bowl ad. I guess we didn’t work quick enough on it.
