What Would a Credit Card ‘Holiday’ Look Like?

In 1933, President Franklin Roosevelt shut down financial institutions for a week, called a “bank holiday,” to restore calm after a run on banks. This comes to mind after a federal judge recently indicated she won’t approve a settlement between the major card brands and merchants over the fees that merchants pay to accept credit and debit cards. Merchants have been in a 20-year battle with the card brands over these fees, called interchange.

This issue can be resolved quickly. Let’s have a “credit and debit card holiday.” Yes, a Payment Card Holiday. In the 2024 version, the card brands would notify all employees, power down all computers, and walk away for a week. Delightfully for merchants, they would not have to pay interchange fees for the week.

Here’s a merchant planning guide for the Payment Card Holiday, using the Federal Reserve’s 2023 Survey and Diary of Consumer Payment Choice. In 2023, 64.8% of U.S. consumer purchases were made using a card (credit, debit, and prepaid); 16% using cash; and 2.7% using checks. However, the median amount of cash a consumer carries is $20. In other words, half of all U.S. consumers only have $20 on them.

Place a sign on all store entrances stating only cash or checks are accepted for payment. Otherwise, be prepared to have empty carts by the registers to place items customers cannot afford to buy, since they don’t have enough cash.

More money is needed in the cash registers to handle change, and those money bags will not fit into branch depositories. Arrange for cash pickup each night. It’s going to take time to count the cash for nightly deposits, or your FI will count the money and let you know the next day (or two) how much you deposited. Your finance department will understand.

Staff up for more checkout lines since it will take a while for people to write checks. Oh wait, since only 2.7% of purchases are made using a check, most consumers won’t have their checkbooks.

In a 2023 Datos Insights study, 94% to 97% of online merchants accept cards from the main card brands, compared to 63% that accept bank transfers (via routing and account numbers). E-commerce IT departments will need to update checkout pages so consumers can enroll in bank-transfer payments. Payment on delivery is another option. UPS, FedEx, and the USPS will collect cash or checks on delivery for you. It’s popular in Germany, they can tell you how it’s done.

The three categories of merchants with the highest number of consumer payments are grocery, convenience, and pharmacies (19.2%); stores, including online shopping (16.2%); and fast food, coffee shops, cafeterias, and food trucks (14.6%). Since 65% of consumer purchases were made using a card in 2023, these merchants will have a tough time. Good news for food trucks, though. They can set up shop in financial institutions’ parking lots so people can easily access cash.

If interchange fees are too high, merchants can elect not to support cards and can offer tender-steering programs to incentivize other ways to pay. However, there is a reason they still accept cards: Consumers strongly prefer them. For in-store purchases, 75+% of consumers prefer cards. For online payments, it’s 92+%.

If interchange fees are lowered, there is one winner: merchants. Their cost of card acceptance goes down, leading to higher profits. However, only two-thirds of merchants would see this benefit, since the other 35% have negotiated a flat rate for card-processing fees.

The real losers will be consumers. FIs will pass on the cost in the form of reduced or no credit card rewards, new or higher annual fees for a credit card, or debit card transaction fees. When the Durbin Amendment went into effect, capping interchange fees on debit card transactions, debit card reward programs disappeared overnight, and merchants did not lower their prices. Shrinkflation won’t reverse. My 14.5-ounce can of corn won’t go back to 16 ounces.

Merchants have lost sight of the benefits cards provide, such as higher purchase amounts (higher revenue), faster checkout times, and lower cash-handling expenses.

Merchants are buyers of card-acceptance solutions, and the card networks are sellers of those services. This lawsuit is about using the courts to negotiate a lower cost for a service merchants desperately need. A Payment Card Holiday could bring the case to a quick end.

—David Mattei is Strategic Advisor at Datos Insights.

Note: This article is adapted from a longer piece posted at https://datos-insights.com/blog/david-mattei/what-would-a-credit-card-holiday-look-like/