A new report from Aite Group, LLC addresses the strategic implications of card networks’ rebates and incentives for industry stakeholders, including details concerning networks themselves, issuers, merchants, acquirers and regulators.
Card networks’ rebates and incentives to issuers and merchants have grown steadily over the past few years, as competition to retain and attract issuers and increase merchant acceptance has increased for the card networks. In fact, spending on rebates and incentives from Visa USA and MasterCard Worldwide increased to $1.5 billion in 2007 from $0.7 billion in 2002, due largely to the US Department of Justice’s 2004 ruling in favour of network competition. As competition intensifies, card networks will offer more rebates and incentives, and yield on gross dollar volume (GDV) will ultimately decline.
“As card networks increasingly rely on rebates and incentives to protect and grow GDV, the yield they receive on GDV will take a major hit. To fend off that trend, Visa Inc. and MasterCard Worldwide will need to grab a greater share of intracountry processing volumes outside of the United States. The alternative – failing to grow the share of branded cards processed on their network – might otherwise have consequences as dramatic as obliterating their futures as independent corporations,” says Gwenn Bzard, research director with Aite Group and author of this report.