Anatomy of a credit card rewards program(bitsaboutmoney.com)
bitsaboutmoney.com
Anatomy of a credit card rewards program
https://www.bitsaboutmoney.com/archive/anatomy-of-credit-card-rewards-programs/
734 comments
> But how far does this go in explaining why merchants "choose" to participate in this program. The obvious answer would seem to be that they get no benefit from the system as it exists but have no real choice, but maybe there is a better answer?
The simple reason why issuers don’t make every card a signature rewards card is that merchants would revolt.
The interchange fee schedule[1] is fascinating. Dozens of categories of merchants with different rates. There is no technical reason for this. Fraud costs are borne by merchants and to some extent processors, but not the issuer banks that receive the interchange fee.
The fee schedule reflects a kind of battle for customers. It’s worth repeating that most of interchange for these higher end cards is passed back to the customer in the form of rewards. Essentially, merchants are willing to pay higher fees to support the cards that higher spending customers prefer.
But there is a limit. We can observe that not all merchants accept AmEx, which has some of the highest interchange rates. If every visa/MC card were a signature card, more merchants would push back.
[1] https://usa.visa.com/content/dam/VCOM/download/merchants/vis...
The simple reason why issuers don’t make every card a signature rewards card is that merchants would revolt.
The interchange fee schedule[1] is fascinating. Dozens of categories of merchants with different rates. There is no technical reason for this. Fraud costs are borne by merchants and to some extent processors, but not the issuer banks that receive the interchange fee.
The fee schedule reflects a kind of battle for customers. It’s worth repeating that most of interchange for these higher end cards is passed back to the customer in the form of rewards. Essentially, merchants are willing to pay higher fees to support the cards that higher spending customers prefer.
But there is a limit. We can observe that not all merchants accept AmEx, which has some of the highest interchange rates. If every visa/MC card were a signature card, more merchants would push back.
[1] https://usa.visa.com/content/dam/VCOM/download/merchants/vis...
> There is no technical reason for this
Point in case, there's an interchange fee cap of 0.3% for credit and 0.2% for debit cards in the EU. And there are entire countries moving to cashless, so obviously everyone is happy with it.
Point in case, there's an interchange fee cap of 0.3% for credit and 0.2% for debit cards in the EU. And there are entire countries moving to cashless, so obviously everyone is happy with it.
I wouldn’t assume everyone is happy with it. Consumers are going to prefer rewards programs over no rewards programs. And before you say it results in higher prices, that’s not necessarily true. Australia regulated away interchange and it didn’t result in lowering prices. Merchants kept the profit.
A lot of times these regulations are pitched as helping consumers, but it’s really merchants pushing for them. You could make a similar observation about the EU regulatory fight with Apple et al right now. It’s actually Spotify fighting for it, and they have different interests than consumers.
A lot of times these regulations are pitched as helping consumers, but it’s really merchants pushing for them. You could make a similar observation about the EU regulatory fight with Apple et al right now. It’s actually Spotify fighting for it, and they have different interests than consumers.
"Lower prices" doesn't necessarily mean they just suddenly and immediately drop. That's no surprise; dropping prices purely out of the goodness of your heart isn't terribly good business practice. Also, for a lot of retail, MSRP is MSRP, and that's a pretty big anchor point.
What I'd expect instead, based on my having taken exactly one class in economics as an undergraduate, is subtler effects that play out over time. Maybe the general growth in prices over time slows down a titch until a new equilibrium point is met. Maybe wages rise a little bit because retailers can afford to pay their employees more. Maybe life gets easier for smaller businesses that have less negotiation power than the multinational behemoths. Maybe some bank executive somewhere decides not to buy that third luxury car at the same time as ten thousand restaurant owners decide that, just today, they will treat themselves to an espresso drink from the coffee shop instead of making drip coffee at home. That kind of thing.
I think maybe that last example is most interesting to me, because it calls attention to how merchant/consumer is a false dichotomy and things are always a bit more subtle than how the news likes to make us think they are.
What I'd expect instead, based on my having taken exactly one class in economics as an undergraduate, is subtler effects that play out over time. Maybe the general growth in prices over time slows down a titch until a new equilibrium point is met. Maybe wages rise a little bit because retailers can afford to pay their employees more. Maybe life gets easier for smaller businesses that have less negotiation power than the multinational behemoths. Maybe some bank executive somewhere decides not to buy that third luxury car at the same time as ten thousand restaurant owners decide that, just today, they will treat themselves to an espresso drink from the coffee shop instead of making drip coffee at home. That kind of thing.
I think maybe that last example is most interesting to me, because it calls attention to how merchant/consumer is a false dichotomy and things are always a bit more subtle than how the news likes to make us think they are.
> What I'd expect instead, based on my having taken exactly one class in economics as an undergraduate, is subtler effects that play out over time.
As a PhD student in Econ, I am glad to see that you learned something about how to actually apply this work. Thanks for making my day after some rough grading.
As a PhD student in Econ, I am glad to see that you learned something about how to actually apply this work. Thanks for making my day after some rough grading.
> What I'd expect instead, based on my having taken exactly one class in economics as an undergraduate, is subtler effects that play out over time. Maybe the general growth in prices over time slows down a titch until a new equilibrium point is met. Maybe wages rise a little bit because retailers can afford to pay their employees more. Maybe life gets easier for smaller businesses that have less negotiation power than the multinational behemoths. Maybe some bank executive somewhere decides not to buy that third luxury car at the same time as ten thousand restaurant owners decide that, just today, they will treat themselves to an espresso drink from the coffee shop instead of making drip coffee at home. That kind of thing.
To veer a little off-topic, this is why my biggest economic policy dream would be banning or severely restricting ads and marketing.
The fees you describe are a few percent points. The average B2C company spends 10-15% of their budget on what is, for the most part, a zero-sum game with their competitors. Even ignoring all the aesthetics and societal benefits, imagine the boon to overall productivity.
obviously gradually, and over many years, to make the transition manageable. e.g. increase taxation on marketing expenses by a few % a year so it is less and less financially viable.
To veer a little off-topic, this is why my biggest economic policy dream would be banning or severely restricting ads and marketing.
The fees you describe are a few percent points. The average B2C company spends 10-15% of their budget on what is, for the most part, a zero-sum game with their competitors. Even ignoring all the aesthetics and societal benefits, imagine the boon to overall productivity.
obviously gradually, and over many years, to make the transition manageable. e.g. increase taxation on marketing expenses by a few % a year so it is less and less financially viable.
I think massively restricting advertising is probably also the only way (well, pretending it's remotely politically feasible) to move away from the horrid pile of perverse incentives and their consequences that is the modern technology landscape.
>because it calls attention to how merchant/consumer is a false dichotomy
Yes! People forget that the many merchants in this country are also participants in this consumer economy as well. I think one's exposure to mom&pops/small businesses informs this view greatly. One can be forgiven of seeing merchants as faceless corporations if the entire shopping experience has happened at faceless multinationals (...of whom's profits contribute to many consumer's 401ks!)
And also Merchants are in many ways the "edge compute" of the long, very complex tangle of suppliers, wholesalers, service providers, and (of course) the bank. All which entail transactions that, in isolation, looks very similar to merchant-consumer.
Yes! People forget that the many merchants in this country are also participants in this consumer economy as well. I think one's exposure to mom&pops/small businesses informs this view greatly. One can be forgiven of seeing merchants as faceless corporations if the entire shopping experience has happened at faceless multinationals (...of whom's profits contribute to many consumer's 401ks!)
And also Merchants are in many ways the "edge compute" of the long, very complex tangle of suppliers, wholesalers, service providers, and (of course) the bank. All which entail transactions that, in isolation, looks very similar to merchant-consumer.
Except prices in Australia, especially in Tech, are among the highest in developed countries.
Like I get what you are saying, but reality, in this case, trumps theory.
Like I get what you are saying, but reality, in this case, trumps theory.
But that was true before too. So it's probably irrelevant.
> I wouldn’t assume everyone is happy with it. Consumers are going to prefer rewards programs over no rewards programs.
Personally, I would disagree. I prefer no rewards and a simple landscape where I don't have to compare credit cards.
I lived in both EU and US, and didn't like the work needed to compare (and keep comparing) all the credit card offerings. In the EU, you just the credit card from your bank and don't feel like you're missing out.
Personally, I would disagree. I prefer no rewards and a simple landscape where I don't have to compare credit cards.
I lived in both EU and US, and didn't like the work needed to compare (and keep comparing) all the credit card offerings. In the EU, you just the credit card from your bank and don't feel like you're missing out.
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I my part of the EU I'd certainly feel like I'm missing out if I just kept on paying the ~€5 a month fee for a bank account and didn't look for a card that gave me some kind of return on my spend every month...
(It's Finland btw, and you need a Finnish, not "anywhere-in-SEPA", bank account in order to practically function in society here with the strong online authentication service)
(It's Finland btw, and you need a Finnish, not "anywhere-in-SEPA", bank account in order to practically function in society here with the strong online authentication service)
The return you get is just taken from you without you knowing it. The rewards programs is taking your money and giving you back a part of it.
No, it's taking the merchants' money and giving you back part of it. How much do merchants eat it vs passing on the cost? I don't think that's an easy question to answer and probably varies a lot by merchant type and product, but I think we can assume the answer is not always passes on 100% of the cost, so owners of the high end rewards cards are winning to some degree. You could argue that non-rewards cards are absorbing costs of rewards cards in the case where merchants do pass through costs, though.
Except that 100% of the cost isn't being transferred to the cardholder, either. You might have a 1% cash back card while the merchant is paying 3%. If only half of the cost is being passed on, you're still losing money. And price isn't the only variable. Even if the merchant ate the entire 3%, that might require them to cut costs in some way so you receive a lower quality product, or drive some competitors out of business and thereby allow the remaining companies to reduce quality without lowering prices because the company providing a better product for the same price was eliminated by the fees.
Right, but the interesting part of TFA is about how the rates paid by merchants are higher for the top 10% of cards. Your example assumes the same rate paid by everyone. Because only a small portion of transactions incur the high rate/high reward, it seems far less likely that the split between pass-through vs eat-it still won't benefit high end cardholders.
That still depends on what the split is. If the average fee is 3% and the high-end customer is getting 2% back, the merchant could be passing on e.g. 2.1% and causing you to come out behind while still passing on only 70% of the cost.
And for anyone getting less cash back the math is even worse, which from the same premise will be the majority of people or else the merchant's costs (and so the amount they pass on) would be even higher.
And for anyone getting less cash back the math is even worse, which from the same premise will be the majority of people or else the merchant's costs (and so the amount they pass on) would be even higher.
> If the average fee is 3% and the high-end customer is getting 2% back ...
You're not picking realistic numbers. The fees range from around 1.5% to ~3%, and the 2.5%-3%+ fees are limited to ~10% of customers. An average fee of 3% doesn't make sense. Very basic napkin math would be 0.9((1.5+2.5)/2)+0.1((2.5+3)/2) = ~2.1% average. So only in the 100% passthrough case does the high end cardholder actually lose. That's not likely.
And if you look at the chart, if 740 is 10%, there are probably far fewer than 10% of transactions averaging 2.75%, so this is likely still way overestimating.
You're not picking realistic numbers. The fees range from around 1.5% to ~3%, and the 2.5%-3%+ fees are limited to ~10% of customers. An average fee of 3% doesn't make sense. Very basic napkin math would be 0.9((1.5+2.5)/2)+0.1((2.5+3)/2) = ~2.1% average. So only in the 100% passthrough case does the high end cardholder actually lose. That's not likely.
And if you look at the chart, if 740 is 10%, there are probably far fewer than 10% of transactions averaging 2.75%, so this is likely still way overestimating.
Other customers bear most of the cost of merchants raising prices because of the 3% fee, not you.
I thougt that it works like when you make a purchase using a credit card that offers rewards, the issuer earns money from the transaction through interchange fees, which are fees charged to merchants for processing credit card payments.
> paying the ~€5 a month fee for a bank account
That's the problem right there. Bank accounts should be free by force of law. A bank charging depositors for literally anything is just absurd. They should be paying you, not the other way around.
That's the problem right there. Bank accounts should be free by force of law. A bank charging depositors for literally anything is just absurd. They should be paying you, not the other way around.
For many average people I don't see how they could be free. Maybe savings account with limitations should pay something and be free, but with checking account. You get what couple thousand passing through each month?
You have all the costs like KYC requirements, actual overhead of tracking and managing the balances and payments. And many of the payments options are free or low cost...
If it was such money maker, surely there would be lot of competition offering zero fee bank accounts.
You have all the costs like KYC requirements, actual overhead of tracking and managing the balances and payments. And many of the payments options are free or low cost...
If it was such money maker, surely there would be lot of competition offering zero fee bank accounts.
In a lot of EU countries there is plenty of competition and there are multiple options for free bank accounts.
The banks make money of the debit & credit card payments, savings accounts, having you as a customer for mortgages and other loans.
List of 30 free checking accounts in Belgium: https://www.spaargids.be/sparen/gratis-zichtrekeningen.html (NL/FR)
The banks make money of the debit & credit card payments, savings accounts, having you as a customer for mortgages and other loans.
List of 30 free checking accounts in Belgium: https://www.spaargids.be/sparen/gratis-zichtrekeningen.html (NL/FR)
> If it was such money maker, surely there would be lot of competition offering zero fee bank accounts.
In Czechia banks literally are competing like that, offering free bank accounts, sometimes even with bonuses on top if you pass enough money through it. So it seems like your model of banks' financials does not work.
In Czechia banks literally are competing like that, offering free bank accounts, sometimes even with bonuses on top if you pass enough money through it. So it seems like your model of banks' financials does not work.
> For many average people I don't see how they could be free.
I do. In fact it is free in my country. Anyone can go to literally any bank and get a free account with support for basic operations, including a checking account. I set up my GitHub Sponsors thing with a free bank account. I'm not paying the bank to get paid by GitHub.
Just turn it into a basic human right and don't look back. They should be glad we're depositing our money in there. It's just completely absurd to be charged even a fraction of a cent for the privilege of having some bankers profiting off of your money. It'd make sense to pay them if they were safekeeping it for you in their vaults. They aren't. They're lending it all out to third parties, gambling in stock markets. You name it, they're doing it. These bankers actually crash the economy now and then with their irresponsibility and they face approximately zero consequences for it.
So why should anyone pay them a cent for this "privilege"? That's just clown world levels of insane. They should be competing to see who can pay depositors the most, not charging them. Managing balances? It's the computer's job. Overhead? Literally not our problem. Just make them eat all those costs. Maybe that'll even make them start lobbying for less government bureaucracy so as to reduce their "overhead". AML/KYC is just the financial arm of global mass surveillance anyway and should not even be legal to begin with.
I do. In fact it is free in my country. Anyone can go to literally any bank and get a free account with support for basic operations, including a checking account. I set up my GitHub Sponsors thing with a free bank account. I'm not paying the bank to get paid by GitHub.
Just turn it into a basic human right and don't look back. They should be glad we're depositing our money in there. It's just completely absurd to be charged even a fraction of a cent for the privilege of having some bankers profiting off of your money. It'd make sense to pay them if they were safekeeping it for you in their vaults. They aren't. They're lending it all out to third parties, gambling in stock markets. You name it, they're doing it. These bankers actually crash the economy now and then with their irresponsibility and they face approximately zero consequences for it.
So why should anyone pay them a cent for this "privilege"? That's just clown world levels of insane. They should be competing to see who can pay depositors the most, not charging them. Managing balances? It's the computer's job. Overhead? Literally not our problem. Just make them eat all those costs. Maybe that'll even make them start lobbying for less government bureaucracy so as to reduce their "overhead". AML/KYC is just the financial arm of global mass surveillance anyway and should not even be legal to begin with.
Why would you prefer a world where where you can’t get a 1-5% discount on everything you buy vs the alternative (spending on a debit card or using cash)? Obviously some people try to over optimize, but 30min of research every few years is definitely with the thousands of dollars of benefits in my mind
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> Consumers are going to prefer rewards programs over no rewards programs.
I believe that you believe. Rewards programs are ultimately bad for consumers and merchants, but great for rent-seeking banks. As a consumer I'd prefer an EU style cap and not have to spend my time working to scrape back some of that money.
I believe that you believe. Rewards programs are ultimately bad for consumers and merchants, but great for rent-seeking banks. As a consumer I'd prefer an EU style cap and not have to spend my time working to scrape back some of that money.
What do you mean by “spending time working to scrape back money”? Cashback rewards are fairly automatic. Maybe some have a simple redemption step. Apple Card’s is 100% automatic.
Did you read the originally linked article? It literally talked about ways in which rewards programs are often designed to only hand out top rewards for a very limited part of all transactions, like only for books at certain bookstores. And that these obscure rules in the extreme case can also change over time, so in one month you need to go to store A, in the next month you better visit store B.
So yes, the rewards are "automatic". But what's not "automatic" is you getting the maximum possible reward percentage on your spending. For that, you often need to optimize your spending along the guardrails put up by some random card issuer. Which takes effort and time. I don't know about you, but I've got better uses for my time, so I'd prefer just not having 2-3% of the price of all products I buy to go towards obscure rewards through which I need to claw back some of those 2-3% by gaming the system. If I want to play games, I buy a computer game and play that.
So yes, the rewards are "automatic". But what's not "automatic" is you getting the maximum possible reward percentage on your spending. For that, you often need to optimize your spending along the guardrails put up by some random card issuer. Which takes effort and time. I don't know about you, but I've got better uses for my time, so I'd prefer just not having 2-3% of the price of all products I buy to go towards obscure rewards through which I need to claw back some of those 2-3% by gaming the system. If I want to play games, I buy a computer game and play that.
Apple Card doesn't seem like a particularly good business, so much so that the issuer is trying to ditch it
https://www.wsj.com/articles/goldman-is-looking-for-a-way-ou... https://archive.is/bkoBG
https://www.wsj.com/articles/goldman-is-looking-for-a-way-ou... https://archive.is/bkoBG
We’re talking about the consumer benefits here. It’s true Apple extracted some of the most consumer-friendly terms in the industry.
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Rewards programs are stupid for consumers. They cause higher prices for everyone (even for the rewards recipients). I am fine with merchants keeping the profit, because for most categories of products that I buy there are working markets and every % of profit is turned to lower prices in the end.
Rewards programs cause higher prices just like “free delivery” or “no questions asked returns for 6 months” does.
It’s just another cost of business. Sometimes you bump up the price to account for it, sometimes you take the hit in profit in exchange for more volume hand more profit).
Very rarely do businesses do “cost plus” pricing. They usually charge what they can.
Which is why prices are sticky.
For the businesses that price based on cost alone they usually reject credit cards all together. Long ago I shopped at a computer parts store that had the best prices and they were all focused on volume - no further discounts, no credit cards, no free delivery.
It’s just another cost of business. Sometimes you bump up the price to account for it, sometimes you take the hit in profit in exchange for more volume hand more profit).
Very rarely do businesses do “cost plus” pricing. They usually charge what they can.
Which is why prices are sticky.
For the businesses that price based on cost alone they usually reject credit cards all together. Long ago I shopped at a computer parts store that had the best prices and they were all focused on volume - no further discounts, no credit cards, no free delivery.
Why do you say they cause higher prices for rewards recipients? Is there evidence of this?
The cost of running the rewards scheme must be paid. It is like a tax you incur. Also the cost for you to participate can be substantial in the form of time/attention. All for 1%-2% rebate.
Many rewards programs are also predatory in the way they want to sell your data so you are targeted by advertisers for products you wouldn't buy otherwise.
Many rewards programs are also predatory in the way they want to sell your data so you are targeted by advertisers for products you wouldn't buy otherwise.
But if the tax is refunded to rewards recipients then it does not result in net higher prices for them.
Granted, some slice of it is kept by the issuers, but it turns out issuers mostly make money on interest not interchange.[1]
[1] https://www.valuepenguin.com/how-do-credit-card-companies-ma...
Granted, some slice of it is kept by the issuers, but it turns out issuers mostly make money on interest not interchange.[1]
[1] https://www.valuepenguin.com/how-do-credit-card-companies-ma...
The recipients need to think about were to shop, switch cards once in a while, all extra work to get 1% back of the 2% that the card issuers extract from the economy.
Meanwhile in Europe the issuers are capable of running a profitable business on only 0.3% fees (and much lower for debit). So even though you may think rewards programs are nice, they are in the end costing you more, not giving you free money.
Meanwhile in Europe the issuers are capable of running a profitable business on only 0.3% fees (and much lower for debit). So even though you may think rewards programs are nice, they are in the end costing you more, not giving you free money.
If you're only getting back 1% to 2%, you're losing out on better cash back cards.
Until pricing in the US exceeds the rest of the developed world, you won't convince me of this. After all, we are among the top countries that use credit cards.
Do you have examples of things bought with credit cards that are cheaper in the US compared to, say, the EU? Even having in mind that most European countries have a ~20% VAT on many products, while US sales taxes are usually lower (less than ~15% IIRC), in my personal experience the US is more expensive for most everyday consumer goods even than France.
> They cause higher prices for everyone (even for the rewards recipients).
Honestly no. Price is relative. The sticker price might change, but the effective price depends on the customer. Largely generalized: Low-credit customers essentially subsidize the cost for high-credit customers. Let me explain:
So let's call the current price: p.
- The cash customer pays: p
- The rewards card user pays p - 1% (because they get cashback)
- The mid-level rewards customer pays p - 2%
- The premium reward users pay p - 5%
Now let's say that reward cards are banned. No more rewards cards. Let's call the new price (after rewards cards and their associated fees are removed) as 'n'. What would happen?
Scenario A: No Change
Now I believe if you got rid of rewards cards, then n = p. Merchants wouldn't lower prices, they would just keep them the same and pocket the difference. So now everyone loses, except for cash customers who are unchanged. But everyone pays p, which is at best the same as before, and at worse 5%+ more expensive by getting rid of rewards cards.
Scenario B: Utopia, the Merchants Care
Let's make the argument you are making, which is that maybe the merchants would be nice and give us a cut of the rewards card savings. This would save them maybe 1%. I suspect slightly less on average, but let's call it 1% to be generous.
So in scenario B: n = p - 1%
Yes cash customers win! They pay 1% less than before. But the majority of customers still lose. Cash customers are the only winners. Normal rewards card users are paying the same amount they were before. The bell curve of card users are probably paying 1% more, while the high-end premium card users are paying 4%+ more than before. The majority of consumer still lose, only cash customers come out ahead.
This scenario of course assumes that merchants are generous and pass on the savings. If this did happen, you would likely notice savings for a year or two at most, due to economics and market forces.
Eventually, like I said above. The price just becomes normalized and the price is the price once again. House or car prices go up slightly at first because of more money in customer pockets, employers are less pressured to give out high raises, so maybe income raises are 0.5% on average lower that year, and 0.3% lower the next year and 0.2% lower the year following (which actually makes it look like raises are increasing YoY other than the first year). This continues and 3 years later that 1% gain is normalized into the economy and becomes the new baseline and we are back where we started.
So no, everyone does not lose with rewards cards. There are winners and losers. You could argue that lower income customers (the ones most likely to pay with cash or low-end credit cards) pay the price for the higher-income customers (the ones most likely to have 800+ credit scores with premium cards).
So, largely generalized you could argue that low-credit customers subsidize the price of goods for high-credit customers. I think that's a more accurate argument. And to be clear, I'm not stating that it's fair, just that it's accurate.
Honestly no. Price is relative. The sticker price might change, but the effective price depends on the customer. Largely generalized: Low-credit customers essentially subsidize the cost for high-credit customers. Let me explain:
So let's call the current price: p.
- The cash customer pays: p
- The rewards card user pays p - 1% (because they get cashback)
- The mid-level rewards customer pays p - 2%
- The premium reward users pay p - 5%
Now let's say that reward cards are banned. No more rewards cards. Let's call the new price (after rewards cards and their associated fees are removed) as 'n'. What would happen?
Scenario A: No Change
Now I believe if you got rid of rewards cards, then n = p. Merchants wouldn't lower prices, they would just keep them the same and pocket the difference. So now everyone loses, except for cash customers who are unchanged. But everyone pays p, which is at best the same as before, and at worse 5%+ more expensive by getting rid of rewards cards.
Scenario B: Utopia, the Merchants Care
Let's make the argument you are making, which is that maybe the merchants would be nice and give us a cut of the rewards card savings. This would save them maybe 1%. I suspect slightly less on average, but let's call it 1% to be generous.
So in scenario B: n = p - 1%
Yes cash customers win! They pay 1% less than before. But the majority of customers still lose. Cash customers are the only winners. Normal rewards card users are paying the same amount they were before. The bell curve of card users are probably paying 1% more, while the high-end premium card users are paying 4%+ more than before. The majority of consumer still lose, only cash customers come out ahead.
This scenario of course assumes that merchants are generous and pass on the savings. If this did happen, you would likely notice savings for a year or two at most, due to economics and market forces.
Eventually, like I said above. The price just becomes normalized and the price is the price once again. House or car prices go up slightly at first because of more money in customer pockets, employers are less pressured to give out high raises, so maybe income raises are 0.5% on average lower that year, and 0.3% lower the next year and 0.2% lower the year following (which actually makes it look like raises are increasing YoY other than the first year). This continues and 3 years later that 1% gain is normalized into the economy and becomes the new baseline and we are back where we started.
So no, everyone does not lose with rewards cards. There are winners and losers. You could argue that lower income customers (the ones most likely to pay with cash or low-end credit cards) pay the price for the higher-income customers (the ones most likely to have 800+ credit scores with premium cards).
So, largely generalized you could argue that low-credit customers subsidize the price of goods for high-credit customers. I think that's a more accurate argument. And to be clear, I'm not stating that it's fair, just that it's accurate.
Your math for scenario B doesn't work.
If the average over all transactions was 1%, then the cash customers must have greatly outnumbered the 2-5% reward customers. In that case, the majority of consumers aren't losing. The majority benefits or sees no change.
If a majority of customers were in the 2-5% range, then the new prices must be more than 1% cheaper, maybe even 2% cheaper. So now all the cash customers and the 1% customers benefit. And the 2% customers might see no difference.
If the average over all transactions was 1%, then the cash customers must have greatly outnumbered the 2-5% reward customers. In that case, the majority of consumers aren't losing. The majority benefits or sees no change.
If a majority of customers were in the 2-5% range, then the new prices must be more than 1% cheaper, maybe even 2% cheaper. So now all the cash customers and the 1% customers benefit. And the 2% customers might see no difference.
As much as I like taking advantage of rewards programs as a consumer (and boy I do), if given the choice I would actually prefer merchants paid very low fees and I got no rewards.
That's just my personal preference. It seems like a much fairer system. I just don't like that middlemen take an unfair share, even if that middleman is me.
That's just my personal preference. It seems like a much fairer system. I just don't like that middlemen take an unfair share, even if that middleman is me.
>I wouldn’t assume everyone is happy with it. Consumers are going to prefer rewards programs over no rewards programs>
Absolutely not. Fuck rewards programs. I don't want to waste a single second thinking about how to optimize my card usage and spending habits to get "rewards".
Absolutely not. Fuck rewards programs. I don't want to waste a single second thinking about how to optimize my card usage and spending habits to get "rewards".
I think the round the world ANA ticket I got a few months ago for less than 10x face value was worth reading one The Points Guy article about how to use Amex points.
Indeed. If you have f-you money then sure, why mess around with points programs. But for the rest of us plebs, they can be incredibly rewarding.
I respect that. FWIW I just use three cards:
1. Apple Card which is 2% back on all Apple Pay
2. Costco Visa that does 3% on restaurants and travel
3. Amazon prime visa, 5% back on Amazon and Whole Foods. (This is just saved to my Amazon account so I don’t have to think about it.)
It’s pretty easy to remember to use the Costco card at restaurants.
1. Apple Card which is 2% back on all Apple Pay
2. Costco Visa that does 3% on restaurants and travel
3. Amazon prime visa, 5% back on Amazon and Whole Foods. (This is just saved to my Amazon account so I don’t have to think about it.)
It’s pretty easy to remember to use the Costco card at restaurants.
Yeah, I have a similar 'never think about it' plan. The Amazon one alone is huge if you buy a lot of stuff on Amazon and it ends up being completely transparent in usage.
So get one of the cards that offers 3% on everything / 2.5% and no international transaction fees, and just cash it out monthly or whatever? You’re not being cool or whatever, “my big brain is too full for such trivialities!” you’re just leaving >$100/mo on the table (for most households here) for literally zero effort beyond clicking "redeem" when you want it.
https://old.reddit.com/r/CreditCards/wiki/list_of_flat_cashb...
But credit card fees exist, and will exist regardless of what you choose. Just like filing for your tax return - you can either take the money or let the bank+merchant have it. But maybe you're just too busy to be bothered by reclaiming that money, too?
The amex "I pay $500/y for a 3% card with rotating quarterly 4% and 5% categories" shit though? Yeah, I agree, ain't nobody got time for that.
https://old.reddit.com/r/CreditCards/wiki/list_of_flat_cashb...
But credit card fees exist, and will exist regardless of what you choose. Just like filing for your tax return - you can either take the money or let the bank+merchant have it. But maybe you're just too busy to be bothered by reclaiming that money, too?
The amex "I pay $500/y for a 3% card with rotating quarterly 4% and 5% categories" shit though? Yeah, I agree, ain't nobody got time for that.
You need to spend $16,666 just to cover the $500 annual fee. That’s a lot for many people especially when many low end retailers don’t accept AmEx. As already state rewards cards are a subsidy for the rich, or at least for people who spend a lot.
Consider the following...
If you conceptualize it as "Annual fee minus reward credits" it's far more reasonable than that. For example, Amex Platinum is $695/year, but the Walmart+ and Digital Entertainment credits are $395 combined. Compared to the next highest card in Amex's line - Gold @ $250 - this makes more sense that you might originally think.
If you conceptualize it as "Annual fee minus reward credits" it's far more reasonable than that. For example, Amex Platinum is $695/year, but the Walmart+ and Digital Entertainment credits are $395 combined. Compared to the next highest card in Amex's line - Gold @ $250 - this makes more sense that you might originally think.
Yeah $500/yr fee is ridiculous. I think my card is 1/4 of that and I’m sure I break even the first month since almost everything I pay for goes through that card. Utilities, cell phone bills, after school program fees (and before that daycare), all other recurring bills besides mortgage/car, restaurants, groceries, anything else I want or need to buy go through the same card. Always pay the balance in full each month no matter how painful.
There are no 3% cards (not even 2.5% CB cards, I believe) without some kind of “requirement”. The only 3% card in your linked list clearly requires $100k in assets tied up with that FCU. For now that MM interest rates aren’t total shit that might be ok, but it is something that must be considered.
2% is about the most you’re going to get “no strings”.
2% is about the most you’re going to get “no strings”.
fair, I do the 2.5% (no international fees) and that does require keeping a $1k balance too... but that's doable. Although of course the value proposition of that has changed a bit now that CDs are paying >5%, too. But the extra 1% or so (on $10k/mo of transactions or whatever) does add up enough to make it more than worth it still, imo.
Cool. Do what works for you.
For me I just sign up for a new credit card twice a year and then shift my normal spending to the new card, canceling the old one.
I usually get a week’s hotel stay for free or $1000 cash back for nothing more than taking 30 minutes twice a year to find the best card.
For me I just sign up for a new credit card twice a year and then shift my normal spending to the new card, canceling the old one.
I usually get a week’s hotel stay for free or $1000 cash back for nothing more than taking 30 minutes twice a year to find the best card.
I'd be wary of this approach - either from issuers suspecting you are gaming the system, or the effect on your FICO score as the average age of your accounts decreases.
I might be totally off base, but this seems like it can't end well.
I might be totally off base, but this seems like it can't end well.
Two cards a year isn't even a blimp on most card issuers radar.
If you go to r/churning back a few years, people were getting 24 new cards a year. Open the card, buy $4,000 worth of gift certificates, claim the reward, close the card, repeat. It was insane the amount of effort people put into it.
Banks creates these rewards to incentivize people to open the cards. Chase did eventually put a limit of 5 cards in 24 months (a limit I have hit), but they just reject you for the card off the bat.
In terms of the credit score hit, it's minor. I've never had my score change by more than 5-10 points. I wouldn't do it if I was applying for a mortgage in the near term, but otherwise, it doesn't really change my score as 5-10 points doesn't change the band you're in.
If you go to r/churning back a few years, people were getting 24 new cards a year. Open the card, buy $4,000 worth of gift certificates, claim the reward, close the card, repeat. It was insane the amount of effort people put into it.
Banks creates these rewards to incentivize people to open the cards. Chase did eventually put a limit of 5 cards in 24 months (a limit I have hit), but they just reject you for the card off the bat.
In terms of the credit score hit, it's minor. I've never had my score change by more than 5-10 points. I wouldn't do it if I was applying for a mortgage in the near term, but otherwise, it doesn't really change my score as 5-10 points doesn't change the band you're in.
Last I looked, I think there may be language in the cardmember agreement that exempts gift certificates and the like. E.g, this explicitly doesn't count and may get flagged for extra scrutiny.
I'm well aware of 5/24 -- I might suggest that if people are shuffling things around that much, they deal with Chase *first*, before looking at other issuers, just to be sure those applications don't get denied.
I'm well aware of 5/24 -- I might suggest that if people are shuffling things around that much, they deal with Chase *first*, before looking at other issuers, just to be sure those applications don't get denied.
>Australia regulated away interchange and it didn’t result in lowering prices.
Prices has already been raised, I don't think they'll ever drop back, so that doesn't seems like a reasonable data point to dispute the price raising claim.
Prices has already been raised, I don't think they'll ever drop back, so that doesn't seems like a reasonable data point to dispute the price raising claim.
Better measurement might be did they go up less after this or did they go up later? As there should be more leeway in delaying increasing prices.
Yeah that's kind of how the system operates in the US. The CC duopoly fleeces merchants and gives out a share of the monopoly profits as rewards to consumers to make any antitrust action against them politically unpopular. It's a shakedown, and yes, getting rid of it would be bad for consumers, at least in the beginning. But it should be done anyway.
I agree except for the part about monopoly. There are in fact competing card networks.
The bitter pill to swallow is that consumer preferences played a role in evolving this system. Card networks are managing a two sided market, and that means offering value to both the merchant and the consumer. Reward programs are examples of consumer value. If Visa decided to kill its “signature” interchange tier, those customers would move to MasterCard.
The bitter pill to swallow is that consumer preferences played a role in evolving this system. Card networks are managing a two sided market, and that means offering value to both the merchant and the consumer. Reward programs are examples of consumer value. If Visa decided to kill its “signature” interchange tier, those customers would move to MasterCard.
I went to Stockholm last week for a couple of days, worried that I didn't have any local currency. It turned out that nobody takes cash, so everything worked out fine.
Europe varies a lot from largely cashless to you will probably need cash if you want to have a beer.
Don't the public restrooms take coins there?
As an American, this concept still makes no sense to me. It's public infrastructure of a sort, don't real estate taxes in the surrounding area pay for upkeep and repairs?
See also, subway stations in Japan, which IIRC operate under a similar model.
See also, subway stations in Japan, which IIRC operate under a similar model.
Transit is so good it replaces cars. That means users can afford to pay for it.
Free transit is a terrible idea because e.g. it means tourists don't contribute and anyone who passes a tax cut will have defunded it without the actual users being able to help.
Free transit is a terrible idea because e.g. it means tourists don't contribute and anyone who passes a tax cut will have defunded it without the actual users being able to help.
How does this account for people who live paycheck to paycheck and don't have cars?
This is literally how they get around - asking those who can pay the fare to subsidize them doesn't seem like that much to ask.
This is literally how they get around - asking those who can pay the fare to subsidize them doesn't seem like that much to ask.
Public restrooms in Czechia often can take cards now. I imagine it works similarly in Sweden.
it's even more intense in China
What is more intense than nobody taking cash, punishment for even having it?
Your ability to make purchases turned off, with no other means to transact.
https://en.wikipedia.org/wiki/Social_Credit_System
https://en.wikipedia.org/wiki/Social_Credit_System
Not even big cards like Visa or Mastercard work everywhere.
Instead you need an app installed on your phone (alipay or wechat), where you transfer cash into the app in advance. All with Chinese as the only language. (From what i heard, there now is a tourist-version of alipay in English. Last time i tried it was mostly Chinese)
Instead you need an app installed on your phone (alipay or wechat), where you transfer cash into the app in advance. All with Chinese as the only language. (From what i heard, there now is a tourist-version of alipay in English. Last time i tried it was mostly Chinese)
honestly it was pretty intuitive even when navigating all in chinese
as in it is very difficult to find anyone willing to transact in cash for any transaction whatsoever in most chinese cities
As the result, most of the reward programs in EU are meaningless: too much friction with almost zero benefits.
Credit card in EU is only for rental cars.
Credit card in EU is only for rental cars.
Almost everything (electronics, subscriptions, goods) are expensive in the EU. People travel to the USA to save money on these items, often getting additional discounts and sales that far surpass those in the EU.
The lack of a high interchange in the EU has not made any positive impact on prices.
The lack of a high interchange in the EU has not made any positive impact on prices.
> Almost everything (electronics, subscriptions, goods) are expensive in the EU.
I live in Paris, France, one of the most expensive cities in the EU, and was recently on a roadtrip through the American Southwest and I disagree.
Subscriptions? Want to compare how much internet or phone bills cost in the US vs France (I pay 20€ (really 10 because it's the same provider) for unlimited phone calls, messages, internet and 30GB Internet in most of the world; and 50€ for 5Gbps down/1 up fiber which also includes a Netflix subscription and something like a hundred TV channels)? Even Netflix is more expensive in the US.
Goods? What goods? Food in restaurants is more expensive in bumfuck nowhere restaurants with Maga hat wearing clientele than mid end restaurants in Paris FFS! Clothing is way too variable to be a useful comparison (there's cheap shit and expensive luxury items in both countries).
Electronics... maybe? I compared Apple Mac Mini and Studio prices and it was pretty much the same.
Do you have anything concrete in mind or are you just imagining things?
There is one thing that is definitely less expensive in the US - fuel. But that's by policy in the EU, not due to credit card interchange fees.
I live in Paris, France, one of the most expensive cities in the EU, and was recently on a roadtrip through the American Southwest and I disagree.
Subscriptions? Want to compare how much internet or phone bills cost in the US vs France (I pay 20€ (really 10 because it's the same provider) for unlimited phone calls, messages, internet and 30GB Internet in most of the world; and 50€ for 5Gbps down/1 up fiber which also includes a Netflix subscription and something like a hundred TV channels)? Even Netflix is more expensive in the US.
Goods? What goods? Food in restaurants is more expensive in bumfuck nowhere restaurants with Maga hat wearing clientele than mid end restaurants in Paris FFS! Clothing is way too variable to be a useful comparison (there's cheap shit and expensive luxury items in both countries).
Electronics... maybe? I compared Apple Mac Mini and Studio prices and it was pretty much the same.
Do you have anything concrete in mind or are you just imagining things?
There is one thing that is definitely less expensive in the US - fuel. But that's by policy in the EU, not due to credit card interchange fees.
It only means that they haven't managed to improve it yet.
"point in case" is a funny term. Are you a mathematician or programmer, using "case" in the sense of "branch of a proof", not "matter to be settled"?
I assume it’s a simple accidental transposition of “case in point”, an instance or example that supports, or is relevant or pertinent to, what is being discussed.
https://www.merriam-webster.com/wordplay/usage-of-case-in-po...
https://www.merriam-webster.com/wordplay/usage-of-case-in-po...
Ha! I always thought "case in point" meant "the whole case demonstrated in a single point", as in, the small argument that summarizes (and hopefully answers) the whole overall question.
Indeed, thanks, I've been using it wrong for months if not years... never realised I swapped it at some point in my mind.
That's interesting: I've only seen "point in case" being used, never "case in point" (although it does make a lot more sense, now that I think of it).
you must not be a native speaker, i have never heard 'point in case' before this conversation. but fwiw, neither really make much sense to me
Pedantic language shaming is uncool and other people's experiences are different from your own. Get over it.
As a non-native speaker I appreciate comments like GP, because they let me improve my English and speak better. It's not pedantic if the "shamer" is obviously right (I've consulted internet and it looks like he is). I think correcting other people speech is valuable because it lets us all understand each other better.
Same, didn't read any shaming at all here :-)
if you read shaming in my comment, it was a misread. it's of course perfectly fine & great to not be a native speaker
The idiomatic equivalent is "case in point"
> Fraud costs are borne by merchants and to some extent processors, but not the issuer banks that receive the interchange fee.
Merchant fraud and merchant credit risk is borne by acquirers (although, if they went under the issuing baking is ultimately on the hook). But fraud by the cardholder and cardholder credit risk is borne by the issuer.
Merchant fraud and merchant credit risk is borne by acquirers (although, if they went under the issuing baking is ultimately on the hook). But fraud by the cardholder and cardholder credit risk is borne by the issuer.
Yes, merchant fraud is what I was referring to with “to some extent.” And you’re correct that card-present fraud is more likely to be borne by the bank these days (this was not always the case). But typical e-commerce fraud is usually eaten by the merchant.
There is a government to government payment fee category in there. Why on earth would two government agencies ever need to use a CC to pay each other and lose over 1% in fees?
Unfortunately, as Lord Governor Supreme of a proud and prosperous micronation, I am disappointed to report that SWIFT does not recognize my sovereignty and regulatory authority.
Maybe it's not just that the merchants prefer high-spending customers, but that they're ok paying a little more for customers who have a lower chance of fraud, since they've passed through whatever hoops to have those special credit cards.
>But how far does this go in explaining why merchants "choose" to participate in this program. The obvious answer would seem to be that they get no benefit from the system as it exists but have no real choice,
Some merchants like Amazon, Target, Home Depot etc do want the ability to refuse the "rewards cards" with higher fees but can't because of the current contracts they have for credit-card acceptance. If a merchant signs a contract to accept VISA cards, they must accept all VISA cards and therefore can't selectively choose to reject some VISA cards because of higher swipe fees.
https://thepointsguy.com/news/retailers-want-to-reject-rewar...
https://www.google.com/search?q=merchants+want+to+refuse+rew...
Some merchants like Amazon, Target, Home Depot etc do want the ability to refuse the "rewards cards" with higher fees but can't because of the current contracts they have for credit-card acceptance. If a merchant signs a contract to accept VISA cards, they must accept all VISA cards and therefore can't selectively choose to reject some VISA cards because of higher swipe fees.
https://thepointsguy.com/news/retailers-want-to-reject-rewar...
https://www.google.com/search?q=merchants+want+to+refuse+rew...
This is actually the reason lower fee cards exist. If every card had a 5% transaction cost no merchant would sign up for that card brand. If the merchant is convinced their average transaction cost will be lower because some of the cards will be cheaper you can get away with some expensive cards.
And this is why many small businesses in my area don't accept American Express cards full stop. Some don't even accept Discover.
Here in Europe I see AE accepted only for digital goods, high margin stuff or international (read American)chains
American Express has really targeted the French market, there are all sorts of small stores (like bakeries, pharmacies (not American pharmacies - only medicine and very closely related stuff like creams and diapers) and similar size) with proud "Amex accepted here" signs. There was even an Amex program a few years back giving 5euros back on transactions of more than 20 euros in small shops like that.
I thought(maybe ignorantly) that a lot of merchants didn’t like Amex because it was so easy for customers to dispute transactions.
Ironically this may have been true at one time but Amex is now one of the best card providers to deal with as a merchant as they have a very clear and transparent dispute and then appeals process. Visa/Chase seem to be impossible to win.
This wouldn't surprise me, given that Amex does have a consumer reputation for being very friendly for disputes. That factors in two ways: a successful dispute means that the merchant is completely out that money, and every dispute also costs something like $25 to handle regardless of whether the merchant ultimately wins or loses.
It's much easier just to model this as an additional merchant "fee." If a card tends to dump fraud liability onto the merchant (and here we're talking about fraud that the merchant really isn't in a position to prevent, but the card issuer/network might be) then this simply increases the cost born by the merchant who accepts the card. Of course it's extremely difficult to estimate these costs, which is probably a desirable feature for card issuers/networks, since lack of price transparency is usually helpful if one wishes to overcharge for things.
This is interestingly regional: in the part of NJ where I live, every small business has an Amex "shop local" sticker on their front window
AmEx has worked hard to keep their home turf around New York City friendly to their cards.
They did this campaign in Sydney a while back.
Used to be every year, Amex in Canada would run a "Shop Local" promo where you'd get $5 back on a transaction over $10 at smaller places x5 in a month, and let you look up who's a part of the program on a map.
Then you'd visit a lot of them and they'd claim to not accept Amex!
Then you'd visit a lot of them and they'd claim to not accept Amex!
Are they bound by contract not to offer a discount for casher buyers?
I ask because when I was in Germany (and, granted, this was a few decades ago) you got some percent off the price if you paid cash. Merchants there seemed pretty credit-card averse.
I ask because when I was in Germany (and, granted, this was a few decades ago) you got some percent off the price if you paid cash. Merchants there seemed pretty credit-card averse.
They used to be but the law was changed to make it illegal for the card companies to demand that they don’t offer a cash discount (or charge more for credit). Smaller businesses are doing that more and more since the pandemic to try to hold to their prices as long as they can.
Big companies do a similar thing by offering you a store card. Costco likely makes more money from you when you pay with your Costco card than if you pay cash, because they get the interchange fee very very low and have to pay to handle cash. Rumor was AMEX was eating the interchange fee AND paying them … because they more than made it up by the customers who made the card Top Card.
Big companies do a similar thing by offering you a store card. Costco likely makes more money from you when you pay with your Costco card than if you pay cash, because they get the interchange fee very very low and have to pay to handle cash. Rumor was AMEX was eating the interchange fee AND paying them … because they more than made it up by the customers who made the card Top Card.
In the EU, the opposite of this happened: the EU directive PSD2 made it illegal for merchants to apply surcharges on purchases using consumer credit and debit cards from early 2018.
I thought this was a UK govt being stupid thing. So it was the EU to blame!
Given what this article says, it sounds as though not only are cash buyers cross-subsidising card buyers, but non-rewards card buyers are cross subsidising rewards card buyers.
So much for free markets.
Given what this article says, it sounds as though not only are cash buyers cross-subsidising card buyers, but non-rewards card buyers are cross subsidising rewards card buyers.
So much for free markets.
I'm told cash is actually more troublesome for merchants than electronic means, especially as more transactions become cashless. They have to pay for keeping change, physical security, transport of takings, bank cash processing fees, etc. Given the EU/UK caps electronic interchange fees to something reasonable, it may even be card buyers are cross-subsidizing cash buyers in some businesses.
That's still a thing in Canada and the US in various places, generally "mom and pop" run business.
Credit card fees for small orgs are like 1-2% so for a small biz that could pinch. Cash also lets you, uh, "fudge" your numbers for tax purposes.
Credit card fees for small orgs are like 1-2% so for a small biz that could pinch. Cash also lets you, uh, "fudge" your numbers for tax purposes.
There's a good sushi place near me that gives a 10% discount for cash. I'm fascinated by this.
(I still use a card because life is short)
(I still use a card because life is short)
That may just be good old-fashioned tax evasion.
(If you pay cash, the business owner can just pocket the money without ever recording the transaction. For digital payments, this is much harder to do undetected.)
(If you pay cash, the business owner can just pocket the money without ever recording the transaction. For digital payments, this is much harder to do undetected.)
Unrecorded cash payment makes it much easier to pay undocumented staff
[deleted]
Where I live there's a mom and pop (well, mom and daughter) shop that sells relatively expensive clothes. They stopped accepting Amex because fees were too high, yet they basically apply a 5-10% discount by default if you spend enough...
Yeah I often see small print on the fuel cost per gallon as "cash price" .. I assume this happens mostly on low-margin products.
They used to but got sued over it, and in 2012 settled it partially by ending the practice: https://www.barclaydamon.com/alerts/What-the-Credit-Card-Set...
All the CC contracts I have ever seen only prevented you from discriminating against a particular card/brand if you took credit cards. You could offer a cash discount as a policy, but you couldn't charge AMEX holders an extra 1%, as an example.
They can do it now. In the past you had to offer same prices, although you could negotiate.
It’s usually motivated more by mom and pops skimming taxes than 3% credit card fees. If you do any kind of volume, there isn’t a ton of savings as cash management ain’t free.
The electronic equivalent is people who take personal Venmo at retail.
It’s usually motivated more by mom and pops skimming taxes than 3% credit card fees. If you do any kind of volume, there isn’t a ton of savings as cash management ain’t free.
The electronic equivalent is people who take personal Venmo at retail.
It's pretty expensive to take cash. First, you have to keep a float of money for change. Then you have to secure the cash until you deposit it in the bank. Then sink some time into counting and depositing it, before being charged by your bank for depositing cash. That must very quickly add up to a percentage point or 2.
The issue is that these costs of handling cash are largely fixed - marginally, if your store takes $100 in cash, your cash-handling expenses and effort stay the same, but if you take $100 by card, your fees directly increase. You avoid the expenses of handling cash only if you don't take cash at all.
Where I live it'd used to be possible to get a discount if you paid cash but it was deemed discriminatory against card holders and so it was banned. It's the same price regardless of payment method.
It removes the incentive for clients to use cash if a card option is available, makes them more used to paying by card, and hence decreases the competitiveness of merchants that don't offer card at all - until cards become so wide spread that many merchants don't even accept cash at all, like where I live.
A bit hostile towards merchants, but very nice for consumers imo.
A bit hostile towards merchants, but very nice for consumers imo.
> A bit hostile towards merchants, but very nice for consumers imo.
It's nice for consumers who prefer to pay by card. It's hostile towards consumers who prefer to pay in cash.
It's nice for consumers who prefer to pay by card. It's hostile towards consumers who prefer to pay in cash.
Call me close minded but i see cash as an archaic, strictly inferior way of managing money. But to each their own.
I spend primarily on credit cards but I still think it’s important to preserve the ability to transact without the government knowing. Privacy is best preserved when data is not created at all, rather than when data is protected by law.
Which is the reason the cut is now capped and card acceptance is higher, even for credit cards (0.3% for cc, 0.2% for dc). Though low-margin businesses like grocery store still don't accept them (credit cards) due to the marginally higher fees in some countries.
What I want to do is pass on the exact processing fee to my customers, then they can choose their payment method based on how much it is going to cost them. I might then choose to cover a portion of the fee for electronic transactions, because they mean I save money vs processing cash. But the customer would pay the excess.
I would need a system that can display to the customer what fee they would be charged with their selected payment method, and be given an option to switch to a less expensive payment method.
I would need a system that can display to the customer what fee they would be charged with their selected payment method, and be given an option to switch to a less expensive payment method.
It's already impossible in the USA to know what you're going to pay for something until you get to the checkout line. This just makes it worse.
Why not go even further? Itemize the marginal cost of maintaining your property's parking lot for those customers who visit your business by car? Charge customers a "store heating fee" in the winter? Customer support fee if they talk to anyone? Just as ridiculous. Processing credit cards is just one of many costs of doing business that you need to account for when you price your products.
Why not go even further? Itemize the marginal cost of maintaining your property's parking lot for those customers who visit your business by car? Charge customers a "store heating fee" in the winter? Customer support fee if they talk to anyone? Just as ridiculous. Processing credit cards is just one of many costs of doing business that you need to account for when you price your products.
> Itemize the marginal cost of maintaining your property's parking lot for those customers who visit your business by car
This isn't that uncommon, quite a few places in Europe do this actually.
Usually there's a barrier at the parking lot entrance. You get a ticket when entering, which you then have to put in a machine when leaving. The machine calculates your fee based on how long your car was parked. Modern systems are far more automated and use license plate readers instead.
This isn't that uncommon, quite a few places in Europe do this actually.
Usually there's a barrier at the parking lot entrance. You get a ticket when entering, which you then have to put in a machine when leaving. The machine calculates your fee based on how long your car was parked. Modern systems are far more automated and use license plate readers instead.
Those parking lots are not owned by the stores. It's usually by the city or some other property investor.
If it happens to be a store-owned parking that charges per hour, it's to prevent abuse from drivers going to other stores nearby if it's in downtown. Charging for parking outside your store in a less dense district is equal to putting up a sign that you don't want customers.
If it happens to be a store-owned parking that charges per hour, it's to prevent abuse from drivers going to other stores nearby if it's in downtown. Charging for parking outside your store in a less dense district is equal to putting up a sign that you don't want customers.
I can give discounts to customers however I want to, thank you. As long as the customer knows what card they are going to use, they know exactly what the cost will be. I am all for posting sales tax rates as well as any transaction processing fees at the door, too, though.
No thanks, I’m just gonna go to the grocery store down the street where they don’t make me do linear algebra just to buy a box of Froot Loops.
You don't have to do the math, they do it for you
I'm guessing you never eat at any restaurants either since calculating a percentage is about as hard as linear algebra for you?
Everything else being equal, given the choice between a restaurant that makes me calculate a tip and one that just puts a single price on the menu with no tip required or expected, I’m going for the simpler option. One less thing I have to worry about.
Besides, I honestly would be sort of annoyed that you insist on making your dissatisfaction with your credit card processor my problem as a customer. I have my own problems to worry about, don’t make my saving 1-4% on groceries vs. 2-3% cash back on my credit card another thing I have to deal with. I’ve stopped shopping at certain grocery stores over less.
Besides, I honestly would be sort of annoyed that you insist on making your dissatisfaction with your credit card processor my problem as a customer. I have my own problems to worry about, don’t make my saving 1-4% on groceries vs. 2-3% cash back on my credit card another thing I have to deal with. I’ve stopped shopping at certain grocery stores over less.
There's a local restaurant that has a 3% CC surcharge and a 10% cash discount. I like going there and paying cash.
> Why not go even further? Itemize the marginal cost of maintaining your property's parking lot for those customers who visit your business by car?
Aka... charge for parking? I mean? This is pretty common? I've always found it annoying that stores will validate parking for motorists but if I choose to take public transit or bikeshare, I don't get any corresponding debate.
Aka... charge for parking? I mean? This is pretty common? I've always found it annoying that stores will validate parking for motorists but if I choose to take public transit or bikeshare, I don't get any corresponding debate.
They eliminates your ability to advertise prices honestly, without overwhelming your customers with detail that will distract them.
I will clearly state which payment methods are free and which ones the customer will pay a conveniance fee or recieve a discount if they use. I will clearly show the customer at checkout what their total is with their chosen payment and shipping (if applicable) options would be, and give them the opportunity to change their selection. It is about customer choice and convenience. You are welcome to shop somewhere else that bundles these expenses into the price of the item and givea you no choice in avoiding them.
I can only speak for me, but if I have to do that much mental math to figure out the best options to pay or see a bunch of random (to me) fees and adjustments at checkout, I'm leaving and going somewhere else. It feels scammy even if your goals are noble.
If the sign said you pay 5% for AmEx, 4% for Visa and 0% for cash, you don't have to do any arithmetic to see which number is smaller.
What's the fee for counterfeit cash? Or illegally gained cash?
What's the fee for cash the requires quite a bit of change? What's the fee for cash that is composed of very small values (e.g. quarters and dimes for a tv)?
It's interesting that all of these complications are ignored entirely when pricing payment methods. Handling cash isn't free and carries risk.
What's the fee for cash the requires quite a bit of change? What's the fee for cash that is composed of very small values (e.g. quarters and dimes for a tv)?
It's interesting that all of these complications are ignored entirely when pricing payment methods. Handling cash isn't free and carries risk.
> What's the fee for counterfeit cash? Or illegally gained cash?
What's the fee for credit card chargebacks from stolen cards, or chargeback fraud from customers who receive a product and then dispute the charge anyway?
> What's the fee for cash the requires quite a bit of change?
There are machines that count coins and issue exact change. If you do a lot of cash business, you buy one. For example, the self-checkout machines at Walmart do this.
The largest denomination still issued for US cash is $100, so no cash transaction will require more change than this, and some merchants don't accept large bills for small transactions.
> What's the fee for cash that is composed of very small values (e.g. quarters and dimes for a tv)?
How often do you think that actually happens?
Also, how are costs like this to be avoided unless you stop accepting cash whatsoever, and thereby lose business? Just eating the credit card fees instead of passing them on isn't going to stop someone with a jug full of nickels from wanting to spend them.
> Handling cash isn't free and carries risk.
Nothing is free. How about the time value of money for the time it takes for the credit card companies to pay you, as opposed to cash which you can immediately spend or deposit and begin collecting interest on?
The issue is that credit card companies have the usual set of costs and then on top of that charge significant transaction fees and shift the cost of various types of fraud to the merchant even though they're the ones who designed the system that makes it easy to carry out.
What's the fee for credit card chargebacks from stolen cards, or chargeback fraud from customers who receive a product and then dispute the charge anyway?
> What's the fee for cash the requires quite a bit of change?
There are machines that count coins and issue exact change. If you do a lot of cash business, you buy one. For example, the self-checkout machines at Walmart do this.
The largest denomination still issued for US cash is $100, so no cash transaction will require more change than this, and some merchants don't accept large bills for small transactions.
> What's the fee for cash that is composed of very small values (e.g. quarters and dimes for a tv)?
How often do you think that actually happens?
Also, how are costs like this to be avoided unless you stop accepting cash whatsoever, and thereby lose business? Just eating the credit card fees instead of passing them on isn't going to stop someone with a jug full of nickels from wanting to spend them.
> Handling cash isn't free and carries risk.
Nothing is free. How about the time value of money for the time it takes for the credit card companies to pay you, as opposed to cash which you can immediately spend or deposit and begin collecting interest on?
The issue is that credit card companies have the usual set of costs and then on top of that charge significant transaction fees and shift the cost of various types of fraud to the merchant even though they're the ones who designed the system that makes it easy to carry out.
Or just make your prices have the credit card fees built in just like normal businesses. Your system is a ton of work for very little benefit to anyone and it’s probably lowering your revenue and it’s as annoying as places that charge for takeout containers — missing the point that takeout containers encourage people to buy more food.
It’s an unsophisticated approach to business. That’s why it’s common in mom and pop places — mom didn’t go to business school and pop is tripping over dollars to save a nickle — they see the “expense” but they can’t see the revenue that aren’t getting.
There is a reason most small restaurants fail — they don’t know how to be more profitable. So they start to add on these little fees when they begin to struggle and don’t realize that they’re making the problem worse. In other words, most people that start restaurants don’t know what they’re doing in the back office even if they’re great in the kitchen. Restaurants fail for many reasons, but not controlling costs is the biggest — however, they’re naïvely choosing to control the wrong costs.
One of my good friends owns a chain of 30 Tex-Mex restaurants in Texas. After several burglaries of the safe at several locations, they went cashless at some locations. The cashless locations, without exception, saw sales increase by over 12%. He quickly made all of his stores cashless and sales increased among all stores. My anecdote isn’t data — but there is plenty of data out there.
The credit card surcharge scheme is endemic among small business owners who actually haven’t done the math. Or, more accurately, they’re doing the wrong math.
Credit card users spend more than cash users. So you make up for the “savings” with lower sales volume. And credit card users that have to pay higher prices will go elsewhere. Or, if they pull out cash, they’ll spend less of it.
https://www.nature.com/articles/s41598-021-83488-3
It’s an unsophisticated approach to business. That’s why it’s common in mom and pop places — mom didn’t go to business school and pop is tripping over dollars to save a nickle — they see the “expense” but they can’t see the revenue that aren’t getting.
There is a reason most small restaurants fail — they don’t know how to be more profitable. So they start to add on these little fees when they begin to struggle and don’t realize that they’re making the problem worse. In other words, most people that start restaurants don’t know what they’re doing in the back office even if they’re great in the kitchen. Restaurants fail for many reasons, but not controlling costs is the biggest — however, they’re naïvely choosing to control the wrong costs.
One of my good friends owns a chain of 30 Tex-Mex restaurants in Texas. After several burglaries of the safe at several locations, they went cashless at some locations. The cashless locations, without exception, saw sales increase by over 12%. He quickly made all of his stores cashless and sales increased among all stores. My anecdote isn’t data — but there is plenty of data out there.
The credit card surcharge scheme is endemic among small business owners who actually haven’t done the math. Or, more accurately, they’re doing the wrong math.
Credit card users spend more than cash users. So you make up for the “savings” with lower sales volume. And credit card users that have to pay higher prices will go elsewhere. Or, if they pull out cash, they’ll spend less of it.
https://www.nature.com/articles/s41598-021-83488-3
> Your system is a ton of work for very little benefit to anyone
It has the obvious benefit of discouraging people from increasing your costs with rewards cards. Keep in mind that businesses often have net margins in the vicinity of 5% of revenue. Paying 3% of revenue or more to the credit card company is heinous.
And what work is there to do? The calculation is done by a computer. If your attitude is "just price in the cost" well then there you go, you can pay the true cost of the card you have without even looking at the alternatives. Whereas if you want to get the lowest price then you have to figure out which card has the lowest price. Removing your option to do this is not going to save you money, it's just going to cause you to pay the higher price at all times, which you still have the choice to do.
> they see the “expense” but they can’t see the revenue that aren’t getting.
Increasing sales by e.g. 15% while decreasing net profit by up to 60% is often not a fantastic business decision.
> Credit card users spend more than cash users.
Which is why you accept them but provide a discount for the people who don't use them and thereby don't expose you to their fees.
> And credit card users that have to pay higher prices will go elsewhere.
But they're not higher prices. Restaurant A charges however much to everyone. Restaurant B charges exactly the same amount to people who use credit cards and a few percent less to people who pay cash. The people who insist on using credit cards can go to either place and pay the same amount, anyone willing to pay cash can get a discount at Restaurant B.
It has the obvious benefit of discouraging people from increasing your costs with rewards cards. Keep in mind that businesses often have net margins in the vicinity of 5% of revenue. Paying 3% of revenue or more to the credit card company is heinous.
And what work is there to do? The calculation is done by a computer. If your attitude is "just price in the cost" well then there you go, you can pay the true cost of the card you have without even looking at the alternatives. Whereas if you want to get the lowest price then you have to figure out which card has the lowest price. Removing your option to do this is not going to save you money, it's just going to cause you to pay the higher price at all times, which you still have the choice to do.
> they see the “expense” but they can’t see the revenue that aren’t getting.
Increasing sales by e.g. 15% while decreasing net profit by up to 60% is often not a fantastic business decision.
> Credit card users spend more than cash users.
Which is why you accept them but provide a discount for the people who don't use them and thereby don't expose you to their fees.
> And credit card users that have to pay higher prices will go elsewhere.
But they're not higher prices. Restaurant A charges however much to everyone. Restaurant B charges exactly the same amount to people who use credit cards and a few percent less to people who pay cash. The people who insist on using credit cards can go to either place and pay the same amount, anyone willing to pay cash can get a discount at Restaurant B.
Extra fees of any kind just really, really annoy people. This is true at restaurants but also plenty of other industries. In the majority of cases, the loss of business from patrons who avoid your establishment due to the extra fees outweighs the revenue generated by the fee. Of course, you are welcome to test out your theories, but you're unlikely to find many people who predict they will be successful.
The only real question here is if it's to your advantage to advertise a lower price and then tack on a credit card processing fee or advertise a higher price and then provide a discount for cash/bank transfers.
The first gives you a lower advertised price but then irks customers when they find out about the extra charge. The second gives you a higher advertised price, which could be worse depending on the nature of the business.
But the proposed alternative where you charge the same to everybody and incorporate it into the advertised price requires you to use the higher advertised price, which has no advantage over the second option regardless of whether or not the second option is better than the first.
The first gives you a lower advertised price but then irks customers when they find out about the extra charge. The second gives you a higher advertised price, which could be worse depending on the nature of the business.
But the proposed alternative where you charge the same to everybody and incorporate it into the advertised price requires you to use the higher advertised price, which has no advantage over the second option regardless of whether or not the second option is better than the first.
Restaurants, which is what your post is about, rarely advertise specific prices. Part of that is because a restaurant bill is comprised of multiple components -- entree, appetizer, dessert, beverage, "extras". Another part is that menus typically have dozens of options, another is that prices change often, and another is that many restaurants are local businesses with limited or no advertising budget. And a huge one is that restaurants that do promote low prices are often considered low quality as well.
In other words your point is pretty much moot because nobody is choosing a restaurant based on, veal parmigiana costs $25 at Villa Roma and $24.50 at Sicily Palace. But they very much might remember that Sicily Palace charges a credit card fee and boycott it in favor of somewhere else.
In other words your point is pretty much moot because nobody is choosing a restaurant based on, veal parmigiana costs $25 at Villa Roma and $24.50 at Sicily Palace. But they very much might remember that Sicily Palace charges a credit card fee and boycott it in favor of somewhere else.
I'd like to believe this is true but in my metropolitan area, it's quite common to see e.g. a covid recovery fee, inflation recovery fee, iniative 82 service fee, and autograt when you are checking out. It's extremely bad for price transparency but the practice seems very popular among merchants who are betting that customers will still show up as long as the menu prices appear low.
And do you go to these restaurants just as often as you did in the past? Or have you reduced your patronage?
Overall, I eat out less, but "drink out" more and never get more than one drink at the establishment. I can't claim to be able to uniquely isolate any of my behavior to fees because a lot has changed in my life. Before covid I was a student and now an FTE, I was shy and lonely and now I have an active social life, I lived in a very big city and now live in a big city, but I can tell you I get an ick about going out, and when I'm proposing to go out I am mindful of costs and fees and propose places that I consider to be cheaper and more forthright about pricing.
I'm curious if banning cash is profitable because when the business is at capacity, the no cash business filters out thriftier consumers, and not because an individual (who has both cash and credit) spends more when they are told cash is not accepted.
No payment methods are free...
... So just like US sales tax already does? I'm not saying it's a good system, but I'm already paying some random amount on top of the sticker price for everything I buy, depending on what state, county, and city I'm in at the time.
Do you actually want to do that? When a customer wants to make a purchase, I think it is best to get the hell out of their way and not go stand between their wallet and your wallet, blocking their money and yapping about fees or some other completely unimportant stuff.
Can't you just print up a sign for this?
I've seen signs that say stuff like "Prices listed are for cash, 3% surcharge for credit cards."
How many different fee tiers are you as a retailer really trying to charge?
I've seen signs that say stuff like "Prices listed are for cash, 3% surcharge for credit cards."
How many different fee tiers are you as a retailer really trying to charge?
Ahhh yeees, the Ryanair strategy. Everyone's absolute favorite airline.
How do i know you are being transparent with the surcharge? What if you add 2% for a card payment when your actual overhead is only 1%. I suspect this is the reason why EU made these type of schemes illegal many years back. It just creates bad incentives for stores to add random fees everywhere.
How do you even calculate the processing fee of cash on a single transaction? A lot of comment here seem to assume cash is free, when in fact you need a safe, take time to go to the bank, security transfers, counting it, and so on.
How do i know you are being transparent with the surcharge? What if you add 2% for a card payment when your actual overhead is only 1%. I suspect this is the reason why EU made these type of schemes illegal many years back. It just creates bad incentives for stores to add random fees everywhere.
How do you even calculate the processing fee of cash on a single transaction? A lot of comment here seem to assume cash is free, when in fact you need a safe, take time to go to the bank, security transfers, counting it, and so on.
I think there's some technical reason you can't do this, because even gas stations don't. They just have a separate cash/credit price.
That just seems like an irrational amount of energy to spend on 1-3%. I guess you’d get a lot of payments nerds?
Some donation platforms do this! They show and add on the processing fee for VISA/MC and Amex separately, and Amex is a little higher.
Do they account for the different interchange rates on different classes of cards within a processing network? Not every merchant will want to be that granular, but I think it is worth it for big ticket items.
I don't think most merchants have the option to be that granular. I believe that most payment processors only provide a simplified view of interchange rates (and other fees) to all but very large merchants.
For example Braintree is 2.59% + $0.49/transaction, plus 1% if non-USD and 1% if the card was issued outside the US.
They used to split transactions into two tiers, based on how much the actual interchange and other fees were, and you monthly bill as a merchant would show charges for each tier. Within each tier the charge to the merchant was a fixed percentage and a fixed transaction fee. There was no good way for the merchant to know ahead of time which tier a given charge would fall under, although they could guess that a high rewards card was more likely to fall into the higher fee tier.
For example Braintree is 2.59% + $0.49/transaction, plus 1% if non-USD and 1% if the card was issued outside the US.
They used to split transactions into two tiers, based on how much the actual interchange and other fees were, and you monthly bill as a merchant would show charges for each tier. Within each tier the charge to the merchant was a fixed percentage and a fixed transaction fee. There was no good way for the merchant to know ahead of time which tier a given charge would fall under, although they could guess that a high rewards card was more likely to fall into the higher fee tier.
They should A/B test this. My theory is that this creates some amount of friction. I was all set to donate $100, but now I have to go find my debit card or figure out some bank transfer nonsense and by the time I get back (if I get back) my motivation to donate has diminished.
Donation platforms ought to do some analytics on this. If I’m giving money, I want it to be simple without requiring me to second guess.
If a donation platform takes Apple Pay, the friction is even less. I don’t want to fill out your stupid long form, create a password, share my address or whatever.
But, I’m one person — this might be an interesting Masters thesis topic to study the behavioral economics of donation platforms.
Donation platforms ought to do some analytics on this. If I’m giving money, I want it to be simple without requiring me to second guess.
If a donation platform takes Apple Pay, the friction is even less. I don’t want to fill out your stupid long form, create a password, share my address or whatever.
But, I’m one person — this might be an interesting Masters thesis topic to study the behavioral economics of donation platforms.
What I've personally seen is a checkbox, you put in your donation amount and then you can check/uncheck "cover processing fees."
Found an example - https://donorbox.org/nonprofit-blog/donors-to-cover-processi...
Found an example - https://donorbox.org/nonprofit-blog/donors-to-cover-processi...
That would cause a massive customer support and frustration problem as regular customers don't know or care how their card is classified and would complaint that it doesn't work. This would affect both the merchant and the issuer negatively.
Large merchants also pay much less for interchange generally.
Small merchants negotiate with Stripe for a flat fee to accept all cards. Big merchants negotiate with the networks and pay varying prices for varying rewards amounts (or however they get the deal structured).
Interestingly my flat fee with stripe is less than my reward rate on my credit card for some categories. It obviously is against the contract terms and probably considered fraud but I could theoretically make about 1.4-3 cents on the dollar (depending how you value points) by charging myself money.
This comes up in the article.
kinda, the article mentions that certain cards allow you on certain categories to get more than the interchange rate. what they don't mention in the article is that square charges the same fee to the business whatever kind of card is used, in this case whenever you use an amex card it's less profitable for square. If i were using a more traditional processor they may pass this cost on to me.
also milage reward points can hit as high as 2.3 cents per dollar so assuming i want to fly to japan with ANA i could in theory get 8.6c in value of MR points per 2.6c i charge myself. However i would not expect to get away with this and i'm sure square would figure this out.
also milage reward points can hit as high as 2.3 cents per dollar so assuming i want to fly to japan with ANA i could in theory get 8.6c in value of MR points per 2.6c i charge myself. However i would not expect to get away with this and i'm sure square would figure this out.
He also mentions the possibility of adversarial collaboration, creating a scenario similar to yours…
If only Walmart would take contactless payments.
It has more to do with making Walmart Pay the only contactless option to drive adoption of their mobile app.
I confess that I don't understand what the big deal is. It takes 5 seconds to slide the card into the machine. Personally, I find fumbling with my phone takes longer as does figuring out where the reader wants to tap the card if I'm not familiar with that particular store's system.
> Personally, I find fumbling with my phone takes longer as does figuring out where the reader wants to tap the card if I'm not familiar with that particular store's system.
Aren't both of these just symptoms of unfamiliarity with the tech?
I resisted phone payments for a while, until one day I forgot my wallet and quickly added a few cards to my phone. Now I'm severely tempted to use it more often—my phone has a wallet button on the lock screen that jumps me straight there ready to pay with my default card. I've definitely experienced some friction the two times I've used it, but it seems pretty clear that that friction is temporary while I'm still becoming familiar with it.
Aren't both of these just symptoms of unfamiliarity with the tech?
I resisted phone payments for a while, until one day I forgot my wallet and quickly added a few cards to my phone. Now I'm severely tempted to use it more often—my phone has a wallet button on the lock screen that jumps me straight there ready to pay with my default card. I've definitely experienced some friction the two times I've used it, but it seems pretty clear that that friction is temporary while I'm still becoming familiar with it.
The difference is the tap to pay location is usually not obvious, and FaceID will fail sometimes.
One of many reasons why I still have a TouchID iOS device, and am praying Apple will continue to make them.
I'd still have one too, but certain circumstances forced me to get something else. The home button iPhones are better.
Even then, I can tap with the card, which tends to register faster than inserting too. No garbage proprietary software required to be installed on my phone, and I still get contactless.
> It takes 5 seconds to slide the card into the machine.
It sure does, and then 45 seconds while the machine ... thinks about life, and then 15 seconds for it to say "chip read error, reinsert card" and then another 45 seconds for it to reconsider the nature of reality, and then listening to a fire alarm sound that they chose for the success alarm. Excellent UX, no notes
It sure does, and then 45 seconds while the machine ... thinks about life, and then 15 seconds for it to say "chip read error, reinsert card" and then another 45 seconds for it to reconsider the nature of reality, and then listening to a fire alarm sound that they chose for the success alarm. Excellent UX, no notes
The best is how they flash different phrasings and formattings of "do not remove card" just to make sure you're paying attention. I used to slide the card until recently when it became disallowed, that was a way better UX.
I often leave the house without even my wallet these days. With my phone being my car key and my wallet and my transit pass, there's little reason to carry anything else.
I use it on my watch. Double click the side button even when my watch is under a jacket and just hold it in the vicinity of the reader. It’s very easy once you get used to it.
Same, and I note that the OVERWHELMING majority of other customers that I see at the grocery store or Target are still inserting plastic credit cards into the readers (I do think swiping is going extinct though, as the readers push you to insert instead).
However, this is HN and not at all typical of the U.S. or world overall. Even though we frequently lose sight of that.
However, this is HN and not at all typical of the U.S. or world overall. Even though we frequently lose sight of that.
> I don't understand what the big deal is. It takes 5 seconds to slide the card into the machine
For most people, there's the time to get their wallet or equivalent out of pockets or purses, fiddle to get the card, put it the correct way and swipe (but not too fast or too slow!). Vs a phone/watch tap which is usually much more convenient.
For most people, there's the time to get their wallet or equivalent out of pockets or purses, fiddle to get the card, put it the correct way and swipe (but not too fast or too slow!). Vs a phone/watch tap which is usually much more convenient.
I guess it's what you're used to. I have a small wallet I carry in a front pocket, haven't had to swipe a card in ages, and it takes 5 seconds to insert the card.
Maybe if I wore my Apple Watch more, I'd get used to using it but the card just seems more straightforward in general. Maybe I'll insert and maybe I'll tap. I'm pretty indifferent.
Maybe if I wore my Apple Watch more, I'd get used to using it but the card just seems more straightforward in general. Maybe I'll insert and maybe I'll tap. I'm pretty indifferent.
It would take me just as long to get my phone out of my pocket as it would to get my wallet out. Plus a lot of machines have tap pay now if your card supports it.
I realized while waiting in line why Apple Pay makes sense to some people but not me: They're all on their phones in line, I'm not. So for them, it's a cc in pocket vs a phone already in hand.
It means you've got to take the card with you.
Some of it may be that if I'm in a store, I've almost certainly driven there so I probably have my (small) wallet with me.
I use Walmart pay with their app. But then again we’ve totally given up buying off Amazon and do grocery pickup or delivery from Walmart. For 90% of items this is faster than we’d get it from Amazon.
How often do you find yourself somewhere with your phone but not your wallet?
I think this is very region specific. I'm in the UK and hardly ever take my wallet with me unless I'm going somewhere that I know to be cash only and might need to find a cash machine. Only other time I do take my wallet is when I'm in Germany where most places seem to dislike cards.
I always have my phone in my pocket. My billfold is stored in my car, and I do occasionally forget to put it in my pocket when going in to a store. Plus my billfold is thicker than my phone so it's less fun to store in a pocket.
I like contactless just because for some reason, my cards always get beat up and the chips become problematic on my cards after about a year. They just sit in my wallet. But half the time I go to pay with my card, I have to dip twice because the first time, the chip reader always says it is unable to read the chip.
I've also had issues at Walmart where I know some lanes to flat out avoid because the chip readers will always reject my card for unable to read the chip. With my phone, this isn't an issue. Even if I get a new card, wait 8-12 months and its the same problem again.
I've also had issues at Walmart where I know some lanes to flat out avoid because the chip readers will always reject my card for unable to read the chip. With my phone, this isn't an issue. Even if I get a new card, wait 8-12 months and its the same problem again.
You know what would be more durable - a 4'' solid aluminum emv chip shaped coaster. Check us out at aluminum.finance pw 'aluminum' and let me know what you think!
You can do contactless on your card.
If your bank issues you a card with it. I got a new card about 6 months ago, doesn't support contactless.
But I am aware that the cards exist and I am not opposed to it. With contactless I am fine with it being on my phone or card. But I gotta have a card that has contactless to be able to use it.
But I am aware that the cards exist and I am not opposed to it. With contactless I am fine with it being on my phone or card. But I gotta have a card that has contactless to be able to use it.
are cards that dont have paywave or whatever really that common in the US? my bank cards have both had it
I think most banks, but some banks are still slow to roll out. Also, having a contactless card right now wouldn't help my problem at the local Walmart. They have a bunch of old Ingenico devices that don't support tap to pay anyways. So even if my currently troublesome card had tap to pay, it wouldn't do me any good at my local Walmart. Otherwise, I'd just use Apple pay. Most card readers that support tap on a card also support Apple pay and Google Pay and all the other NFC pays (I think Samsung has their own?).
Also at my current job, I am the WorldPay guy. I work at a point of sale company and my area of ownership is integration into World Pay for payment processing at brick and mortar stores. None of our clients have tap to pay devices. They are all running 15 year old Ingenicos and plan to run them till they stop working. So as of right now, that is at least 2,500 stores in the US that I know of that don't support any kind of contactless payments.
Also at my current job, I am the WorldPay guy. I work at a point of sale company and my area of ownership is integration into World Pay for payment processing at brick and mortar stores. None of our clients have tap to pay devices. They are all running 15 year old Ingenicos and plan to run them till they stop working. So as of right now, that is at least 2,500 stores in the US that I know of that don't support any kind of contactless payments.
Most of my cards don't have it currently. Some do. I saw the new version of one bank's cards with it so I think when those expires or gets replaced it'll have contactless. Then it'll be about half of my cards without it.
I'm in the US and I'm pretty sure all 5 (6? IDR) of my credit cards have supported tap-to-pay for a couple years now.
I have over 10 cards, debit and credit, and I think only one or two don't support it.
Presumably they do not because they want to track you via your credit card number, and permitting Apple Pay (maybe others too) would hinder that.
It's more that they want to try and convince people to pay with Walmart's own lower-cost (to them) app if you want to do contactless payments from your phone. If they made it easier to use Apple Pay, why would anyone ever use their app?
Why would paying with the Walmart app be lower cost to Walmart? Both the Walmart app and Apple Pay are essentially, as far as payments go, just digital wallets that you can store credit card information in.
When you use them it is still a charge to one of those credit cards.
It might actually cost Walmart more in my case, because the card I have on file has larger rewards for online purchases than it does for in-store purchases, and the Walmart app processes purchases as online even when made in-store. If I pay with the physical card it is processed as in-store.
When you use them it is still a charge to one of those credit cards.
It might actually cost Walmart more in my case, because the card I have on file has larger rewards for online purchases than it does for in-store purchases, and the Walmart app processes purchases as online even when made in-store. If I pay with the physical card it is processed as in-store.
Apple Pay is just as traceable if they want it to be.
They’re just stubborn and want people to use their option (and card, if possible).
As it is you can load any credit card into the Walmart app and pay by pointing the “check price” barcode camera at the screen.
They’re just stubborn and want people to use their option (and card, if possible).
As it is you can load any credit card into the Walmart app and pay by pointing the “check price” barcode camera at the screen.
> Apple Pay is just as traceable if they want it to be.
[Citation Needed].
On the other hand, stores like that probably already do facial recognition on customers, so it really is just intransigence to not allow contactless payments.
[Citation Needed].
On the other hand, stores like that probably already do facial recognition on customers, so it really is just intransigence to not allow contactless payments.
See https://birchtree.me/blog/digital-wallets-and-the-only-apple... - the DPAN stays the same at a particular merchant, so Walmart sees all but can't necessarily directly "know" what you're buying at other stores.
Apple Pay and Google Pay have their own virtual numbers, rather than using your regular card number, but the number doesn't rotate.
For example, our local bus company can quite happily offer capped daily and weekly fares when folk use the same device to pay.
For example, our local bus company can quite happily offer capped daily and weekly fares when folk use the same device to pay.
Your local bus company isn't trying to correlate your activity across multiple retailers to try to squeeze an extra few cents of value from you, though.
The device account number does not rotate with every transaction. You have to unlink your device from your credit account and re-enroll to do that.
I presume the same.
I always rate my experience 1 star when checking out at Walmart because of this. Probably won't change anything, but I feel I can't just stop going to Walmart because then Amazon is the only place left. Which is also fucked up but let's stay on topic.
The only thing I would add to your comment is that merchants aren’t the ones being forced to pay these stupid fees, it’s their customers (and primarily their poorer and often non-card using ones) who are being quite heavily taxed to fund a marketing scheme for rich customers. Most competitive businesses can’t afford to fund such an elaborate targeted marketing campaign directly out of their fees without some competitive pushback: hence the actual question you should ask is why the entire system exists, and the answer has to do with a pile of inefficiency and rent collection based on regulatory capture.
> The only thing I would add to your comment is that merchants aren’t the ones being forced to pay these stupid fees, it’s their customers (and primarily their poorer and often non-card using ones) who are being quite heavily taxed to fund a marketing scheme for rich customers.
Counterpoint: i will pay you $500 if any of the big retailers (>2k stores) lowers prices now and cites "lower credit card fees means we can charge less".
Counterpoint: i will pay you $500 if any of the big retailers (>2k stores) lowers prices now and cites "lower credit card fees means we can charge less".
Because of the stickiness of prices, passing through of cost savings usually manifest as slower inflation. Costco is rumored to have negotiated 0.3% from Visa in exchange for exclusivity. This is part of how they are able to sell goods at thin markups. Aldi USA used to only take debit cards. They caved and now take credit cards. Travelers Insurance offers two prices on every quote: by bank account or a higher one by credit card.
http://www.bloomberg.com/features/2015-how-amex-lost-costco/
http://www.bloomberg.com/features/2015-how-amex-lost-costco/
Most insurances do charge lower fees for direct deposit - Allstate does it at well.
Comcast too. I get five dollars off per month for direct deposit. I believe it’s less about fees but more about avoiding chargebacks.
Or conversely they are doing a stealth price increase and shifting the blame to credit card fees. The end result is they shift the cost of banking onto the customer like how some businesses only take cash and have installed an ATM. Then they expect the customer eat an ATM fee. The business avoids chargebacks but the customer has to bear the burden of potential leakage of ACH digits and company errors in debiting the wrong amount.
Do you think prices would remain the same if interchange fees doubled?
If the company could profitably charge more for their products, they already would be, regardless of what interchange fees (or other costs) were.
Raising costs means they need to charge more somewhere or lower transaction. Unless in monopoly situation, price pressure goes both ways.
If competitors can lower prices, whole market eventually ends up having to do that.
If competitors can lower prices, whole market eventually ends up having to do that.
During the current inflation companies have used inflation as excuse to raise their prices way above inflation. It may be the same here. Publicly state that interchange fees are the reason for the increase but raise the price by way more than the increase in fees.
While we're in this topic: why is unsecured credit card debt NOT tax deductible but secured debt like HELOC is?
Fwiw I don't really care what the technical reason is, it's a rhetorical question to add to the ways the credit system holds back the poor.
Fwiw I don't really care what the technical reason is, it's a rhetorical question to add to the ways the credit system holds back the poor.
You used to be able to deduct any consumer debt. But that stopped in 1986. The reason was "Congress believed deductions for personal interest encouraged people to consume and stifle savings."
https://www.telegram.com/story/news/local/worcester/2007/03/...
https://www.telegram.com/story/news/local/worcester/2007/03/...
There used to be mostly piddling deductions for all sorts of things that you don't have today. It's probably mostly a positive to not keep track of things like sales tax in order to minimize your income tax.
Deductions also cause people to go temporarily insane - it’s fine paying 5% unnecessarily because I get 2% back on my taxes! Ignore the 3% that is gone forever …
Even then I’m not sure how much it affected the poorer people, since you still had to overcome the standard deduction (lower, sure).
The deduction on mortgage interest now mostly only affects the well-off because the standard deduction for married filing jointly is so high.
The deduction on mortgage interest now mostly only affects the well-off because the standard deduction for married filing jointly is so high.
The the 1980s the deduction for mortgage interest would have been significant, I suspect most people itemized then. And the huge standard deductions we have now are a fairly recent tax change.
It was 3400 for a married couple in 1980, but yes, many more people deducted mortgage interest until 2018 when the standard deduction nearly doubled.
Many people didn't math the interest deduction correctly - only the amount over the standard deduction should be counted, as you'd get the standard deduction anyway. Can vary depending on SALT and charity donations.
Many people didn't math the interest deduction correctly - only the amount over the standard deduction should be counted, as you'd get the standard deduction anyway. Can vary depending on SALT and charity donations.
Yes, real estate tips always seemed full of self serving nonsense to me and usually talked big about the tax savings. But with my modest house and mortgage I calculated that even at the start of my mortgage I saved a whopping $800/yr on taxes with deductions versus the standard deduction. I spent well more than that on furnishings and repairs every year. And that tax advantage (for me) disappeared entirely after maybe 5 years or something.
For a long time I would read money saving tips articles and a tip that frequently came up in these and in pro real estate pieces was that paying a single extra mortgage payment per year would let you pay your mortgage off 12-15 years early.
When you did the math you realized it was bogus. As near as I can tell, this actually was true for one brief period in the 1980s when mortgage rates were at their zenith. Articles were written about this amazing tip well into the 1990s before the BS was transcribed to the internet and then repeated well into the super low interest rate era where it wasn't even close to being true.
Of course it wasn't even really true in the 1980s either. Once interest rates went down you'd have been wise to refinance at the newer lower rates instead of prepaying the mortgage as it would improve your cash flow and lock in the savings. So in reality, it would have only made sense if interest rates had stayed at that same high rate for the whole length of the mortgage!
For a long time I would read money saving tips articles and a tip that frequently came up in these and in pro real estate pieces was that paying a single extra mortgage payment per year would let you pay your mortgage off 12-15 years early.
When you did the math you realized it was bogus. As near as I can tell, this actually was true for one brief period in the 1980s when mortgage rates were at their zenith. Articles were written about this amazing tip well into the 1990s before the BS was transcribed to the internet and then repeated well into the super low interest rate era where it wasn't even close to being true.
Of course it wasn't even really true in the 1980s either. Once interest rates went down you'd have been wise to refinance at the newer lower rates instead of prepaying the mortgage as it would improve your cash flow and lock in the savings. So in reality, it would have only made sense if interest rates had stayed at that same high rate for the whole length of the mortgage!
Which is kinda stupid, when the economy is based on people consuming.
I guess Reagan's friends at that point wanted more money for Wall Street to gamble.
I guess Reagan's friends at that point wanted more money for Wall Street to gamble.
> encouraged people to consume and stifle savings
Ironic in hindsight; every monetary and fiscal policy as of late seems to be designed to punish savers and reward debtors.
Ironic in hindsight; every monetary and fiscal policy as of late seems to be designed to punish savers and reward debtors.
Hard to extract profit from the fiscally responsible.
To a first approximation, no one actually takes advantage of the mortgage tax deduction any more because the standard deduction is so high and the cap on state tax/property taxes is so low that most people don’t itemize.
Only about 10% itemize.
https://www.taxpolicycenter.org/briefing-book/what-are-itemi....
Only about 10% itemize.
https://www.taxpolicycenter.org/briefing-book/what-are-itemi....
And the majority of those make more than $500K. The deductions are probably mostly some combination of mortgages on very expensive properties or very large charitable contributions, probably often tax-shielded in some manner.
You can’t deduct interest on personal income tax for mortgages over $750,000, so it seems somewhat unlikely that such deductions make up any significant amount of the deductions: https://www.irs.gov/publications/p936#en_US_2023_publink1000...
The $750,000 amounts to a cap on the deduction. If your mortgage is in excess of that amount, you would pro-rate the deductible interest accordingly.
I think it's reasonable to say that the folks with the largest mortgages are the ones most likely to itemize mortgage interest, even if they are capped.
I think it's reasonable to say that the folks with the largest mortgages are the ones most likely to itemize mortgage interest, even if they are capped.
Yeah, that is what I was trying to convey with regards to the interest deduction being capped, not that the deduction just stopped. I think I was a bit muddled with my second point as I was trying to suggest by the time you are at a very high income level, your deductions are primarily made of other things, because the mortgage interest deductions can only be so large. That's indeed what the underlying data from the IRS shows as you go up in income past $500k a year comparing column 91 (total home mortgage interest deducted by itemized filers) to column 61 (total itemized deductions) in the ridiculously massive table that the the Tax Policy Center summarizes from that starts on page 137: https://www.irs.gov/pub/irs-pdf/p1304.pdf
It was! Auto leases were deductible too which was a big subsidy for the auto industry.
Once rich people figured out how to get poor people to be angry about things like higher marginal tax rates for rich people and “death taxes”, we raised taxes on the suckers to benefit the richer people.
Once rich people figured out how to get poor people to be angry about things like higher marginal tax rates for rich people and “death taxes”, we raised taxes on the suckers to benefit the richer people.
> While we're in this topic: why is unsecured credit card debt NOT tax deductible but secured debt like HELOC is?
AFAIK it's a carve out specifically for houses. Car loan interest isn't deductible despite being "secured".
AFAIK it's a carve out specifically for houses. Car loan interest isn't deductible despite being "secured".
It's a bargaining chip to get votes. If one party promises a larger tax saving on homes, then homeowners are more likely to vote for them.
Besides that, there may be some societal benefits to increased home ownership.
As I understand it, mortgage interest deductibility was originally basically social policy (rightly or wrongly). And you can't take a benefit like that away--even if the government kind of did for most people by increasing the standard deduction. (Which was probably not a terrible way of doing so.)
Granting a tax credit for something encourages that thing. So, from that perspective, I think it makes some sense to grant a tax credit for mortgage interest but not credit card debt.
Tax credit for mortgage interest encourages speculative investment in the housing market. Tax credit for credit card debt encourages consumer economic activity.
you have to live somewhere.
maybe you rent, but renters DGAF about the local community the way that homeowners do.
home (property) taxes also fund a lot local services, schools, etc. you want prices higher and stable, and not dominated too heavily by mega-corps that will weasel out of paying said taxes.
maybe you rent, but renters DGAF about the local community the way that homeowners do.
home (property) taxes also fund a lot local services, schools, etc. you want prices higher and stable, and not dominated too heavily by mega-corps that will weasel out of paying said taxes.
I've rented in my town for ten years, and I care about it a lot thank you very much.
Renters absolutely care about the local community.
Renters absolutely care about the local community.
Though one can write off losses from gambling in the US.
I wish the tax code had more a more positive slant per your point, but lobbying seems to be a bigger driver.
I wish the tax code had more a more positive slant per your point, but lobbying seems to be a bigger driver.
Pretty sure you can only write off gambling losses to offset gambling winnings, which entirely makes sense. That way you only pay taxes on your net winnings for the year.
I can confirm this.
HELOC debt is (since 2017 TCJA) now only deductible if used to purchase or upgrade/repair the house. And now the vast majority of people are not going to be deducting any mortgage or HELOC debt anyway, since the standard deduction is so high now.
> While we're in this topic: why is unsecured credit card debt NOT tax deductible but secured debt like HELOC is?
HELOC interest is rarely deductible either. First, you now must be able to itemize deductions, which the recent tax changes have made very unlikely. Less than 12% of tax returns are able to itemize:
https://www.irs.gov/pub/irs-soi/soi-a-inpre-id2303.pdf
In addition, even if you are in that ~11% who can itemize, HELOC interest is only deductible if you use it to work on the same house being used to get the LOC. Any other use is not deductible.
HELOC interest is rarely deductible either. First, you now must be able to itemize deductions, which the recent tax changes have made very unlikely. Less than 12% of tax returns are able to itemize:
https://www.irs.gov/pub/irs-soi/soi-a-inpre-id2303.pdf
In addition, even if you are in that ~11% who can itemize, HELOC interest is only deductible if you use it to work on the same house being used to get the LOC. Any other use is not deductible.
> the ways the credit system holds back the poor
It would be good to understand this better. Doesn't everyone use a credit card? Not just the poor? Who are the poor in this case? Are tax deduction rules anything to do with the credit system?
It would be good to understand this better. Doesn't everyone use a credit card? Not just the poor? Who are the poor in this case? Are tax deduction rules anything to do with the credit system?
Are you aware that merchants charge more for goods and services so they can offset CC merchant fees? Even a cash paying poor person who cannot get a CC is paying for this.
My comment is to show another way this is perpetrated. People saddled with CC debt could dig themselves out faster if they could write off interest.
My comment is to show another way this is perpetrated. People saddled with CC debt could dig themselves out faster if they could write off interest.
> Are you aware that merchants charge more for goods and services so they can offset CC merchant fees?
Well, some places add on a fee, but yes, agreed, some places apply a blanket charge. I don't see how this relates to the tax deduction.
> Even a cash paying poor person who cannot get a CC is paying for this
This is about a tax deduction. Are you saying someone who can't get a credit card is going to be meaningfully affected by a tax deduction?
> People saddled with CC debt could dig themselves out faster if they could write off interest.
This is true, but also the giant number of people who just chose to get into credit card debt would be paying less tax. If you want to make credit cards into effectively interest-free loans then that might cause issues.
Well, some places add on a fee, but yes, agreed, some places apply a blanket charge. I don't see how this relates to the tax deduction.
> Even a cash paying poor person who cannot get a CC is paying for this
This is about a tax deduction. Are you saying someone who can't get a credit card is going to be meaningfully affected by a tax deduction?
> People saddled with CC debt could dig themselves out faster if they could write off interest.
This is true, but also the giant number of people who just chose to get into credit card debt would be paying less tax. If you want to make credit cards into effectively interest-free loans then that might cause issues.
> but yes, agreed, some places apply a blanket charge. I don't see how this relates to the tax deduction.
Earlier you asked me to explain how credit cards harm the poor. I showed you, and now you complain that it doesn't pertain to a tax deduction. It's not about a singular thing. The singular thing was one token example of a larger theme that for some reason you refuse to acknowledge.
Earlier you asked me to explain how credit cards harm the poor. I showed you, and now you complain that it doesn't pertain to a tax deduction. It's not about a singular thing. The singular thing was one token example of a larger theme that for some reason you refuse to acknowledge.
People who are encumbered by credit card debt are usually people who would still be better off taking the standard deduction these days.
Exactly. It sounds harsh but those encumbered with usurious credit card debt would be better served by being forbidden from having it at all; but that’s a position strongly fought against on all sides.
They would not. One man's "usurious" debt is another's "wtf why do rich people get interest rates under 1% of payday loan offerings" (not in those terms).
... and the answer to that is the charge-off rate on a prime credit card portfolio is currently around 2%, whereas it's 55% for payday loans.
Are you aware merchants charge more for goods and services so they can take returns? Even a perfect consumer who never returns items is paying for this.
The population likely to use HELOCs votes more and/or is more populous, so they have more votes.
Same reason Medicare (old people) pays healthcare providers more than Medicaid (young and poor people).
Same reason Medicare (old people) pays healthcare providers more than Medicaid (young and poor people).
The real estate lobby is the largest lobby in the US.
Doesn’t seem like regulatory capture is the issue, if the market was totally free to new entrants and you brought in a low fee card with no rewards then it’s going to fail in an unregulated environment because merchants won’t go to the hassle of offering tiered pricing to low fee cards if they’re not already offering tiered prices for cash, so no-one’s going to give up their existing rewards to still have to pay the same prices. Deregulation just ends up stuck in a local minimum where everyone’s effectively paying for the highest fee cards that the merchant will accept.
It's the legislation that disallows vendors to have different pricing based on the payment system that disaligns the incentives.
If I have a card that gives back 2% to me, back causes 5% fees to the vendor, both of us would be better off if I used a card with 1% fee, and the vendor gives me 2% discount. Unfortunately, not allowed.
If I have a card that gives back 2% to me, back causes 5% fees to the vendor, both of us would be better off if I used a card with 1% fee, and the vendor gives me 2% discount. Unfortunately, not allowed.
It’s been mostly legal to charge credit card surcharge fees since 2013. https://www.lexology.com/library/detail.aspx?g=5c6e1264-42a8...
The real reason that most merchants don’t charge surcharges is that they don’t want to lose the sale, calculating the actual interchange is wildly complex and in general they prefer cards to cash.
The real reason that most merchants don’t charge surcharges is that they don’t want to lose the sale, calculating the actual interchange is wildly complex and in general they prefer cards to cash.
There are definitely a good number of small businesses around me (cafes, and similar places) that offer a cash discount. They don't have a sign offering it, but when I pull out cash, they revise the price down.
More and more small places around here are explicitly offering the discount either with a “3% less if you pay cash” but more commonly now a “listed prices are cash or debit, credit pays more”.
It’s a noticeable fee for them.
It’s a noticeable fee for them.
It is against VISA ToS. Small businesses can risk it but large businesses would get sued and VISA would refuse to do business with them
Nope, not against VISA ToS. Post you're replying to indicates it's no longer "illegal" but it was never actually illegal to charge a surcharge, it was just disallowed by ToS. This is no longer the case as of 2013 and retailers are now free to charge a surcharge if they so choose.
You are referring to the USA here. In most parts of Europe / EU it's actually still illegal for vendors to discriminate on price based on the type of payment.
It's newly illegal, and even that's only since the interchange fees were capped by the European Commission to a maximum of 0.3%/0.2%.
As far as I know they're also allowed to charge surcharges for non-capped cards (e.g. business/commercial cards, three-party schemes like Amex etc.)
As far as I know they're also allowed to charge surcharges for non-capped cards (e.g. business/commercial cards, three-party schemes like Amex etc.)
Is it legislation or the contract with the credit card? My understanding is the contract to take ie VISA has terms that you cannot apply a discount for customers using other payment methods (ie cash or someone else's card). There are a few places that don't have those terms (mostly government where often a card does cost more to use).
What people forget about these fees is a credit card is cheaper to take for the merchant. The credit card is never counterfeit money. The clerk never takes money from the credit cards, nor does the manager counting it (I wasn't in retail long but I saw both). You never have a robber come in to take your credit card money. Even when all goes well, you don't pay the clerk and manager by the hour to count all the cash twice. You do have some risk of taking a stolen credit card, but overall it is cheaper for the merchant to take credit cards and that savings should be what pays for the card costs (I have no idea how to count the different costs to see if that is true)
What people forget about these fees is a credit card is cheaper to take for the merchant. The credit card is never counterfeit money. The clerk never takes money from the credit cards, nor does the manager counting it (I wasn't in retail long but I saw both). You never have a robber come in to take your credit card money. Even when all goes well, you don't pay the clerk and manager by the hour to count all the cash twice. You do have some risk of taking a stolen credit card, but overall it is cheaper for the merchant to take credit cards and that savings should be what pays for the card costs (I have no idea how to count the different costs to see if that is true)
The real advantage for merchants is to take debit (assuming the payment is high enough). Much of the benefits of credit without the hassle of cash.
The real real advantage is for small businesses to bait customers with a cash discount and then not report cash earnings to the IRS come April.
[deleted]
The answer is that the system doesn’t work if a 3%-fee card isn’t held by a low-risk, high-spend rich person. Indeed if that weren’t the case, merchants would reject the tiered fee structure.
(This is also the answer as to why in the absence of regulation, exchange fees aren’t higher than they already are.)
(This is also the answer as to why in the absence of regulation, exchange fees aren’t higher than they already are.)
> the system doesn’t work if a 3%-fee card isn’t held by a low-risk, high-spend rich person
There's many rewards cards that require an annual fee (which encourages a high spend to recoup the fee with rewards). But there are plenty of 1.5%-2% cards with no annual fee. You just need a good credit score.
There's many rewards cards that require an annual fee (which encourages a high spend to recoup the fee with rewards). But there are plenty of 1.5%-2% cards with no annual fee. You just need a good credit score.
Almost every card with an annual fee has enough credits and perks to offset the annual fee without spending any money.
The second and third tier Delta cards come with a $250 and $650 Annual fee.
The second tier card (Delta Platinum) has an annual fee of $350. But it comes with a $150 Delta Stays credit for hotels and one round trip an economy companion pass - basically buy one get one free - for any place in the US, Mexico, Central America or the Caribbean.
The higher end Delta Reserve comes with similar benefits. But a first class companion pass. If you never use either card except for the credit, the benefits more than offset the annual fee. The Reserve also comes with airport lounge access
I have three Delta cards just for those benefits.
I could explain the Amex Platinum, Gold, Green, every cobranded hotel card, the high end Capital One cards the same way.
The credit card companies as the article says are betting that the typical customer will use credit cards in a suboptimal manner. They are banking on most credit card users not to be like the typical r/creditcards users who carry 6-8 credit cards including “sock drawer” cards that are just held for the outsized benefits to annual fees and aren’t their primary cards.
My wife and I travel a lot and yes I have nine cards and $2700 worth of annual fees. Most of those cards are “sock drawer” cards that are just used because the “coupons” make travel cheaper.
The second and third tier Delta cards come with a $250 and $650 Annual fee.
The second tier card (Delta Platinum) has an annual fee of $350. But it comes with a $150 Delta Stays credit for hotels and one round trip an economy companion pass - basically buy one get one free - for any place in the US, Mexico, Central America or the Caribbean.
The higher end Delta Reserve comes with similar benefits. But a first class companion pass. If you never use either card except for the credit, the benefits more than offset the annual fee. The Reserve also comes with airport lounge access
I have three Delta cards just for those benefits.
I could explain the Amex Platinum, Gold, Green, every cobranded hotel card, the high end Capital One cards the same way.
The credit card companies as the article says are betting that the typical customer will use credit cards in a suboptimal manner. They are banking on most credit card users not to be like the typical r/creditcards users who carry 6-8 credit cards including “sock drawer” cards that are just held for the outsized benefits to annual fees and aren’t their primary cards.
My wife and I travel a lot and yes I have nine cards and $2700 worth of annual fees. Most of those cards are “sock drawer” cards that are just used because the “coupons” make travel cheaper.
You need the right spending pattern and you need to manage the card rewards. When my travel went way down, I dropped a couple cards though I keep a pretty low-cost United cobranded card to basically keep me with some semblance of status. But things like airline club membership just weren't worth it any longer.
I agree completely and I didn’t even discuss the entire “churning” strategy where there is an entire cottage industry, a subreddit and a flowchart discussing how to get sign up bonuses and how to get the best return.
(I am not affiliated with this site in any way)
https://www.offeroptimist.com/
(I am not affiliated with this site in any way)
https://www.offeroptimist.com/
At some point the maintenance becomes too complex and people just either use the card or eat the fee.
They know exactly how many do this. The people who churn are just free advertising for them.
They know exactly how many do this. The people who churn are just free advertising for them.
Is it worth it for someone who likes to travel, and wants to save for retirement and never wants to “work for a FAANG” (again) like in my case? I would say so.
Just from the cash savings of my card setup, I would say it’s worth $3500 that offsets the $2700 in annual fees.
Then take into account the points I earn from everyday spend is worth another $3000-$5000 depending on how I choose to redeem them (see r/awardtravel).
Then take into account sign up bonuses and churning, I’m planning on doing over the next year worth around $5000.
It’s the only way that I can balance our travel hobbies with my goals of maxing out my 401k including catch up contributions (I turn 50 this year), max out my HSA and not use it and “retire my wife” so she can enjoy her hobbies.
This hobby isn’t just for people with above average incomes. If you are steeped in the culture, you can lean more toward churning and legal manufactured spending
https://frequentmiler.com/manufactured-spending-complete-gui...
Just from the cash savings of my card setup, I would say it’s worth $3500 that offsets the $2700 in annual fees.
Then take into account the points I earn from everyday spend is worth another $3000-$5000 depending on how I choose to redeem them (see r/awardtravel).
Then take into account sign up bonuses and churning, I’m planning on doing over the next year worth around $5000.
It’s the only way that I can balance our travel hobbies with my goals of maxing out my 401k including catch up contributions (I turn 50 this year), max out my HSA and not use it and “retire my wife” so she can enjoy her hobbies.
This hobby isn’t just for people with above average incomes. If you are steeped in the culture, you can lean more toward churning and legal manufactured spending
https://frequentmiler.com/manufactured-spending-complete-gui...
Is churning still possible in the US? I thought Amex sign-up bonuses were only awarded once.
In the UK you can still cancel and re-apply after 24 months. It used to be 6 months but those good days are long gone...
In the UK you can still cancel and re-apply after 24 months. It used to be 6 months but those good days are long gone...
Amex has a once in a lifetime rule for each card and now they are getting even stricter. But there are still a lot of cards you can go through if you do them in the right order between the business and personal cards.
But there is still Chase, CapitalOne and Citi. The Chase Ink Business cards you can churn as much as you want and most of the other cards have either a 24 or 48 month rule
But there is still Chase, CapitalOne and Citi. The Chase Ink Business cards you can churn as much as you want and most of the other cards have either a 24 or 48 month rule
Getting rewards that vastly exceed the costs is still very possible in the US. The days of “I travel first class internationally for free every few months and change cards as often” are long gone though. That pattern is trivially recognizable and most of the better rewards card providers will reject folks with that history even if they have perfect credit otherwise.
Not with Chase Ink cards. There are people who do one a quarter
Ah, for the era of buying dollar coins and flooding your bank with them. Brings back memories.
The other benefit the Delta AmEx (and I presume other AmEx cards) gives are the various merchant discounts. In the past year I've gotten statement credits totaling about $600 by using the card to pay for various streaming services, shoes and clothes, certain restaurants and even my utility bill. The offers rotate every few months but I make sure to scan them when I login to view my statements and activate any of them I think I might use.
All of these things were items I was already using or would have purchased anyway and the discounts stack on top of any available merchant coupons too since they are credits coming straight from AmEx.
All of these things were items I was already using or would have purchased anyway and the discounts stack on top of any available merchant coupons too since they are credits coming straight from AmEx.
[deleted]
Sorry, can you explain why the high spend is important? What is the benefit of a low risk buyer having a single card vs three different cards?
Low risk is clear -- the lower the risk the more money is left, after handling problems, for the rebates and profits.
Low risk is clear -- the lower the risk the more money is left, after handling problems, for the rebates and profits.
In this context, it’s important to the merchants: They want these customers, so they grit their teeth on the higher interchange fees demanded by the banks. If the banks started handing out these cards to everyone, the merchants would revolt.
Interchange. The fees go directly to the issuer not the network (which collects much smaller scheme fees). If you have 3 cards they’d almost certainly be for 3 different issuers so they’d split the interchange. Making you less valuable.
> for the rebates and profits
And salaries and pensions, etc.
And salaries and pensions, etc.
Credit card processors actually provide a service for both their cardholders and the people who accept their cards…
Yes there is the downside for businesses when the processors reverse charges but if this was big enough of a downside then people would stop accepting the card.
Yes sometimes people get their number stolen and are out the money for a while during an investigation, but again if this downside were big enough people wouldn’t use that card anymore.
Yes there are new types of fraud enabled by the technology.
The big benefit is you don’t have to have liquid cash sitting around where people can grab it and disappear.
Some merchants don’t accept some cards… they’ve decided that the cost outweighs the benefit. My grocery store fought against accepting Apple Pay and they do now. Walmart doesn’t.
Yes there is the downside for businesses when the processors reverse charges but if this was big enough of a downside then people would stop accepting the card.
Yes sometimes people get their number stolen and are out the money for a while during an investigation, but again if this downside were big enough people wouldn’t use that card anymore.
Yes there are new types of fraud enabled by the technology.
The big benefit is you don’t have to have liquid cash sitting around where people can grab it and disappear.
Some merchants don’t accept some cards… they’ve decided that the cost outweighs the benefit. My grocery store fought against accepting Apple Pay and they do now. Walmart doesn’t.
>Yes sometimes people get their number stolen and are out the money for a while during an investigation
One of the main benefits of credit cards over most other forms of payment is that that isn't the case. A fraudulent transaction on a credit card ties up some of your credit limit during resolution. A fraudulent debit card transaction or personal check takes money out of your account. Of course, if you wait long enough, you may have already paid the bill containing the credit card transaction and then you're in the same boat.
One of the main benefits of credit cards over most other forms of payment is that that isn't the case. A fraudulent transaction on a credit card ties up some of your credit limit during resolution. A fraudulent debit card transaction or personal check takes money out of your account. Of course, if you wait long enough, you may have already paid the bill containing the credit card transaction and then you're in the same boat.
Rewards cards should be illegal and basically are privately levied tax on the poor and a subsidy to the wealthy.
Boy are you going to be shocked when Walmart, target, Amazon brag about the X% income increase when that happens and while prices continue to rise.
Zero, zero companies will discount the sales price when the rewards cards are gone.
There is a strong argument that discontinuing rewards cards actually helps the extremely wealthy by taking from the middle class and giving it to the Uber rich shareholders and big business owners.
Zero, zero companies will discount the sales price when the rewards cards are gone.
There is a strong argument that discontinuing rewards cards actually helps the extremely wealthy by taking from the middle class and giving it to the Uber rich shareholders and big business owners.
There's another side to this. By giving out rewards, wealthy people are given more on top. Things they otherwise would've paid for are now free to them. Whereas someone without those benefits has to pay for those things out of their own pocket.
Returning merchandise should be illegal and allowing returns is basically a privately levied tax on those who make good purchase decisions and a subsidy to the impulse buyer.
I see this sentiment sometimes, but I disagree. I have excellent credit score and several good rewards cards, despite never spending more than $10k/yr through them. I'd say someone making $10k/yr is dirt poor and yet they too can have a good rewards card.
> privately levied tax on the poor and a subsidy to the wealthy
That's 2/3s of capitalism. Hold enough MA and V -- directly or through just having enough net worth in an index -- and you'll start to see this as a feature, not a bug.
That's 2/3s of capitalism. Hold enough MA and V -- directly or through just having enough net worth in an index -- and you'll start to see this as a feature, not a bug.
What's MA and V? Moving Average and Volatility? (genuinely don't know and unsuccessfully tried to google it)
MasterCard and Visa's stock ticker symbols
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The merchant doesn't generally have much choice. I have some friends who ran a restaurant, and they stopped accepting Amex because the fee was too high. They sold the restaurant to an employee and he immediately started accepting Amex again. Too many high spending clients use it and he didn't want to miss out.
Also, even though Costco only accepts a single brand of card (used to be Amex, now Visa), despite their size and market power they accept any Visa card a customer presents.
Also, even though Costco only accepts a single brand of card (used to be Amex, now Visa), despite their size and market power they accept any Visa card a customer presents.
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Simply because these customers are likely to buy more and at premium prices and not be a pain in terms of refunds etc. They are willing to pay more in commission knowing they are dealing with richer people.
> The article goes on to ask the question "Why isn’t every card a rewards card?", meaning why doesn't every card pay cash back, but I think the more interesting question is why every card isn't branded in a way that makes the issuer more money. Why do they bother to issue cards where they get paid less? Why not brand every card as a "Signature Preferred" and then pocket the money instead of giving it to the less discerning customers?
I didn't see any other comments actually answer the question, so I'll try my hand at this. (Caveat: I've never worked in the finance industry professionally, but I consider myself one of the Redditors mentioned in the article.)
From my layperson understanding, banks undertake not to issue more than a certain percentage of cards as "Signature Preferred" cards, and there is a minimum credit limit required to open such card accounts.
The Chase Sapphire Reserve mentioned in the article is a Visa Infinite card, and Chase requires a $10,000 credit limit to open it. Chase doesn't give $10,000 credit limits to just about anyone, and considering how flexible the US is with identity and income requirements, Chase needs to be more stringent with their underwriting and verification processes to avoid issuing such cards to people who are more likely to default.
From further research, it looks like the Visa Core Rules do offer guidelines [1], for anyone interested:
The bank would incur additional costs to satisfy the requirements to issue higher tier cards. For Visa Infinite, banks are required to offer benefits like "Priority assistance and convenience", "Exclusive privileges and rewards", and "Safety and security", and in some countries, concierge services. Visa Signature cards must have 24/7 customer support.
The PDF is a gold mine for anyone interested in learning more about the various tiers.
[1] https://usa.visa.com/content/dam/VCOM/download/about-visa/vi...
I didn't see any other comments actually answer the question, so I'll try my hand at this. (Caveat: I've never worked in the finance industry professionally, but I consider myself one of the Redditors mentioned in the article.)
From my layperson understanding, banks undertake not to issue more than a certain percentage of cards as "Signature Preferred" cards, and there is a minimum credit limit required to open such card accounts.
The Chase Sapphire Reserve mentioned in the article is a Visa Infinite card, and Chase requires a $10,000 credit limit to open it. Chase doesn't give $10,000 credit limits to just about anyone, and considering how flexible the US is with identity and income requirements, Chase needs to be more stringent with their underwriting and verification processes to avoid issuing such cards to people who are more likely to default.
From further research, it looks like the Visa Core Rules do offer guidelines [1], for anyone interested:
The bank would incur additional costs to satisfy the requirements to issue higher tier cards. For Visa Infinite, banks are required to offer benefits like "Priority assistance and convenience", "Exclusive privileges and rewards", and "Safety and security", and in some countries, concierge services. Visa Signature cards must have 24/7 customer support.
The PDF is a gold mine for anyone interested in learning more about the various tiers.
[1] https://usa.visa.com/content/dam/VCOM/download/about-visa/vi...
Some merchants reject cards with higher fees; i.e., Amex is not accepted at some merchants with lower margins (i.e., grocery stores).
It would be impractical for merchants to accept some branded cards and not others. Imagine "we accept "Chase Premium One" card, but not "Chase American Airlines" card." Very confusing for consumers. If it's a whole category, like Amex, it's easier to refuse it (besides, low income consumers are unlikely to have an Amex card).
It would be impractical for merchants to accept some branded cards and not others. Imagine "we accept "Chase Premium One" card, but not "Chase American Airlines" card." Very confusing for consumers. If it's a whole category, like Amex, it's easier to refuse it (besides, low income consumers are unlikely to have an Amex card).
I’ve never seen an Amex declined at a grocery store.
It seems pretty clearly implied from his Starbucks example: these rates are negotiated (at least with big merchants).
Presumably, for example, Starbucks is willing to pay higher interchange on the Chase sapphire series than on the Chase freedom series because they believe that the people carrying Chase sapphire cards spend more money. Starbucks would not be willing to pay that for less profitable customers.
Presumably, for example, Starbucks is willing to pay higher interchange on the Chase sapphire series than on the Chase freedom series because they believe that the people carrying Chase sapphire cards spend more money. Starbucks would not be willing to pay that for less profitable customers.
Citibank reissued my credit card well before the expiration date to upgrade it to a "World Elite Mastercard" with attendant higher interchange.
The Acquired podcast episode about Visa explains this.
The high fee for rewards cards can be justified to merchants because those are their best customers, i.e. rich people, people to travel a lot, etc.
It’s actually kind of messed up because rich people are getting a larger discount on goods than poor people who can’t get a rewards card.
The high fee for rewards cards can be justified to merchants because those are their best customers, i.e. rich people, people to travel a lot, etc.
It’s actually kind of messed up because rich people are getting a larger discount on goods than poor people who can’t get a rewards card.
In India, merchants have a choice and they regularly charge more for using credit cards.
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Less money on interchange may mean more money on interest charges on balances
> you use a reward card, the merchant is charged a higher fee than if you used a "normal" card
That seems absolutely ridiculous. The FTC doesn't think this is a problem?
That seems absolutely ridiculous. The FTC doesn't think this is a problem?
Wow you thought of something the author didnt cover and think the whole article should be about your post.
>Redditors are frequently sophisticated with their spreadsheets; many of them could clearly earn three orders of magnitude more from the financial industry if they stopped thinking that the right way to monetize spreadsheet skill was in gaming credit card signup bonuses.
It's a pretty decent outlet for having something complicated to work on. Another would be EVE Online with the added bonus that it's also an actual game. My guess is most of those people are just trying to min-max what the companies allow them, rather than trying to find an exploit in the system that prints money per spreadsheet CPU cycle.
I am suspicious that anyone can get a job in finance with only churning (or EVE) spreadsheet skills. I have rarely found "well if you can do that hobbyist but seemingly proximal activity, you can walk into a decent-paying job" to be true in tech and I suspect it's true for finance too.
Maybe the finance bros just need a leetcode-for-spreadsheets website to run their technical interviews to open the floodgates though.
It's a pretty decent outlet for having something complicated to work on. Another would be EVE Online with the added bonus that it's also an actual game. My guess is most of those people are just trying to min-max what the companies allow them, rather than trying to find an exploit in the system that prints money per spreadsheet CPU cycle.
I am suspicious that anyone can get a job in finance with only churning (or EVE) spreadsheet skills. I have rarely found "well if you can do that hobbyist but seemingly proximal activity, you can walk into a decent-paying job" to be true in tech and I suspect it's true for finance too.
Maybe the finance bros just need a leetcode-for-spreadsheets website to run their technical interviews to open the floodgates though.
I am pretty deep into the credit card hobby and most of the people in it are high-earning professionals already. The last meetup I went to consisted of half of software engineers.
So we already have jobs that pay well for optimizing things.
So we already have jobs that pay well for optimizing things.
It’s hardly a difficult skill. I have a spreadsheet with the date , credit limit, money needed to spend to get the reward and a date to cancel the card. Wall Street better get ready for me
So are you essentially constantly swapping cards that you use once you cap out their bonus sign up amount, so to speak?
If so, doesn't that cause the issue where your points are all scattered across various different credit companies?
If so, doesn't that cause the issue where your points are all scattered across various different credit companies?
How does one get deeper into the credit card hobby? I optimize for cash back on gas and groceries but not much else.
/r/churning is a good place to start. Lots of people doing cash back churning too, so even if you don’t want plane tickets, there is plenty for you.
/r/churning is notoriously unfriendly to newbies. They have absolute no tolerance for basic questions whose answer can be found via search. If anyone is reading this recommendation, just be a lurker there.
When I first applied for my CSR card many years ago, I was rejected by the web app. But a perusal of /r/churning led me to some powerful phone numbers where human customer service reps can override such rejections.
When I first applied for my CSR card many years ago, I was rejected by the web app. But a perusal of /r/churning led me to some powerful phone numbers where human customer service reps can override such rejections.
How much do you estimate you make off of it? It feels like the intersection of marginals gains and a high level of attention you need to pay to sniff out good deals, not hurt your credit score, remember how to balance charges across cards. I feel like it would need to be a fair amount to be worth the "time".
It is hard to say and we often debate how to value things in the churning community.
I take 3-4 transcontinental business class trips a year and heavily exploit the sweet spots of airline programs. The cash equivalent price (booked well in advance, so not just last-minute flights) of my travel is probably $30,000 a year. I just Australia on points, with lots of little stopovers in a few other countries.
Whether you value it as much as $30K is debated, as some people say you should value it at what you would otherwise have been willing to pay for the experience. You also have to factor in that award availability is limited, so it is nowhere near the same as picking dates and going. Your points and availability heavily shape where you go and when, which is fine for a curious about everything person like me, but messier for those with specific needs.
I have a colleague who does the same thing, but is lucky to get $4000 a year from a similar pile of points as he wants to use them all for his family to Hawaii for Christmas and he is just flying economy. The variably in value is tremendous.
Plenty of cards can also be churned for straight up cash. There are people pulling 5-8K in cash off of them a year.
The other advantage is that is all after tax. You don't pay tax on any of this.
> attention you need to pay to sniff out good deals
That is why you join a community like /r/churning. There are also lots of Facebook groups as well. Crowdsource the work!
> not hurt your credit score
Depends on whether you need it. Also, I found that my credit score became pretty stable after I got some 15 cards. New applications change it by 10-20 points now.
> remember how to balance charges across cards.
I personally got the hang of this rather quickly, as you just have 3-4 at any given time (the rest are "sock drawered" until it is time to cancel) and pull out the appropriate one. Some put post-it notes on what each card is good for.
As for the billing, companies send digital reminders now.
I take 3-4 transcontinental business class trips a year and heavily exploit the sweet spots of airline programs. The cash equivalent price (booked well in advance, so not just last-minute flights) of my travel is probably $30,000 a year. I just Australia on points, with lots of little stopovers in a few other countries.
Whether you value it as much as $30K is debated, as some people say you should value it at what you would otherwise have been willing to pay for the experience. You also have to factor in that award availability is limited, so it is nowhere near the same as picking dates and going. Your points and availability heavily shape where you go and when, which is fine for a curious about everything person like me, but messier for those with specific needs.
I have a colleague who does the same thing, but is lucky to get $4000 a year from a similar pile of points as he wants to use them all for his family to Hawaii for Christmas and he is just flying economy. The variably in value is tremendous.
Plenty of cards can also be churned for straight up cash. There are people pulling 5-8K in cash off of them a year.
The other advantage is that is all after tax. You don't pay tax on any of this.
> attention you need to pay to sniff out good deals
That is why you join a community like /r/churning. There are also lots of Facebook groups as well. Crowdsource the work!
> not hurt your credit score
Depends on whether you need it. Also, I found that my credit score became pretty stable after I got some 15 cards. New applications change it by 10-20 points now.
> remember how to balance charges across cards.
I personally got the hang of this rather quickly, as you just have 3-4 at any given time (the rest are "sock drawered" until it is time to cancel) and pull out the appropriate one. Some put post-it notes on what each card is good for.
As for the billing, companies send digital reminders now.
When I was really into it, between $5-10k a year depending on effort, which was largely not taxable. I figured I was making around $30 an hour post-tax, which was less than my day job paid, even after accounting for tax.
These days I understand it is probably harder to hit those numbers. When I was doing it in earnest (2014-2016, roughly), it was already regarded as "late" in the sense that issuers had started to take notice and crack down. I'd read people reminisce about the "golden days" (pre-GFC, I guess) when you could get a card with something like a 5%-for-6-months signup perk and just absolutely go to town, we're talking literal millions in manufactured spend.
These days I understand it is probably harder to hit those numbers. When I was doing it in earnest (2014-2016, roughly), it was already regarded as "late" in the sense that issuers had started to take notice and crack down. I'd read people reminisce about the "golden days" (pre-GFC, I guess) when you could get a card with something like a 5%-for-6-months signup perk and just absolutely go to town, we're talking literal millions in manufactured spend.
Like others said, it's more of a hobby than a side hustle.
At the end of the day, it's mostly a hobby and you either find keeping track of everything and making effective use of rewards worth it or not. Personally, I have a few cards for targeted use but mostly I just take 2% cash back on a free card and figure that's close enough.
I was also intrigued by that quote and find it rather dubious. Coincidentally today, I and 5 other family members are boarding business class international flights worth ~$60k cash, paid for with signup bonus points. This doesn’t even include the other tens of $thousands of redemptions we’re doing on both this trip and the rest of the year. This is also just side hustle/hobby-that-pays-for-itself “money,” in addition to the (not) “three orders of magnitude” faang income.
This was otherwise an interesting article.
This was otherwise an interesting article.
I find it hard to believe you're getting almost 6 figures of value out of signup bonus points and other card reward redemptions in a year.
A lot of that depends on how you value the flights (a lot of the benefit comes from being able to do international business class one way with points very easily, but those tickets being very expensive in cash), but it is pretty straightforward if you both optimize the earning, optimize the spend, and optimize the points programs.
To give you an example, a business class ticket from Seattle to Taipei with EVA (a very nice airline) is about $8000 round trip or $6000 one way. You can book it for 75,000 Aeroplan points one way. That is 1-2 credit card signups.
But Aeroplan also lets you have a stopover in the middle of a trip and lets you string together up to 6 flights and only pay based on the distance.
So you could do Seattle, do a layover in Taipei, have a stopover in Manila, stay a day in Singapore, and then land in Darwin Australia for 92,500. Which is closer to 2 credit cards, but still easily achievable in a month or two. But the value of that trip when I did something similar was closer to $12,000. Prices out at around $9000 for my test dates for the flights I did.
Now, you need to take many trips a year to do that as a single individual (which I am), but the referral streams for credit card signups are also very powerful, so get a Player 2 as it is called, and you can easily get 20-30% more on your signup bonuses and each person can also do the bonus.
And that is just business class. Once you start getting into First Class redemptions (hard to do, but the serious people manage it), the value can easily be the equivalent of a 12K for a simple round trip, yet alone stacking First Class products as many programs let you do.
Some of the pricing is also probably last minute. Points costs fall last minute, but cash prices rise. That boosts your cost per point, or CPP as we call it.
To give you an example, a business class ticket from Seattle to Taipei with EVA (a very nice airline) is about $8000 round trip or $6000 one way. You can book it for 75,000 Aeroplan points one way. That is 1-2 credit card signups.
But Aeroplan also lets you have a stopover in the middle of a trip and lets you string together up to 6 flights and only pay based on the distance.
So you could do Seattle, do a layover in Taipei, have a stopover in Manila, stay a day in Singapore, and then land in Darwin Australia for 92,500. Which is closer to 2 credit cards, but still easily achievable in a month or two. But the value of that trip when I did something similar was closer to $12,000. Prices out at around $9000 for my test dates for the flights I did.
Now, you need to take many trips a year to do that as a single individual (which I am), but the referral streams for credit card signups are also very powerful, so get a Player 2 as it is called, and you can easily get 20-30% more on your signup bonuses and each person can also do the bonus.
And that is just business class. Once you start getting into First Class redemptions (hard to do, but the serious people manage it), the value can easily be the equivalent of a 12K for a simple round trip, yet alone stacking First Class products as many programs let you do.
Some of the pricing is also probably last minute. Points costs fall last minute, but cash prices rise. That boosts your cost per point, or CPP as we call it.
Those $60k flights are almost certainly list/last minute pricing.
It’s even mentioned in the article that the airlines love flight miles because they can play with the redemptions to sell unused capacity for what the customer sees as real money. It also encourages loyalty.
It’s even mentioned in the article that the airlines love flight miles because they can play with the redemptions to sell unused capacity for what the customer sees as real money. It also encourages loyalty.
Not last minute, booked a year out when they were ~$10k+ per ticket.
The point is not “nobody on Reddit can ever make out well financially by chasing points, etc.” it’s “people who do this are sophisticated enough at trading that they could make even more money in the financial markets”. (We can debate whether that’s as fun as getting great plane tickets with points.)
IMO there’s a large overlap in the venn diagram of Redditors who are good at churning and Redditors who spreadsheet their way to retirement. For example, the podcast I linked to in another comment is from a guy who is FIRE’d.
It’s totally doable. I got my wife into this when we met in 2001. We vacationed 6 weeks a year through these various schemes.
If you have a source of business expenses, it’s easy. With regular consumer spend it’s more challenging but doable.
We empathized time at destination. If you’re going for value, you target airline and other upgrades. Our focus being time, we usually targeted hotel redemptions. There used to be a path to “launder” AMEX points and convert to a multiple of Hilton points through airline programs.
If you have a source of business expenses, it’s easy. With regular consumer spend it’s more challenging but doable.
We empathized time at destination. If you’re going for value, you target airline and other upgrades. Our focus being time, we usually targeted hotel redemptions. There used to be a path to “launder” AMEX points and convert to a multiple of Hilton points through airline programs.
It's very possible when you play in 2 player mode and maximize your "pennies per point" redemptions. We're doing the $60k in flights to Japan, hotels for the extended family for 2 weeks (another several $thousand), and then multiple weekend trips throughout the year for a suite in an all-inclusive resort that goes for ~$2.5k per night (roughly another $20k total).
How?
Everything I know, I learned from /r/churning. Although it can be pretty intimidating as a newbie; I was a lurker for a ~year before I was comfortable enough to start hitting SUBs.
If you're specifically interested in Japan flights, I recommend checking out this podcast: https://thedailychurnpodcast.com/ep-58-how-to-book-ana-japan...
As far as general advice, many people acquire Chase UR points predominantly for Hyatt and acquire Amex MR predominantly for flights. If you're in 2 player mode then you earn points a lot faster because you can refer each other.
If you're specifically interested in Japan flights, I recommend checking out this podcast: https://thedailychurnpodcast.com/ep-58-how-to-book-ana-japan...
As far as general advice, many people acquire Chase UR points predominantly for Hyatt and acquire Amex MR predominantly for flights. If you're in 2 player mode then you earn points a lot faster because you can refer each other.
It's not trivial to do. You have to save rewards points, learn transfer partners (and their booking sites), and be willing to book ~330 days in advance for certain flights.
The value of points is sort of hard to determine.
I'm guessing (but could be wrong) that you would not actually have paid $60K for business class seats for your family had you not had points that would cover. (I have gotten really good deals using points for something I'd have paid for anyway--but it's been rare.)
I'm guessing (but could be wrong) that you would not actually have paid $60K for business class seats for your family had you not had points that would cover. (I have gotten really good deals using points for something I'd have paid for anyway--but it's been rare.)
Only sometimes. Depends how you use them.
If you have some specific flight that you pay for regularly, e.g. to visit family, then replacing that flight's average cost with points gives a concrete number on point value.
If you are using points to fly first class on a trip you would not be taking at all but for the point redemption, then the value gets a lot more muddled.
If you have some specific flight that you pay for regularly, e.g. to visit family, then replacing that flight's average cost with points gives a concrete number on point value.
If you are using points to fly first class on a trip you would not be taking at all but for the point redemption, then the value gets a lot more muddled.
Absolutely. If you use points for something you'd pay cash for otherwise, they're typically worth something like 1 to 2 cents per point. But a lot of people (and I've done this myself with upgrades now and then) treat them as more of less "free" money. Presumably the upgrade or whatever has some incremental value but we wouldn't have paid for it out of pocket.
Is $60K cash split between these 6 people? Then it is not that impressive.
If you want higher ROI on spreadsheet hobby start using it for your own financial/retirement planning. Playing with numbers in that field can change outcomes by hundreds of thousands dollars.
If you want higher ROI on spreadsheet hobby start using it for your own financial/retirement planning. Playing with numbers in that field can change outcomes by hundreds of thousands dollars.
Don't worry, I'm doing that too. Mega backdoor, etc.
Microsoft Excel World Championship 2023 - Finals: https://www.youtube.com/watch?v=UDGdPE_C9u8
I think churning is just a hobby for bored divorced guys and used as a proxy for developing any real (non-financialized) interests. Normal cash back for most cards is good enough for most people, and you aren't going to get big point kickbacks unless you already have a lot of money to spend.
The Acquired podcast did an episode on the history of Visa that covers a lot of how the credit card industry works.
As another commenter noted, this article doesn’t pull out clearly how this whole credit card reward scheme actually works. The Acquired episode does, by the end.
It works like this: the ‘luxury’ credit card providers, partnering with Visa, take money away from merchants in order to extract profit for themselves while keeping the credit card consumers happy. The merchants are pissed about this, and regularly make lawsuits to regulate interchange. The money extracted by the credit card companies and Visa causes merchants to raise prices for everyone regardless of whether they have a rewards card or use a credit card at all.
This creates in effect a massive money transfer from the poor, who do not use rewards cards, to the rich consumers who do. The Acquired podcast provides specific numbers on just how much worse off poor consumers are given this system, and how much the richest consumers benefit.
I come from Australia where interchange fee regulation tamps down on the kind of credit card mania and fetishism seen in the USA.
As another commenter noted, this article doesn’t pull out clearly how this whole credit card reward scheme actually works. The Acquired episode does, by the end.
It works like this: the ‘luxury’ credit card providers, partnering with Visa, take money away from merchants in order to extract profit for themselves while keeping the credit card consumers happy. The merchants are pissed about this, and regularly make lawsuits to regulate interchange. The money extracted by the credit card companies and Visa causes merchants to raise prices for everyone regardless of whether they have a rewards card or use a credit card at all.
This creates in effect a massive money transfer from the poor, who do not use rewards cards, to the rich consumers who do. The Acquired podcast provides specific numbers on just how much worse off poor consumers are given this system, and how much the richest consumers benefit.
I come from Australia where interchange fee regulation tamps down on the kind of credit card mania and fetishism seen in the USA.
To add to your point; there's an IMF paper[1] backing this claim of "massive money transfer from the poor...to the rich".
I'm quoting the summary below
"We study credit card rewards as an ideal laboratory to quantify redistribution between consumers in retail financial markets. Comparing cards with and without rewards, we find that, regardless of income, sophisticated individuals profit from reward credit cards at the expense of naive consumers. To probe the underlying mechanisms, we exploit bank-initiated account limit increases at the card level and show that reward cards induce more spending, leaving naive consumers with higher unpaid balances. Naive consumers also follow a sub-optimal balance-matching heuristic when repaying their credit cards, incurring higher costs. Banks incentivize the use of reward cards by offering lower interest rates than on comparable cards without rewards. We estimate an aggregate annual redistribution of $15 billion from less to more educated, poorer to richer, and high to low minority areas, widening existing disparities."
[1]
https://www.imf.org/en/Publications/WP/Issues/2023/03/10/Who...
I'm quoting the summary below
"We study credit card rewards as an ideal laboratory to quantify redistribution between consumers in retail financial markets. Comparing cards with and without rewards, we find that, regardless of income, sophisticated individuals profit from reward credit cards at the expense of naive consumers. To probe the underlying mechanisms, we exploit bank-initiated account limit increases at the card level and show that reward cards induce more spending, leaving naive consumers with higher unpaid balances. Naive consumers also follow a sub-optimal balance-matching heuristic when repaying their credit cards, incurring higher costs. Banks incentivize the use of reward cards by offering lower interest rates than on comparable cards without rewards. We estimate an aggregate annual redistribution of $15 billion from less to more educated, poorer to richer, and high to low minority areas, widening existing disparities."
[1]
https://www.imf.org/en/Publications/WP/Issues/2023/03/10/Who...
I don't read that paper as backing that claim. At best the paper finds that the mechanism is more complicated than "money transfer from the poor... to the rich". To quote the conclusion directly:
"Notably, our results are not driven by income, as they hold within the sub-samples of low-, middle- and high-income individuals. In particular, high-FICO high-income consumers benefit the most from reward credit cards, but they do so at the expense of low-FICO high-income consumers. While credit card rewards are often framed as a “reverse Robin Hood” mechanism in which the poor subsidize the rich, our results show that this explanation is at best incomplete."
"Notably, our results are not driven by income, as they hold within the sub-samples of low-, middle- and high-income individuals. In particular, high-FICO high-income consumers benefit the most from reward credit cards, but they do so at the expense of low-FICO high-income consumers. While credit card rewards are often framed as a “reverse Robin Hood” mechanism in which the poor subsidize the rich, our results show that this explanation is at best incomplete."
Technically this paper doesn’t say “poor to rich” it says “subprime borrowers to super-prime borrowers”. Income-to-FICO score is only moderately correlated. Well, it says rich to poor in the abstract and conclusions, but not the actual writing.
The paper says high-income borrowers who run balances “lose” the most in this transfer - because they spend more in absolute terms, and banks are better able to capture that through balance increase.
To quote: “our findings are inconsistent with the reverse Robinhood hypothesis”.
The paper says high-income borrowers who run balances “lose” the most in this transfer - because they spend more in absolute terms, and banks are better able to capture that through balance increase.
To quote: “our findings are inconsistent with the reverse Robinhood hypothesis”.
This is interesting. The study you cite and quote is about a transfer of money from "naive" credit card consumers to "sophisticated" credit card consumers, which correlates to "poor to rich", "less educated to more educated", etc. I'm even more interested in the transfer that occurs from both cash and non-reward-card consumers to specifically reward-card users.
Can't this be rewritten in plain English as "unsophisticated (dumb) people don't know how to use credit cards in their own interest?". Isn't that just the free in free market?
Why is a principled objection to a paternalistic state intervening to protect dumb people from making bad decisions seen as unethical? What entitles dumb people to such protection?
Why is a principled objection to a paternalistic state intervening to protect dumb people from making bad decisions seen as unethical? What entitles dumb people to such protection?
What’s dumb is the statement or implication, which is made constantly, that the typical person is dumb. I don’t mean to pick on you personally, who I have no grievance with, but rather to heap scorn on an idea both illogical and presented in bad faith frequently, a practice I always aspire to.
The typical person is the result of ruthless selection pressures over millions or billions of years depending on how one sets their watch, a chain of the fittest, savviest, toughest, and hardest to kill members of the most dangerous life form we know about.
Most people, more than half, are unsophisticated by the definitions implied, which would make people of above average intelligence “dumb”. Dubious, to put it mildly.
A much more plausible theory, and one not laden with all the trim and tackle of a bigoted agenda, is that the typical person receives a poor education, leaving them ill-equipped to outmaneuver operations research PhDs whose entire job is to use the very efficient frontier of mechanism design, dark patterns writ large, to outfox individuals who (in the typical case) didn’t have wealthy parents or some other greased path into an advanced degree.
And the real kicker to me, as someone who has spent serious time with seriously high-profile people in technology, is that for whatever combination of reasons (one watches out for post hoc ergo propter hoc type fallacies, cause and effect are nuanced in human affairs), I’ve found that the higher someone’s station in life is, the less formidable they seem. I don’t know if power corrodes the necessity to stay sharp, or if privileged positions emphasize some other set of traits at the expense of basic competencies, but if half the big shots I’ve met started from scratch in my neighborhood, they’d have been an easy mark for the unscrupulous and/or hungry.
Being ill-served by an education system that is broken by design, and being outfoxed by fraudsters with sophisticated mathematics who all but write their own laws doesn’t make someone stupid.
The typical person is the result of ruthless selection pressures over millions or billions of years depending on how one sets their watch, a chain of the fittest, savviest, toughest, and hardest to kill members of the most dangerous life form we know about.
Most people, more than half, are unsophisticated by the definitions implied, which would make people of above average intelligence “dumb”. Dubious, to put it mildly.
A much more plausible theory, and one not laden with all the trim and tackle of a bigoted agenda, is that the typical person receives a poor education, leaving them ill-equipped to outmaneuver operations research PhDs whose entire job is to use the very efficient frontier of mechanism design, dark patterns writ large, to outfox individuals who (in the typical case) didn’t have wealthy parents or some other greased path into an advanced degree.
And the real kicker to me, as someone who has spent serious time with seriously high-profile people in technology, is that for whatever combination of reasons (one watches out for post hoc ergo propter hoc type fallacies, cause and effect are nuanced in human affairs), I’ve found that the higher someone’s station in life is, the less formidable they seem. I don’t know if power corrodes the necessity to stay sharp, or if privileged positions emphasize some other set of traits at the expense of basic competencies, but if half the big shots I’ve met started from scratch in my neighborhood, they’d have been an easy mark for the unscrupulous and/or hungry.
Being ill-served by an education system that is broken by design, and being outfoxed by fraudsters with sophisticated mathematics who all but write their own laws doesn’t make someone stupid.
> that the typical person is dumb
The typical person is typical, and from the perspective of an atypically smart person that's dumb(er). I'm not saying I am such a person, only that they inevitably exist.
> is that the typical person receives a poor education
Uneducated, unsophisticated, and dumb are interchangeable for the purposes of this argument. People should navigate the world on their own merits, not have the state intervene on their behalf. That's the point of a free market and society.
Whether or not you're of "above average intelligence", if you use your credit card like a bank account, you deserve every bit of "wealth transfer" to people who know better that entails.
Understanding the difference between borrowing and earning doesn't require any sophisticated mathematics. Neither does understanding compounding interest payments. The only skill required is basic arithmetic. I don't see why folks feel the need to defend plainly bad decisions made by others, or advocate that they be protected from the full extent of their obvious consequences.
The typical person is typical, and from the perspective of an atypically smart person that's dumb(er). I'm not saying I am such a person, only that they inevitably exist.
> is that the typical person receives a poor education
Uneducated, unsophisticated, and dumb are interchangeable for the purposes of this argument. People should navigate the world on their own merits, not have the state intervene on their behalf. That's the point of a free market and society.
Whether or not you're of "above average intelligence", if you use your credit card like a bank account, you deserve every bit of "wealth transfer" to people who know better that entails.
Understanding the difference between borrowing and earning doesn't require any sophisticated mathematics. Neither does understanding compounding interest payments. The only skill required is basic arithmetic. I don't see why folks feel the need to defend plainly bad decisions made by others, or advocate that they be protected from the full extent of their obvious consequences.
If you’re not saying that you’re an atypically smart person, then how would you know what such a person would think about this?
Understanding modern finance at any level of sophistication sufficient to even speculate about the incentives and constraints and therefore the implied utility payoff structure for anyone requires a great deal more than simple arithmetic: even your example of calculating compound interest in the most charitable interpretation of how you could have meant that, which is a stationary risk-free return discounting a zero-coupon bond with neither default nor prepayment risk (because now we’re into IO and PO strips and that’s a TED talk all by itself) is a differential equation.
Its big brother, the Black-Scholes-Merton equation, is wildly more complicated under any faux-realistic “risk neutral expectation”: that’s Ito calculus. And it’s all but useless (arguably worse than useless in times of significant pressure in repo markets among other stresses): it’s basically a security blanket that Mandelbrot had demolished conclusively in the 1970s, it was all but conclusively discredited in “interesting times” in markets the moment it was posed. And we can do VAR, and all that, I’ll make time for this.
Understanding modern finance at any level of sophistication sufficient to even speculate about the incentives and constraints and therefore the implied utility payoff structure for anyone requires a great deal more than simple arithmetic: even your example of calculating compound interest in the most charitable interpretation of how you could have meant that, which is a stationary risk-free return discounting a zero-coupon bond with neither default nor prepayment risk (because now we’re into IO and PO strips and that’s a TED talk all by itself) is a differential equation.
Its big brother, the Black-Scholes-Merton equation, is wildly more complicated under any faux-realistic “risk neutral expectation”: that’s Ito calculus. And it’s all but useless (arguably worse than useless in times of significant pressure in repo markets among other stresses): it’s basically a security blanket that Mandelbrot had demolished conclusively in the 1970s, it was all but conclusively discredited in “interesting times” in markets the moment it was posed. And we can do VAR, and all that, I’ll make time for this.
> what such a person would think about this?
I'm sure opinions of people in any category vary widely. I'm simply pointing out that the curse of knowledge/competence exists. If you're an unusually capable anything, the average person will be incapable by comparison.
None of the deep understanding of finance you're postulating is required to make decisions adequate to avoid being taken advantage of by a credit card. Pay your bill every month in full and you'll be a net beneficiary.
Trying to optimize your investment strategy is a full time profession. Simple, functional, strategies are readily available for unsophisticated (but not dumb) consumers (eg. buy and hold index funds). Stepping off the beaten path is always done at one's own risk, and over the proverbial corpses of your predecessors who thought they knew better. So much is true in all areas of life.
You've not addressed my main question: Why defend obviously unconsidered, unsound, and plainly bad, decisions made by others?
I'm sure opinions of people in any category vary widely. I'm simply pointing out that the curse of knowledge/competence exists. If you're an unusually capable anything, the average person will be incapable by comparison.
None of the deep understanding of finance you're postulating is required to make decisions adequate to avoid being taken advantage of by a credit card. Pay your bill every month in full and you'll be a net beneficiary.
Trying to optimize your investment strategy is a full time profession. Simple, functional, strategies are readily available for unsophisticated (but not dumb) consumers (eg. buy and hold index funds). Stepping off the beaten path is always done at one's own risk, and over the proverbial corpses of your predecessors who thought they knew better. So much is true in all areas of life.
You've not addressed my main question: Why defend obviously unconsidered, unsound, and plainly bad, decisions made by others?
I have addressed your question: the realities of life in a financially precarious situation have utilitarian payoff structures and attendant mechanism design that consist of a basket of utilities that are often signed if not complex scalars even at course approximation.
A trivial, tinker-toy reductio absurdium is that if someone believes they are likely to die soon (not an uncommon thing for the left behind in the 2020s, my brother drowned himself in a bathtub a few years ago under a level of crushing poverty that I would have subsidized dramatically more had I understood his situation, even being substantially tapped out myself) they have little if any incentive to worry about how a fucking credit card is going to look 20 years down the road.
I speak from a lot of lived experience here: when I got a job in my late teens sufficient to arbitrary calories, I gained 30 pounds. I was 150 at 6’4” prior.
I speak from experience on education: I have what rounds to none, and somehow discuss the nuances of complex derivatives pricing, which is tangential at best to my core expertise.
I’ve addressed your argument: you can’t easily dollarize all of the externalities, and even if you could, compound interest remains a differential equation.
I’ll kindly thank you to address the substantial points regarding mechanism design, semistable Nash equilibria, the role of open market operations in wage manipulation, the recurring socialization of losses and privatization of profits via a long discredited notion that anything in finance is long or even medium-run Gaussian distributed that I’ve raised before saying the word “dumb” again?
I’d really appreciate it.
A trivial, tinker-toy reductio absurdium is that if someone believes they are likely to die soon (not an uncommon thing for the left behind in the 2020s, my brother drowned himself in a bathtub a few years ago under a level of crushing poverty that I would have subsidized dramatically more had I understood his situation, even being substantially tapped out myself) they have little if any incentive to worry about how a fucking credit card is going to look 20 years down the road.
I speak from a lot of lived experience here: when I got a job in my late teens sufficient to arbitrary calories, I gained 30 pounds. I was 150 at 6’4” prior.
I speak from experience on education: I have what rounds to none, and somehow discuss the nuances of complex derivatives pricing, which is tangential at best to my core expertise.
I’ve addressed your argument: you can’t easily dollarize all of the externalities, and even if you could, compound interest remains a differential equation.
I’ll kindly thank you to address the substantial points regarding mechanism design, semistable Nash equilibria, the role of open market operations in wage manipulation, the recurring socialization of losses and privatization of profits via a long discredited notion that anything in finance is long or even medium-run Gaussian distributed that I’ve raised before saying the word “dumb” again?
I’d really appreciate it.
So it sounds like you're saying that modern life is too complex to effectively navigate? There are many examples of rather simple people from humble beginnings navigating it successfully.
Your straightforward example consists of someone who consciously makes a short-term decision on the basis they won't be around to deal with the consequences. In your specific example, why should we externalize their risk? Isn't it theirs to take, and aren't the consequences theirs to own? If their assumption turns out to be wrong, don't they already have more than enough to be happy about?
You're basically suggesting we subsidize the short-term thinking of people who for whatever reason are not planning for their own future? What is the moral reason that entities them so such a subsidy?
I'm also speaking from lived experience. I was born into a single parent household of very poor recent immigrants. I'm also not a financial expert, but my thesis is you don't need to be to avoid falling into obvious debt traps.
> the left behind in the 2020
I am sorry about your brother. Do you think he was not personally, individually responsible for his decisions and actions? I've not met any employer who isn't clamouring for someone that will: 1) be sober 2) show up on time 3) work hard. Anyone who can do these three things can excel. There are countless instances of careers that span from entry level to executive. This is substantiated by research that shows "grit" as the key determining factor for economic success.
> I’ll kindly thank you to address the substantial points
Your thesis is that not all individuals have the same capacity to manage risk due to systemic inequalities or immediate crises. I agree with that. I simply disagree that this is a morally unacceptable status quo. I see society as a liberal ecosystem, where organisms are continually succeeding and failing. The authority required to mount a collective response to these inequalities is too susceptible to corruption, and represents injustice in its departure from liberalism. Not to mention that well-meaning interventions by federated authority have an abysmal track record.
Your straightforward example consists of someone who consciously makes a short-term decision on the basis they won't be around to deal with the consequences. In your specific example, why should we externalize their risk? Isn't it theirs to take, and aren't the consequences theirs to own? If their assumption turns out to be wrong, don't they already have more than enough to be happy about?
You're basically suggesting we subsidize the short-term thinking of people who for whatever reason are not planning for their own future? What is the moral reason that entities them so such a subsidy?
I'm also speaking from lived experience. I was born into a single parent household of very poor recent immigrants. I'm also not a financial expert, but my thesis is you don't need to be to avoid falling into obvious debt traps.
> the left behind in the 2020
I am sorry about your brother. Do you think he was not personally, individually responsible for his decisions and actions? I've not met any employer who isn't clamouring for someone that will: 1) be sober 2) show up on time 3) work hard. Anyone who can do these three things can excel. There are countless instances of careers that span from entry level to executive. This is substantiated by research that shows "grit" as the key determining factor for economic success.
> I’ll kindly thank you to address the substantial points
Your thesis is that not all individuals have the same capacity to manage risk due to systemic inequalities or immediate crises. I agree with that. I simply disagree that this is a morally unacceptable status quo. I see society as a liberal ecosystem, where organisms are continually succeeding and failing. The authority required to mount a collective response to these inequalities is too susceptible to corruption, and represents injustice in its departure from liberalism. Not to mention that well-meaning interventions by federated authority have an abysmal track record.
My brother was also cursed by epilepsy, which was likely in large part due to the lead poisoning all of us received living in a house that should be condemned as young children.
I wish people like you faced anything like the consequences you so gleefully dole out for others.
I’m going to forget your username. Make sure I don’t have cause to remember it.
I wish people like you faced anything like the consequences you so gleefully dole out for others.
I’m going to forget your username. Make sure I don’t have cause to remember it.
Do you mind me asking how your vocabulary is so good? Mine has shrunken over time and I'm looking for ways to help expand it.
As I said, I'm sorry about your brother, truly. That doesn't take away from the fact that all our curses and all our blessings are fundamentally ours to bear. I'm not doling out any consequences, just advocating for individualism and voluntary association. These are the principles that underpin our prosperity. I've lived through plenty of misfortune and suffering. All of that is mine though. I would rather die screaming in agony than pry greedily into the pocket of an unwilling stranger. I'm somewhat disappointed we cannot disagree about this in a friendly manner.
The average person is average. 50M Americans (16%) have IQs below 85.
In general, whatever their station in life, smarter people are going to locally optimize their situation better than someone who is dumb. As a society, we tend to overemphasize social class — we assume rich people are smart and poor people are dumb.
You make good points. Many high status people are good at manipulating the levers of power and influence, just as a machinist is good with wielding his tools. Money is just a tool. Fancy clothes or whatever is just a tool. Both people may possess a poor understanding of how their tools actually work.
Truly successful people know themselves and their limits. Rich people get to hire smarter people to do stuff for them. Poor people have to find a niche to maximize their value and minimize their faults.
In general, whatever their station in life, smarter people are going to locally optimize their situation better than someone who is dumb. As a society, we tend to overemphasize social class — we assume rich people are smart and poor people are dumb.
You make good points. Many high status people are good at manipulating the levers of power and influence, just as a machinist is good with wielding his tools. Money is just a tool. Fancy clothes or whatever is just a tool. Both people may possess a poor understanding of how their tools actually work.
Truly successful people know themselves and their limits. Rich people get to hire smarter people to do stuff for them. Poor people have to find a niche to maximize their value and minimize their faults.
Example of lack of sharpness? You could also work on being more concise.
You put me in an awkward position because I’m describing an observed trend of people I’ve known personally, and while I’ll call out flagrant malfeasance by name, I try to not just call people soft or incompetent by name without an adjacent example of serious wrongdoing.
I don’t think it takes hard hitting investigative journalism to find catastrophic fuckup after catastrophic fuckup among the elite in the last month alone.
That’s a Google search away, if your objection is made in good faith, Google it.
I don’t think it takes hard hitting investigative journalism to find catastrophic fuckup after catastrophic fuckup among the elite in the last month alone.
That’s a Google search away, if your objection is made in good faith, Google it.
That's a one sided view of it. Credit cards increase customer spending behavior which benefits merchants. For low end customers, the appeal is access to credit, either long-term or just in between paychecks. For high end customers, the appeal is the rewards and perks they get, and the convenience and safety of payments.
This is why you are most likely to see credit card surcharges for tax payments, court costs, and other non-discretionary charges. Anything that either is optional to pay, or isn't but they really want you to pay now (ex. a debt collector) has every incentive to subsidize the card acceptance fee as it will increase their sales.
This is why you are most likely to see credit card surcharges for tax payments, court costs, and other non-discretionary charges. Anything that either is optional to pay, or isn't but they really want you to pay now (ex. a debt collector) has every incentive to subsidize the card acceptance fee as it will increase their sales.
A huge aspect people ignore is how expensive it is to handle cash. From storage, administration, transportation, loss, etc. it's usually a little more expensive to take cash vs. card.
This is why your grocery store partners with an ATM network to let you take out extra cash at the POS. As long as you're paying the fee, they'll do whatever they can to trade you cash for a digital deposit into their bank account.
This is why your grocery store partners with an ATM network to let you take out extra cash at the POS. As long as you're paying the fee, they'll do whatever they can to trade you cash for a digital deposit into their bank account.
I worked at several small businesses and we always preferred cash, we even accepted multiple currencies. The handling was no problem but I admit that it must be more difficult for larger businesses.
Card payments made the price of the service more expensive for all customers because we weren't allowed to have a card payment fee.
Card payments made the price of the service more expensive for all customers because we weren't allowed to have a card payment fee.
Small businesses put in sweat equity to handle cash payments, like the owner going to the bank to make a deposit. If they had to pay an hourly employee to do that, it might even out with credit card processing fees. Also small businesses can fudge numbers with cash payments in a way that’s a lot harder to do when some other company keeps a record of all of your cc transactions.
Yup, cash handling costs are significant when done as a service, they can be cheaper if you don't account for the time and risk (of both theft and forgery). Banks in the UK typically charge about 0.6-0.8% to pay cash in for large companies, and even more for small ones, and very few locations will take cash.
However nothing beats that sweet sweet tax evasion that cash allows.
However nothing beats that sweet sweet tax evasion that cash allows.
Back when I was publishing a magazine in the 90s, I preferred credit card payments over checks in the mail because while there was the 3% vig for the merchant account on the credit cards, taking piles of checks to the bank was a pain and there was always the risk of a check bouncing (yes, there was also the chance of a charge being reversed, but in the whole time I did this, that only happened once—selling subscriptions for a print product is a good hedge against fraudulent use of cards and the one time I got stung it was someone who bought a big pile of back issues and had them shipped to Hungary). Add in that credit card orders could be handled by phone or internet while checks had to come in the mail and it was a clear win. And that’s ignoring the multiple studies that show that credit card purchasers at brick and mortar retail tend to spend more money than cash purchasers.
I also worked at small businesses and they absolutely preferred cash but not because it was easy to handle but because, you know... taxes, wink wink.
From the other side, my wife owns a small business where 90% of her sales are on credit cards. She has no desire to encourage cash as we honestly report all income regardless of source (and cash is a hassle and increases theft risk). The ~3% credit card fee is also more than made up for by the higher spend of credit card buyers.
From talking to other business owners, though, the lure of "tax free" cash is definitely a factor.
From talking to other business owners, though, the lure of "tax free" cash is definitely a factor.
many such cases. imo it's a skill issue but understand the thought process and why it's so prevalent
>we even accepted multiple currencies
You accepted multiple currencies without taking a spread on Forex? How did you convert it for free? Not even actual forex businesses can do that...
You accepted multiple currencies without taking a spread on Forex? How did you convert it for free? Not even actual forex businesses can do that...
When I sold on eBay and they allowed cash/bank draft payments, I accepted local currency, but also major currencies like US$ (in cash or bank draft because I had a US$ account too) and other major currencies in cash (like EUR and GBP) because they were cheaper to convert with when travelling (or I could use directly). Without a spread.
Used the EUR in Cuba when a buyer mailed me cash.
Used the EUR in Cuba when a buyer mailed me cash.
Plenty of places in the world accept currencies besides the local ones because they are more stable or just worth more in general. Depending on the business, they might handle currency the same way too.
I usually see this only in tourist traps, where the EUR/USD price is 120% or more of the "local" price.
Oh boy. Go to Ko Chang or even Vietnam with plenty of ironed-out bills and see how much the locals like you more.
> How did you convert it for free? Not even actual forex businesses can do that...
Actual forex businesses convert currency at negative cost. That's what it means to be a forex business.
Actual forex businesses convert currency at negative cost. That's what it means to be a forex business.
"we weren't allowed to have a card payment fee. "
BTW. Good luck catching that. In SF, that is how many businesses work. You want to use a card? Ok, one extra dollar. Nothing enrages visa more, but, the merchant should have this right.
BTW. Good luck catching that. In SF, that is how many businesses work. You want to use a card? Ok, one extra dollar. Nothing enrages visa more, but, the merchant should have this right.
In a properly working market, every consumer would pay their exact interchange fee and it would be printed on the receipt as a pass-through cost.
This would actively drive interchange fees lower when consumers have to choose to pay 3% on an Amex swipe vs 1.6% no frills MasterCard swipe, or .05% for a debit swipe.
The reasons there is no downward pressure today is because there is because there is no transparency, and no incentive for consumers to choose a lower cost card.
This would actively drive interchange fees lower when consumers have to choose to pay 3% on an Amex swipe vs 1.6% no frills MasterCard swipe, or .05% for a debit swipe.
The reasons there is no downward pressure today is because there is because there is no transparency, and no incentive for consumers to choose a lower cost card.
I think the restrictions on this have loosened over the last (not sure how many) years.
One of the best marketing phrases I've seen to charge a fee to use a credit card:
Convenience Fee.
Convenience Fee.
Massachusetts and Connecticut are the two states that have laws banning credit card surcharges. Massachusetts also has a law requiring acceptance of cash.
This isn't really true for Connecticut, because the law allows for a "cash discount" which is functionality identical.
https://portal.ct.gov/DCP/Legal/Credit-Card-Surcharge
>Connecticut law prohibits a business from charging a customer a surcharge for using one payment type (usually credit card) over another payment type (usually cash). However, the law does allow a business to offer a discount if a customer chooses to use one type of payment (e.g., cash) over another type of payment (e.g., credit card). Receiving the discount is not the same as adding a surcharge. As long as the discount policy is clearly written and presented to the customer and the final receipt shows a discount, it complies with Connecticut law
https://portal.ct.gov/DCP/Legal/Credit-Card-Surcharge
>Connecticut law prohibits a business from charging a customer a surcharge for using one payment type (usually credit card) over another payment type (usually cash). However, the law does allow a business to offer a discount if a customer chooses to use one type of payment (e.g., cash) over another type of payment (e.g., credit card). Receiving the discount is not the same as adding a surcharge. As long as the discount policy is clearly written and presented to the customer and the final receipt shows a discount, it complies with Connecticut law
At least it requires them to be honest about what they're charging, I guess, which is more than I can say about the CT DRS.
Between the Massachusetts Right to Repair Act and requirement to accept cash (Part III, Title IV, Chapter 255D, Section 10A), that state is looking more and more like the right kind of place for me to land once I'm done doing the FAANG thing. Convince me otherwise.
Or what I've seen some people do here in Mexico: 3% discount when paying in Cash :-)
I think the law should be that you state the maximum price for a given transaction and then discount down.
So you can have a cash discount but it's okay to say no credit card fees. These are the "junk fees" that came up in political discourse in the last year or two. Credit card vendors shouldn't be allowed to restrict cash discounts. I know this isn't libertarian, but I want it to be a pre-negotiated thing simply for the sake of keeping cash alive, like how minimum wage is a pre-negotiated wage to avoid the overhead of getting the whole nation into a labor union.
That's why I like free shipping on Amazon. I know it's not literally free, I just want to see what you're _actually_ gonna charge me, it cuts off an avenue of bullshit.
So you can have a cash discount but it's okay to say no credit card fees. These are the "junk fees" that came up in political discourse in the last year or two. Credit card vendors shouldn't be allowed to restrict cash discounts. I know this isn't libertarian, but I want it to be a pre-negotiated thing simply for the sake of keeping cash alive, like how minimum wage is a pre-negotiated wage to avoid the overhead of getting the whole nation into a labor union.
That's why I like free shipping on Amazon. I know it's not literally free, I just want to see what you're _actually_ gonna charge me, it cuts off an avenue of bullshit.
I was just thinking about the other day how much cash used to flow through grocery stores.
The routine was to show up at the store with your paycheck, cash it, pay for your groceries, and keep the change.
Our store used to have the safe up front next to the bags of charcoal.
The routine was to show up at the store with your paycheck, cash it, pay for your groceries, and keep the change.
Our store used to have the safe up front next to the bags of charcoal.
This is why your grocery store partners with an ATM network to let you take out extra cash at the POS. As long as you're paying the fee, they'll do whatever they can to trade you cash for a digital deposit into their bank account.
This is not universal.
Where I currently live, and where I lived five years ago, supermarkets charge a fee (50¢ here, 25¢ where I used to live) to take out cash at the POS, because the card transaction cost more than handling cash.
There was a lot of "Are you sure?" prompts on the screen because the supermarkets (both big chains) didn't want the burden of the plastic transaction.
I've seen it stated a lot in technology forums that "cash is more expensive for merchants than cards," but I've never seen that spelled out from any source other than the card companies.
Every low-margin business I patronize, from the garden centers, to the convenience stores, to the antique stores all either offer a discount for cash, or charge a fee to use plastic.
Just last week, a woman who's run an antiques store for 35 years told me that card fees were going to put her out of business, and she practically begged me to go down the street to my bank to get cash for my purchase.
This is not universal.
Where I currently live, and where I lived five years ago, supermarkets charge a fee (50¢ here, 25¢ where I used to live) to take out cash at the POS, because the card transaction cost more than handling cash.
There was a lot of "Are you sure?" prompts on the screen because the supermarkets (both big chains) didn't want the burden of the plastic transaction.
I've seen it stated a lot in technology forums that "cash is more expensive for merchants than cards," but I've never seen that spelled out from any source other than the card companies.
Every low-margin business I patronize, from the garden centers, to the convenience stores, to the antique stores all either offer a discount for cash, or charge a fee to use plastic.
Just last week, a woman who's run an antiques store for 35 years told me that card fees were going to put her out of business, and she practically begged me to go down the street to my bank to get cash for my purchase.
A lot of businesses have a few percent cash discount to offset credit card costs, so they make the same amount either way. An antique store that would go out of business unless you pay in cash is either because they aren't paying consigners honestly, or they aren't paying taxes.
I hope you don't mind if I take the word of a woman who's been running her business for 35 years and is a staple in the community over some rando on the internet who doesn't know her business, hasn't seen her financial records, has zero information about how much the fees actually cost her, and may not even be in the same hemisphere?
Small businesses offer a discount for cash because they are underreporting their sales to pay less tax.
Meanwhile eBay forces payments by debit/credit card/Paypal, because they have arrangements with a (formerly owned) processor, even though I, as a seller, would be happy to accept cash/drafts/cheques/COD/whatever to keep that ~3%.
You do not need credit card for that. Debit card is enough.
My wife takes big payments at her company.
I'm pretty sure lots of people are putting these on credit and... might not ever pay it back.
She literally couldnt get cash from these people.
(US medical btw)
I'm pretty sure lots of people are putting these on credit and... might not ever pay it back.
She literally couldnt get cash from these people.
(US medical btw)
[deleted]
I agree, which is why merchants should be allowed to charge different prices for different card operators and for cash.
I think the other thing that happens is that governments outsource electronic payment collection to a third party which imposes a surcharge for its collection and remits the full nominal amount to the government.
Which can lead to seemingly ludicrous results somethings. I paid a "convenience" fee for parking the other night because presumably collecting a bunch of quarters from a meter was cheaper for the municipality than getting a bit less money transferred from the parking app people?
Which can lead to seemingly ludicrous results somethings. I paid a "convenience" fee for parking the other night because presumably collecting a bunch of quarters from a meter was cheaper for the municipality than getting a bit less money transferred from the parking app people?
The other side is also that this is great for card users because we're the price sensitive side of the transaction. I feel like this dynamic is rarely talked about when it comes to two sided transactions. Businesses can't "just pass it to the consumer" is a lot of cases and just have to eat it because businesses don't have that kind of pricing power.
This is how Doordash works on the restaurant side, they can't charge you the customer 20-30% of gross on orders, everyone would stop ordering. So mostly they just have to eat it or lose those sales. Some places choose to lose, some choose to raise prices on DD if they can but mostly they eat it.
This is how Doordash works on the restaurant side, they can't charge you the customer 20-30% of gross on orders, everyone would stop ordering. So mostly they just have to eat it or lose those sales. Some places choose to lose, some choose to raise prices on DD if they can but mostly they eat it.
> This is why you are most likely to see credit card surcharges for tax payments, court costs, and other non-discretionary charges.
This will vary depending on where you are.
Most retailers here in New Zealand pass the fee on to customers. Even paywave gets the percentage fee.
This will vary depending on where you are.
Most retailers here in New Zealand pass the fee on to customers. Even paywave gets the percentage fee.
A large segment (in the US) that does _not_ subsidize credit card fees are gas stations, where, for the most part, the price for paying in cash is lower than with credit, or there is a per transaction surcharge for using a credit or debit card.
Car-centric as it is, gas prices are arguably the commodity that US consumers are most price sensitive to (and which is also most commonly evoked in politics). So this shows that consumers would prefer to discriminate between card and no-card purchases if given the option, except that the vast majority of retail outlets do not give them that option.
Car-centric as it is, gas prices are arguably the commodity that US consumers are most price sensitive to (and which is also most commonly evoked in politics). So this shows that consumers would prefer to discriminate between card and no-card purchases if given the option, except that the vast majority of retail outlets do not give them that option.
Is this still true somewhere? I thought this went out decades ago, except maybe for a few Mom and Pop places.
Still true even for bigger brands like Shell or BP. They usually have two numbers on their price display, one is often about 5 cents higher than the other per gallon (guess which is credit/cash). It's interesting that the number for credit is usually way larger than the number for cash, implying most people use credit cards.
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I only see it for diesel in my area, and the fee is probably worth it for truckers as opposed to carrying cash.
>This creates in effect a massive money transfer from the poor
I'm always a little confused on exactly HOW this plays out. I could see someone with terrible credit being denied, but most cash back cards I use are hardly gated / limited to "rich folks only".
I feel like the reasons / the way it plays out are more complex than the results. And really if someone is poor, struggling to pay their card, that's a larger issue than the type of card they use.
I'm just not sure reward cards = "This creates in effect a massive money transfer from the poor" as simply as stated.
I'm always a little confused on exactly HOW this plays out. I could see someone with terrible credit being denied, but most cash back cards I use are hardly gated / limited to "rich folks only".
I feel like the reasons / the way it plays out are more complex than the results. And really if someone is poor, struggling to pay their card, that's a larger issue than the type of card they use.
I'm just not sure reward cards = "This creates in effect a massive money transfer from the poor" as simply as stated.
There was a study by the Federal Reserve that came to the conclusion last year that rewards cards is basically a money transfer of ~$15 billion from poor to rich per year. Discussion on Hacker News about it: https://news.ycombinator.com/item?id=34492502
That is exactly the opposite what the study states. https://www.federalreserve.gov/econres/feds/files/2023007pap...
In the abstract:
> sophisticated individuals profit from reward credit cards at the expense of na¨ıve consumers.
Then in the study:
> Next, we study whether the redistribution across FICO scores is driven by differences in cardholders’ income, suggesting a transfer from poor to rich consumers. Indeed, We adopt the following terminology: “Reward cards” are credit cards that earn either cash back, miles, or points; “classic cards” are credit cards that are do not earn any form of rewards. credit card rewards are often framed as a “reverse Robin Hood” mechanism in which the poor subsidize the rich. Our results, however, show that this explanation is at best incomplete. [...] Thus, high-income consumers with high FICO scores benefit from reward credit cards largely at the expense of high-income consumers with low FICO scores.
In the abstract:
> sophisticated individuals profit from reward credit cards at the expense of na¨ıve consumers.
Then in the study:
> Next, we study whether the redistribution across FICO scores is driven by differences in cardholders’ income, suggesting a transfer from poor to rich consumers. Indeed, We adopt the following terminology: “Reward cards” are credit cards that earn either cash back, miles, or points; “classic cards” are credit cards that are do not earn any form of rewards. credit card rewards are often framed as a “reverse Robin Hood” mechanism in which the poor subsidize the rich. Our results, however, show that this explanation is at best incomplete. [...] Thus, high-income consumers with high FICO scores benefit from reward credit cards largely at the expense of high-income consumers with low FICO scores.
The Fed is very careful to differentiate between income and wealth. You can be wealthy with little income and you can have a lot of income but not be wealthy.
While the study points out that high income, high FICO consumers benefit at the expense of high income low FICO consumers, which strictly controls for income as opposed to wealth, ultimately the study concludes what OP said it does, that reward programs transfer wealth from the poor to the rich, and I quote:
>Credit card rewards transfer income from less to more educated, from poorer to richer, and from high- to low minority areas, thereby widening existing spatial disparities.
While the study points out that high income, high FICO consumers benefit at the expense of high income low FICO consumers, which strictly controls for income as opposed to wealth, ultimately the study concludes what OP said it does, that reward programs transfer wealth from the poor to the rich, and I quote:
>Credit card rewards transfer income from less to more educated, from poorer to richer, and from high- to low minority areas, thereby widening existing spatial disparities.
At the end of the quote you excluded this:
"We find a redistribution from low- to high-FICO consumers regardless of income."
Poor people have low FICO scores. There are also high-income people with poor FICO scores. Both are involved.
"Thus, high-income consumers with high FICO scores benefit from reward credit cards largely at the expense of high-income consumers with low FICO scores."
The high-income people have much more money, thus have more to contribute to the pool of money going to high-income high-FICO people.
But poor people, who already don't have much money, are also contributing to this pool of money going to high-income high FICO people. And more to the point, it impacts poor people much more, because... they're poor.
So it's not completely the opposite, it's just inaccurate. The poor are subsidizing the rich, and the rich are subsidizing the rich. The difference is, there is a much larger effect on the poor, because... they're poor. They have less access to credit and that lack of access affects them more. A small amount of money lost has a larger impact.
In addition to all this, people of color also have lower FICO scores, so not only is it a burden on the poor, it's a burden on people of color (and the young in general). https://finmasters.com/average-credit-score/ https://www.cnbc.com/2021/01/28/black-and-hispanic-americans...
"We find a redistribution from low- to high-FICO consumers regardless of income."
Poor people have low FICO scores. There are also high-income people with poor FICO scores. Both are involved.
"Thus, high-income consumers with high FICO scores benefit from reward credit cards largely at the expense of high-income consumers with low FICO scores."
The high-income people have much more money, thus have more to contribute to the pool of money going to high-income high-FICO people.
But poor people, who already don't have much money, are also contributing to this pool of money going to high-income high FICO people. And more to the point, it impacts poor people much more, because... they're poor.
So it's not completely the opposite, it's just inaccurate. The poor are subsidizing the rich, and the rich are subsidizing the rich. The difference is, there is a much larger effect on the poor, because... they're poor. They have less access to credit and that lack of access affects them more. A small amount of money lost has a larger impact.
In addition to all this, people of color also have lower FICO scores, so not only is it a burden on the poor, it's a burden on people of color (and the young in general). https://finmasters.com/average-credit-score/ https://www.cnbc.com/2021/01/28/black-and-hispanic-americans...
Are any of these people required to open a credit card? If you're poor and low FICO, then you shouldn't have a credit card in the first place, just a debit card. And if you're poor and high FICO, then a credit card will provide you benefits.
It seems like the proposal is to take away rewards for everyone because there's a group of people that can't help themselves. Why not just be more strict about who gets a credit card.
It seems like the proposal is to take away rewards for everyone because there's a group of people that can't help themselves. Why not just be more strict about who gets a credit card.
> If you're poor and low FICO, then you shouldn't have a credit card in the first place
The poor need credit cards. Having a credit card is one major way to improve your FICO.
Credit is a critical part of everything from obtaining housing, to lower rates on auto and home loans and insurance, to the ability to pay for necessary life emergencies when you don't have savings (and the poor don't have savings). Having bad credit can even make it difficult to get a bank account, which you'd need for a debit card. People who don't have credit cards often resort to check-cashing stores to cover their expenses, which are predatory and charge exorbitant fees, keeping the poor poor.
> there's a group of people that can't help themselves
I don't know how to say this in a way that will make sense to you, but this idea that "they can't help themselves" or are just "irresponsible", and that's what led to their situation, is wrong. And the idea that they shouldn't get some form of assistance is wrong. It's kind of complicated, and I would need to be typing here for an hour to begin to explain it... There are tens of millions of people in the US alone that struggle every day because of a credit history that they are often not in control of, and predatory businesses that make it impossible to climb out of debt, and basic human livelihood restrictions that are tied to FICO. I really can't stress enough how important it is for the poor to be able to get access to credit and increase their score. Hopefully someone here can suggest a book or article that you can read that will explain it in depth.
The poor need credit cards. Having a credit card is one major way to improve your FICO.
Credit is a critical part of everything from obtaining housing, to lower rates on auto and home loans and insurance, to the ability to pay for necessary life emergencies when you don't have savings (and the poor don't have savings). Having bad credit can even make it difficult to get a bank account, which you'd need for a debit card. People who don't have credit cards often resort to check-cashing stores to cover their expenses, which are predatory and charge exorbitant fees, keeping the poor poor.
> there's a group of people that can't help themselves
I don't know how to say this in a way that will make sense to you, but this idea that "they can't help themselves" or are just "irresponsible", and that's what led to their situation, is wrong. And the idea that they shouldn't get some form of assistance is wrong. It's kind of complicated, and I would need to be typing here for an hour to begin to explain it... There are tens of millions of people in the US alone that struggle every day because of a credit history that they are often not in control of, and predatory businesses that make it impossible to climb out of debt, and basic human livelihood restrictions that are tied to FICO. I really can't stress enough how important it is for the poor to be able to get access to credit and increase their score. Hopefully someone here can suggest a book or article that you can read that will explain it in depth.
People without a credit card are still subsidising those with reward cards, as the high interchange fees are spread out across all of a store's transactions.
I don't see any proposal put forth. I see a study that is observing human behavior.
The behavior being observed is merchants increasing their prices for all consumers to accommodate a subset of consumers who use reward cards, where reward cards end up being a form of income for their holders.
The distribution of consumers who gain the most income from reward cards are those who are more wealthy. The distribution of consumers who lose the most money as a consequence of having to pay higher prices due to said reward cards are the less wealthy. The end result is a transfer of wealth from those less wealthy to those more wealthy.
That is an observation, not a proposal or a judgement. You are welcome to make a judgement or put forth a proposal from that observation but the study itself did not do so.
The behavior being observed is merchants increasing their prices for all consumers to accommodate a subset of consumers who use reward cards, where reward cards end up being a form of income for their holders.
The distribution of consumers who gain the most income from reward cards are those who are more wealthy. The distribution of consumers who lose the most money as a consequence of having to pay higher prices due to said reward cards are the less wealthy. The end result is a transfer of wealth from those less wealthy to those more wealthy.
That is an observation, not a proposal or a judgement. You are welcome to make a judgement or put forth a proposal from that observation but the study itself did not do so.
These programs operate by placing the burden on the vendor who inflates prices and thus even people who pay in cash pay for the programs indirectly. So even if you don't want a card, or can't get one you still pay for it.
Also from the abstract: "We estimate an aggregate annual redistribution of $15 billion from less to more educated, poorer to richer, and high to low minority areas, widening existing disparities"
Gotta be honest that I'm not reading 60 pages at this moment.
But that reads like they're talking about the net effect measuring across FICO scores, but it's not clear that they're talking about the overall cause / if this is a case where some of the poor could in fact choose to use these cards.
Being poor is complex, just not having time (two jobs, etc) often means they don't have time for a lot of things, including shopping for credit cards. I wonder if things like THAT are playing a part.
I don't disagree with the math on the end result, I do think the reason is larger than just say rewards cards, and has to be approached careful.
But that reads like they're talking about the net effect measuring across FICO scores, but it's not clear that they're talking about the overall cause / if this is a case where some of the poor could in fact choose to use these cards.
Being poor is complex, just not having time (two jobs, etc) often means they don't have time for a lot of things, including shopping for credit cards. I wonder if things like THAT are playing a part.
I don't disagree with the math on the end result, I do think the reason is larger than just say rewards cards, and has to be approached careful.
If these 'luxury' credit card companies wanted poor customers, you think they would have found them by now?
I think the Grandfather was making a different point. That because rewards cards = higher interchange fee for the merchant, this results in the merchant increasing fees on everyone (the payment networks prohibit charging a higher fee to only those paying with a credit card).
>>>The money extracted by the credit card companies and Visa causes merchants to raise prices for everyone regardless of whether they have a rewards card or use a credit card at all.
>>>This creates in effect a massive money transfer from the poor, who do not use rewards cards, to the rich consumers who do.
>>>The money extracted by the credit card companies and Visa causes merchants to raise prices for everyone regardless of whether they have a rewards card or use a credit card at all.
>>>This creates in effect a massive money transfer from the poor, who do not use rewards cards, to the rich consumers who do.
The pricing point is such complicated one too. Demand creates pricing changes, supply chains, etc...
If say the poor used these cards at a higher volume, wouldn't they then to be passing on the changes to other poor?
If say the poor used these cards at a higher volume, wouldn't they then to be passing on the changes to other poor?
The poor/low-FICO scorers are either A) not getting accepted into credit card programs, B) paying higher interest rates, or C)not able to make their payments in full each month.
Compared to another individual that can put all their purchases on a rewards card and pay off their balance every month.
The pricing point isn’t that complicated either. Nearly every business accepts credit card and can’t avoid the higher credit card fees that pay out to reward programs.
Compared to another individual that can put all their purchases on a rewards card and pay off their balance every month.
The pricing point isn’t that complicated either. Nearly every business accepts credit card and can’t avoid the higher credit card fees that pay out to reward programs.
[deleted]
It plays out this way because anything anyone buys with a credit card, reward card or not, ends up costing 2-3% more than it would otherwise have, because of interchange fees. If you have a rewards card, the CC issuer turns around and gives you, say, half of that back (1% cashback on everything) and keeps the rest. It's kind of like a tax break that you only qualify for if your credit score is above a certain threshold, but you have to pay into regardless of income/credit score.
> ends up costing 2-3% more than it would otherwise
This is a very simplified view. Cash handling is not free. Fraud levels with cash are different. Overall attractiveness of a small but cash-only business is different.
This is a very simplified view. Cash handling is not free. Fraud levels with cash are different. Overall attractiveness of a small but cash-only business is different.
The alternative to credit cards that charge 2-3% fees shouldn't be cash, but rather debit cards with close to zero fees.
Cash handling isn't free, but a digital transfer that doesn't have rewards is obviously cheaper than a credit card.
Cash handling isn't free, but a digital transfer that doesn't have rewards is obviously cheaper than a credit card.
Debit txs are not free. For big ($10B in assets) regulated issuers they are pretty low, but for everyone else they are close to 1.9%
[1] https://usa.visa.com/content/dam/VCOM/download/merchants/vis...
[1] https://usa.visa.com/content/dam/VCOM/download/merchants/vis...
Debit cards get arbitrarily rejected. Some gas stations won't process them. The IRS ID verification for Covid stimulus wouldn't work with debit.
if the credit card merchant was able to extract 2-3% for using their network, what makes you think that a free debit card with low/zero cost wouldn't also be owned by the same credit card merchants and force the same fees to maintain their monopoly?
Because in the US we already have laws that cap the fees on most debit cards: https://www.ftc.gov/system/files/documents/plain-language/bu...
There's even a proposal to drop these fees even lower: https://www.reuters.com/markets/us/us-fed-set-revise-debit-c...
Europe has similar laws capping the fees on both credit cards and debit cards. We could do the same and it would work better for everyone except the credit card companies.
There's even a proposal to drop these fees even lower: https://www.reuters.com/markets/us/us-fed-set-revise-debit-c...
Europe has similar laws capping the fees on both credit cards and debit cards. We could do the same and it would work better for everyone except the credit card companies.
Because right now debit card purchases don’t have a transaction fee while credit cards do. I just had two recent purchases where the vendor charged a 3% surcharge for credit cards but would do the transaction by debit card free.
It is an example that greed is everywhere. Not only among card issuers but also among merchants. The moment merchant find a socially accepted way to extract extra they will do it. Similar to tip screens on square terminals in all takeout places. Costs nothing to ask, generates some additional revenue.
There is a reason every concert and sports venue near me has gone cashless. It's not because they enjoy giving away 2-3% of their revenues but rather those places aren't active every evening and tend to turn over employees quickly. Handling cash is expensive and risky in that environment.
In a concert and sports venue concessions environment you're also prioritizing throughput much more than most businesses. Being cashless helps with throughput a lot - the employees don't have to wait for people to count their money, then recount it, and spend time making change.
The median credit score for low-income Americans is 658 (US average is 714): https://www.fool.com/the-ascent/research/average-credit-scor...
It looks like a number of decent rewards cards require a credit score over 670.
It looks like a number of decent rewards cards require a credit score over 670.
Poor people, actual poor people who are just scraping by, usually have bad credit and cannot get credit cards.
Poor people can always get credit cards. They get constant offers for them. The catch is that they are terrible cards with fees and insane rates. The credit industry is perfectly happy to let everyone get into massive debit. They'll give them to anyone (https://www.mymoneydesign.com/nine-year-old-daughter-credit-...)
Credit cards for those with subprime credit often do not offer reward gimmicks and may even require a deposit and/or annual fee.
because poor people, typically:
- do not quality for high-rewards cards (which have higher credit score thresholds)
- if not savvy, carry a balance because they can't afford to pay off the amount in full, are subject to higher interest rates because those are the cards they qualify for, and thereby pay much more than than well off consumers (increasing the transfer of wealth)
- if savvy, realize that having a credit card costs them more than not, and stick to cash
- are more likely to be receiving payment for services in cash themselves and will just spend that rather than depositing and using a CC (if they even have a bank account)
(update: 4.5% of US households are unbanked; these are mostly from the lower quantile) https://www.fdic.gov/analysis/household-survey/index.html
(update: 4.5% of US households are unbanked; these are mostly from the lower quantile) https://www.fdic.gov/analysis/household-survey/index.html
Here's the Acquired episode mentioned.
https://www.acquired.fm/episodes/visa
https://www.acquired.fm/episodes/visa
> The money extracted by the credit card companies and Visa causes merchants to raise prices for everyone regardless of whether they have a rewards card or use a credit card at all.
There has been nothing stopping US merchants from offering cash and/or debit card payers a discount since Oct 2011.
https://www.ftc.gov/business-guidance/resources/new-rules-el...
Most merchants are betting that people paying with credit cards are willing to buy sufficiently more or buy at sufficiently higher prices such that credit card transaction costs are more than offset.
That is the only reason why a cash/debit card discount would not be advertised.
Edit to respond to below:
I don’t buy that. Merchants of all types already engage in myriad types of discounts and promotions to price discriminate customers all the time.
A simple sign saying “x% discount for paying cash/debit” is of negligible complexity.
There has been nothing stopping US merchants from offering cash and/or debit card payers a discount since Oct 2011.
https://www.ftc.gov/business-guidance/resources/new-rules-el...
Most merchants are betting that people paying with credit cards are willing to buy sufficiently more or buy at sufficiently higher prices such that credit card transaction costs are more than offset.
That is the only reason why a cash/debit card discount would not be advertised.
Edit to respond to below:
I don’t buy that. Merchants of all types already engage in myriad types of discounts and promotions to price discriminate customers all the time.
A simple sign saying “x% discount for paying cash/debit” is of negligible complexity.
Does accepting cash really save a business that much money? I've heard arguments in the past that it ends up being a negligible difference once you account for all costs of processing cash (someone has to take it to the bank, it can get stolen in a robbery, employees can skim, you have to count it, you need a safe, you need cash deliveries, etc).
I have no numbers, so it could be totally off-base, but it feels not-impossible that it costs a percentage or two to process all your cash anyway, so the difference between cash & credit cards isn't actually that big. It's just that the interchange fees show up as one big chunk whereas the cash processing is lots of little bites, or even accounting for things that didn't happen (like skimming).
I guess this only applies if you're legitimately reporting all your cash take, if the business itself is skimming for tax reasons then the savings on cash would be substantial.
I have no numbers, so it could be totally off-base, but it feels not-impossible that it costs a percentage or two to process all your cash anyway, so the difference between cash & credit cards isn't actually that big. It's just that the interchange fees show up as one big chunk whereas the cash processing is lots of little bites, or even accounting for things that didn't happen (like skimming).
I guess this only applies if you're legitimately reporting all your cash take, if the business itself is skimming for tax reasons then the savings on cash would be substantial.
>It's just that the interchange fees show up as one big chunk whereas the cash processing is lots of little bites, or even accounting for things that didn't happen (like skimming).
Not just skimming, but lost business for cash-only establishments is huge. The amount probably varies by type of business, but I sometimes go to a bar that's cash-only and I've seen so many people walk in, try to order, and walk out and never come back once they find out it's cash-only. Even groups of 15-20 people. That's a significant cost (in lost revenue) even if it doesn't directly show up as a line item.
Even I admit to choosing a different place from time to time I think "I could go to the cash only bar, but then I'd have to go to the ATM first or I could just go to the other place that doesn't require an extra trip to the ATM. I should probably just go to the ATM so I could have some cash on me anyways, but traffic is heavy or it's cold/rainy/dark/late."
Not just skimming, but lost business for cash-only establishments is huge. The amount probably varies by type of business, but I sometimes go to a bar that's cash-only and I've seen so many people walk in, try to order, and walk out and never come back once they find out it's cash-only. Even groups of 15-20 people. That's a significant cost (in lost revenue) even if it doesn't directly show up as a line item.
Even I admit to choosing a different place from time to time I think "I could go to the cash only bar, but then I'd have to go to the ATM first or I could just go to the other place that doesn't require an extra trip to the ATM. I should probably just go to the ATM so I could have some cash on me anyways, but traffic is heavy or it's cold/rainy/dark/late."
I own a cash only bar.
I bought an ATM and don't charge a fee to use it. It's right next to the bar.
We still get some walkouts, but not very often. We have a strong reputation.
I bought an ATM and don't charge a fee to use it. It's right next to the bar.
We still get some walkouts, but not very often. We have a strong reputation.
yes there is. that's an enormous added pricing and communication complexity for businesses. which we know has a high cost because of all the businesses who have decided it would be higher than just stomaching the credit card fees.
Would a 1 percent cash or debit discount be an enormous burden? Some merchants already programmed their terminals to prod debit customers into entering their PIN rather than charging it as credit, so would offering a discount really be that much harder?
One answer is: It's just annoying. I normally use a credit card. Yes, I can use my debit card and enter a PIN. If it's a discount specifically for cash, I may not have any on me and don't want the change anyway. In any case, it's adding mental overhead to just paying.
(It's usually more like 3% delta which I almost get in cashback anyway but still annoying.)
(It's usually more like 3% delta which I almost get in cashback anyway but still annoying.)
I don't disagree with your point; I do want to point out, though, that whether it's "the merchants have to raise their prices" or "the merchants benefit too and are complicit", the end result is still that it's still the poor who lose.
> The money extracted by the credit card companies and Visa causes merchants to raise prices for everyone regardless of whether they have a rewards card or use a credit card at all.
Case studies indicate otherwise.
Dodd-Frank Act postulated what you stated, that higher fees result in higher prices for consumers ... and if you lowered the fees for the merchants, merchants would lower their prices (to pass along that savings back to the consumers).
But studies have shown otherwise, and merchants did not lower fees.
https://www.cutimes.com/2015/09/03/durbin-failing-to-lower-m...
Case studies indicate otherwise.
Dodd-Frank Act postulated what you stated, that higher fees result in higher prices for consumers ... and if you lowered the fees for the merchants, merchants would lower their prices (to pass along that savings back to the consumers).
But studies have shown otherwise, and merchants did not lower fees.
https://www.cutimes.com/2015/09/03/durbin-failing-to-lower-m...
Claiming that merchant fees result in higher prices is different from claiming that reducing merchant fees would directly, immediately, or measurably lower prices. Isn't a plausible explanation that companies are hesitant to lower prices for any reason?
Let's consider the opposite scenario, if Visa raises their fees do merchants keep prices where they are? I suspect not.
Let's consider the opposite scenario, if Visa raises their fees do merchants keep prices where they are? I suspect not.
Also true for Australia! When they regulated interchange, merchants did not pass the savings on to consumers.[1]
[1] https://laweconcenter.org/resources/the-effects-of-price-con...
[1] https://laweconcenter.org/resources/the-effects-of-price-con...
That think tank is funded[1] by the anti-regulation Charles Koch Institute and the article should be read with that in mind.
[1]: https://www.influencewatch.org/non-profit/international-poli...
[1]: https://www.influencewatch.org/non-profit/international-poli...
That may be true. But do you in your heart of hearts think that companies are going to pass those savings on to consumers?
> Two thirds of the merchants surveyed reported no change or didn't know the change in their debit costs post-regulation. One fourth actually reported an increase in debit costs
This is an interesting flywheel. Once I realized that by not using a CC I was subsidizing everyone else, I decided to opt into using a high reward credit card myself.
There are Prisoner's Dilemmas everywhere.
Many jobs require a college degree as a blunt filter for employee quality. Now that more and more people have that so it's been devalued. You now need specific majors or to come out of an elite college to get the same advantage that used to be conferred by being a college grad. Colleges talk about affordability but many colleges spend big on recruiting star professors and new facilities to compete in the rankings and alumni donations arms race.
Car traffic makes not driving dangerous so people are incentivize to drive. SUVs make driving a sedan more dangerous during crashes so people choose to buy bigger cars.
Marketers race to the bottom on ever more annoying, numerous, and louder ads. People block or mentally tune out ads which feeds back into advertisers pushing the envelope to get noticed.
If ransomware victims did not pay it would become unprofitable. But each business is rightfully concerned about mitigating its immediate business interruption.
Many jobs require a college degree as a blunt filter for employee quality. Now that more and more people have that so it's been devalued. You now need specific majors or to come out of an elite college to get the same advantage that used to be conferred by being a college grad. Colleges talk about affordability but many colleges spend big on recruiting star professors and new facilities to compete in the rankings and alumni donations arms race.
Car traffic makes not driving dangerous so people are incentivize to drive. SUVs make driving a sedan more dangerous during crashes so people choose to buy bigger cars.
Marketers race to the bottom on ever more annoying, numerous, and louder ads. People block or mentally tune out ads which feeds back into advertisers pushing the envelope to get noticed.
If ransomware victims did not pay it would become unprofitable. But each business is rightfully concerned about mitigating its immediate business interruption.
Related - home loans to make buying homes accessible → higher home prices → now everyone has to get a loan. Same with college loans.
Yes. Credit is inflationary.
> The money extracted by the credit card companies and Visa causes merchants to raise prices for everyone regardless of whether they have a rewards card or use a credit card at all.
This creates in effect a massive money transfer from the poor, who do not use rewards cards, to the rich consumers who do.
Not quite. Credit card companies obligate merchants to charge the same prices regardless of whether you pay with a card, but merchants frequently don't honor that obligation. And there are also merchants who only take cash.
The poorest customers are likely to patronize these merchants. They're also likely to be given discounts that aren't card-related; the whole idea of price discrimination is that, because impoverished customers have low willingness to pay, you charge them less.
In a voluntary system, money transfers are always going to end up being much smaller than they looked like they would be when you thought about their effects, because people adjust their behavior to avoid them.
This creates in effect a massive money transfer from the poor, who do not use rewards cards, to the rich consumers who do.
Not quite. Credit card companies obligate merchants to charge the same prices regardless of whether you pay with a card, but merchants frequently don't honor that obligation. And there are also merchants who only take cash.
The poorest customers are likely to patronize these merchants. They're also likely to be given discounts that aren't card-related; the whole idea of price discrimination is that, because impoverished customers have low willingness to pay, you charge them less.
In a voluntary system, money transfers are always going to end up being much smaller than they looked like they would be when you thought about their effects, because people adjust their behavior to avoid them.
> Credit card companies obligate merchants to charge the same prices regardless of whether you pay with a card
No longer true in most of the US, actually.
https://www.lawpay.com/about/blog/credit-card-surcharge-rule...
No longer true in most of the US, actually.
https://www.lawpay.com/about/blog/credit-card-surcharge-rule...
[deleted]
It creates a massive money transfer from small businesses to credit card companies, transfer partners, and wealthy consumers.
Seems to make sense to transfer money from one group to another for a service that one group uses and the other provides.
I see interchange is capped at 0.20%. How do credit card companies not lose money by giving a 60 day interest free loan to customers? That is what interchange fee covers. BNPL providers charge 4% for 90 days interest free loans to the merchant.
In jurisdictions that cap interchange banks cut the fat. No rewards programs, and ending perks like price protection and extended warranties. On the revenue side they are more likely to charge an annual fee. Some customers carry balances at 29.99%.
Interchange is not capped at 0.2%
For consumer cards in EU it is. 0.2% for debit, 0.3% for credit.
Sure, but this article as about the US
Theres a net gain between credit card rewards and higher prices for reward card users?
Yes because they are required to charge non reward customers the same amount and competitive markets forced prices down.
Suppose the reward is 2% so someone is paying 98% of the listed price. Now if everyone was a rewards customer the price just moves to 102.04$ from 100$, in effect nothing changes. However not everyone uses a rewards card, and the prices stay the same.
Net result with an even split would be that 98% discount applies to 101$ and Bob an unrelated customer is stuck paying the extra 1% to give the reward customer their 1% savings.
However, it’s not split 50/50 so rewards cards sometimes have more victims funding their rewards and other times few victims and it’s effectively just a marketing gimmick.
Suppose the reward is 2% so someone is paying 98% of the listed price. Now if everyone was a rewards customer the price just moves to 102.04$ from 100$, in effect nothing changes. However not everyone uses a rewards card, and the prices stay the same.
Net result with an even split would be that 98% discount applies to 101$ and Bob an unrelated customer is stuck paying the extra 1% to give the reward customer their 1% savings.
However, it’s not split 50/50 so rewards cards sometimes have more victims funding their rewards and other times few victims and it’s effectively just a marketing gimmick.
It’s much more nuanced than that. True a 2% cash back card costs the company 2%.
But a 4% card that gives you credit card points doesn’t cost the card issuer 4%.
If you transfer 4 Amex points for 4 Delta Skymiles. Amex isn’t paying Delta 1 cents per Skymile.
On the other hand, you can then replace a $1 you would spend on Delta with 0.86 Skymiles (ie 1 Skymile is worth 1.4 cents). It’s also not costing Delta 1.4 cents to fly you.
If you use your credit card points to buy on a credit card run travel portal, the credit card company is getting a kickback from airlines and hotels.
It’s turtles all of the way down.
But a 4% card that gives you credit card points doesn’t cost the card issuer 4%.
If you transfer 4 Amex points for 4 Delta Skymiles. Amex isn’t paying Delta 1 cents per Skymile.
On the other hand, you can then replace a $1 you would spend on Delta with 0.86 Skymiles (ie 1 Skymile is worth 1.4 cents). It’s also not costing Delta 1.4 cents to fly you.
If you use your credit card points to buy on a credit card run travel portal, the credit card company is getting a kickback from airlines and hotels.
It’s turtles all of the way down.
> a 4% card that gives you credit card points…
Sure, plenty of cars just lie about how valuable the rewards are. That’s a completely different game.
Sure, plenty of cars just lie about how valuable the rewards are. That’s a completely different game.
I’m not saying it’s a lie. 4 Amex Membership Rewards points are worth around 6% if I transfer them to Delta instead of spending cash on the same ticket.
If I transfer those same points to Flying Blue/KLM (a Netherlands airline), since they are a partner with Delta, I can buy a domestic round trip flight in the US on Delta through them where the cash price to fly into my parents small regional airport is $508.
The price in points is 17K. That makes those same 4 points worth 12% back per dollar.
This isn’t about “only the rich get value”. It’s about the well informed.
4 points per dollar is what you get back on the Amex Gold for groceries.
You could never buy points as cheaply as Amex. For all intents and purposes, credit card users are collectively buying miles in bulk
If I transfer those same points to Flying Blue/KLM (a Netherlands airline), since they are a partner with Delta, I can buy a domestic round trip flight in the US on Delta through them where the cash price to fly into my parents small regional airport is $508.
The price in points is 17K. That makes those same 4 points worth 12% back per dollar.
This isn’t about “only the rich get value”. It’s about the well informed.
4 points per dollar is what you get back on the Amex Gold for groceries.
You could never buy points as cheaply as Amex. For all intents and purposes, credit card users are collectively buying miles in bulk
> This isn’t about “only the rich get value”. It’s about the well informed.
It’s about people who can pay off the card every month not the rich. These cars charge high interest rates which can very quickly offset any benefit unless you have the resources to never use them as debt. Ie the capacity to have a ~months worth of spending in unused credit.
> You could never buy points as cheaply as Amex. For all intents and purposes, credit card users are collectively buying miles in bulk.
Many customers get discounts on ticket prices that don’t apply when using air miles. It’s another form of price discrimination designed to maximize profits not specifically a discount for bulk purchase.
“Awards are subject to capacity controls. Awards may require higher prices depending on routing rules and restrictions. Exceptions to these rules may require additional mileage or taxes and fees. Travel to all destinations within region may not be available at lowest price. …
Award seats may be limited and not available on all Delta Connection flights.” etc https://www.delta.com/us/en/skymiles/how-to-use-miles/travel...
It’s about people who can pay off the card every month not the rich. These cars charge high interest rates which can very quickly offset any benefit unless you have the resources to never use them as debt. Ie the capacity to have a ~months worth of spending in unused credit.
> You could never buy points as cheaply as Amex. For all intents and purposes, credit card users are collectively buying miles in bulk.
Many customers get discounts on ticket prices that don’t apply when using air miles. It’s another form of price discrimination designed to maximize profits not specifically a discount for bulk purchase.
“Awards are subject to capacity controls. Awards may require higher prices depending on routing rules and restrictions. Exceptions to these rules may require additional mileage or taxes and fees. Travel to all destinations within region may not be available at lowest price. …
Award seats may be limited and not available on all Delta Connection flights.” etc https://www.delta.com/us/en/skymiles/how-to-use-miles/travel...
Amex charge cards encourage you to pay off your balance every month.
But award bookings through partners have their own hoops. But I don’t have to “fly J to Bali” - a popular meme in r/awardtravel. I look for economy flights.
The flight I was talking about to see my parents is to an airport with only three commercial flights a day inbound and two outbound. All to and from Atlanta. So of course it is over priced
But award bookings through partners have their own hoops. But I don’t have to “fly J to Bali” - a popular meme in r/awardtravel. I look for economy flights.
The flight I was talking about to see my parents is to an airport with only three commercial flights a day inbound and two outbound. All to and from Atlanta. So of course it is over priced
> So of course it is over priced
I don’t know about the airline you mentioned, but as an example of what I am referring to Delta offers Active Military members a discount on flights that simply isn’t going to show up for you. https://www.delta.com/us/en/special-circumstances/military-t...
That’s price discrimination which has nothing to do with bulk purchases. It’s simply another leaver they can optimize so most seats are used while they also maximize what they charge for those seats.
Saying it the ticket is worth X, when that’s literally the highest price they charge anyone is misleading.
I don’t know about the airline you mentioned, but as an example of what I am referring to Delta offers Active Military members a discount on flights that simply isn’t going to show up for you. https://www.delta.com/us/en/special-circumstances/military-t...
That’s price discrimination which has nothing to do with bulk purchases. It’s simply another leaver they can optimize so most seats are used while they also maximize what they charge for those seats.
Saying it the ticket is worth X, when that’s literally the highest price they charge anyone is misleading.
I am referring to booking flights on Delta through KLM. Since the airport I’m referring to is a small regional airport in south GA with only two commercial inbound flights a day both on Delta, of course they are overpriced for a 50 minute flight.
I don’t have a choice if I want to fly to see my parents since that’s the only airline that services their airport.
But a more popular route I take is from Orlando (MCO) my current home to my former home Atlanta - a Delta hub. Those flights range from $100 to $175 one way. Again by booking Delta flights through Virgin (a UK airline) is 7500 points making the Amex points worth 2 cents each. If you want to fly direct to or from Atlanta, you’re going to fly Delta more than likely.
I don’t have a choice if I want to fly to see my parents since that’s the only airline that services their airport.
But a more popular route I take is from Orlando (MCO) my current home to my former home Atlanta - a Delta hub. Those flights range from $100 to $175 one way. Again by booking Delta flights through Virgin (a UK airline) is 7500 points making the Amex points worth 2 cents each. If you want to fly direct to or from Atlanta, you’re going to fly Delta more than likely.
Again, that’s for YOU using that booking system. Not every customer is paying that rate.
It’s not a “booking system”. It’s a partner airline.
https://www.klm.com/
Just like you can book a Virgin airlines route via Delta.
https://thepointsguy.com/guide/airline-alliances/
https://www.klm.com/
Just like you can book a Virgin airlines route via Delta.
https://thepointsguy.com/guide/airline-alliances/
Some businesses do give you the money back though vs raising prices. Gas stations usually have a cheaper price for cash. Same with some restaurants.
Rewards is only part of it.
There's also everything required for the credit card company to operate, down to building leases, datacenters, hardware, employee pay. All of that is vastly funded by late payment fees and interest, which are almost exclusively funded by the poor.
At one time I wanted to start an "ice bucket challenge" to start a snowball of rich people donating 100% of their credit card rewards to the poor in some capacity. I'd happily join if I could get the snowball going, but unfortunately, if the snowball doesn't happen with a bunch of multi-millionaires I'll just end up indirectly giving my money (not poor, not rich) to the actually rich and I don't want that either.
There's also everything required for the credit card company to operate, down to building leases, datacenters, hardware, employee pay. All of that is vastly funded by late payment fees and interest, which are almost exclusively funded by the poor.
At one time I wanted to start an "ice bucket challenge" to start a snowball of rich people donating 100% of their credit card rewards to the poor in some capacity. I'd happily join if I could get the snowball going, but unfortunately, if the snowball doesn't happen with a bunch of multi-millionaires I'll just end up indirectly giving my money (not poor, not rich) to the actually rich and I don't want that either.
Merchants pay 3%.
Cardholders borrow from banks, not card payment networks.
Rich people can donate to poor people regardless of the credit card situation.
The cost of running the credit card company plus rewards is a lot more than that 3%. Money is fungible. So your rewards comes 85% from interest payments in the case of Capital One or 71% in the case of Chase.
https://www.valuepenguin.com/how-do-credit-card-companies-ma...
> Rich people can donate to poor people regardless of the credit card situation.
While this is true my idea was more of a wide scale protest or behavioral art to make people aware of how bad the credit card system is for the poor. I know it isn't going to solve poverty but it might raise awareness about something not everyone knows about.
https://www.valuepenguin.com/how-do-credit-card-companies-ma...
> Rich people can donate to poor people regardless of the credit card situation.
While this is true my idea was more of a wide scale protest or behavioral art to make people aware of how bad the credit card system is for the poor. I know it isn't going to solve poverty but it might raise awareness about something not everyone knows about.
Fun fact: this is why crypto never took off as a replacement for credit cards. Too many entrepreneurs focused on “lower fees” as if it were some technical property. But it was never about the technology.
Interchange fees primarily fund consumer rewards programs and benefits. To become an appealing choice for consumers, any new payment method has to offer competitive benefits. Those benefits are funded by the fees.
Visa/MC/AmEx have essentially created a system whereby higher-spending customers are able to wrench more value from merchants in the form of higher fees. This is reflected in the fee schedules that slice and dice merchants by category and customers by card tier.
If you want to build a new payment system it is important to understand that it’s not just a negotiation between merchants and issuers. It’s a two-sided market where customers also leverage their spending power, directly or indirectly.
Interchange fees primarily fund consumer rewards programs and benefits. To become an appealing choice for consumers, any new payment method has to offer competitive benefits. Those benefits are funded by the fees.
Visa/MC/AmEx have essentially created a system whereby higher-spending customers are able to wrench more value from merchants in the form of higher fees. This is reflected in the fee schedules that slice and dice merchants by category and customers by card tier.
If you want to build a new payment system it is important to understand that it’s not just a negotiation between merchants and issuers. It’s a two-sided market where customers also leverage their spending power, directly or indirectly.
> this is why crypto never took off as a replacement for credit cards
If this were true you would expect crypto to have taken off in countries with low interchange rates. Europe, for example, has far less of a rewards and points culture for payment, and (compared to the US) much lower interchange.
Crypto never took off as a replacement for credit cards for many reasons - the biggest coins out there are simply too volatile to be usable as a currency, they lack the consumer protections you get paying with a credit card, and they’re simply too complex for an average person to understand.
If this were true you would expect crypto to have taken off in countries with low interchange rates. Europe, for example, has far less of a rewards and points culture for payment, and (compared to the US) much lower interchange.
Crypto never took off as a replacement for credit cards for many reasons - the biggest coins out there are simply too volatile to be usable as a currency, they lack the consumer protections you get paying with a credit card, and they’re simply too complex for an average person to understand.
Interchange is regulated in Europe. You would likely run into legal issues if you tried to jack up merchant fees via a novel payment method.
However, even if it were legal, I don’t think this would counter my claim. I’m merely saying that you’d need to match existing rewards schemes in markets where they are established. Introducing them into a new market is an entirely different matter. The system we have today evolved through many decades of negotiation and deal making among merchants, issuers and card networks.
You’re right about consumer protections —- it would be very expensive for a crypto-based system to provide those without an intermediary that can adjudicate and reverse transactions (chargebacks).
However, even if it were legal, I don’t think this would counter my claim. I’m merely saying that you’d need to match existing rewards schemes in markets where they are established. Introducing them into a new market is an entirely different matter. The system we have today evolved through many decades of negotiation and deal making among merchants, issuers and card networks.
You’re right about consumer protections —- it would be very expensive for a crypto-based system to provide those without an intermediary that can adjudicate and reverse transactions (chargebacks).
Surely that isn't the only reason
The complexity of crypto is probably the biggest.
The second biggest is the missing need: Most people don't have any advantage of using crypto. They go to work, get a salary, buy/sell things and thats it.
If you don't need to buy something illegal or really believe that there is still a soviety left to take some crypto in worst case scenario, fiat is great.
The second biggest is the missing need: Most people don't have any advantage of using crypto. They go to work, get a salary, buy/sell things and thats it.
If you don't need to buy something illegal or really believe that there is still a soviety left to take some crypto in worst case scenario, fiat is great.
I have this pet theory that the idea of decentralized currency is a bit ahead of its time, and the best consumer use case is for frequent travelers since you could more easily sidestep foreign exchange issues, and hassles.
There's a bunch of backend and b2b use cases to be explored but those also take time.
All this assumes the volatility issue is solved.
There's a bunch of backend and b2b use cases to be explored but those also take time.
All this assumes the volatility issue is solved.
> frequent travelers since you could more easily sidestep foreign exchange issues
I don't travel internationally very frequently, but whenever I do my credit card handles currency exchange for me automatically. Perhaps I'm not getting the best exchange rate, but the difference is minimal enough that looking into alternatives isn't worth the hassle.
I don't travel internationally very frequently, but whenever I do my credit card handles currency exchange for me automatically. Perhaps I'm not getting the best exchange rate, but the difference is minimal enough that looking into alternatives isn't worth the hassle.
Also doesn't need to be decentralized or an existing crypto currency to solve those issues.
For example, central banks are exploring smart contracts for international payments. https://www.bis.org/press/p240403.htm
For example, central banks are exploring smart contracts for international payments. https://www.bis.org/press/p240403.htm
A paragraph from the previous essay by the OP comes to mind:
> Less sardonically, there is a lesson here: systems which intermediate between cultures are useful. Intermediating between cultures is a thing the world urgently needs and is extremely prepared to pay for.
https://www.bitsaboutmoney.com/archive/financial-systems-tak...
I don't think decentralized currency will actually solve the issues travelers have with this, at least without reproducing much of the infrastructure already in place for traditional currencies.
> Less sardonically, there is a lesson here: systems which intermediate between cultures are useful. Intermediating between cultures is a thing the world urgently needs and is extremely prepared to pay for.
https://www.bitsaboutmoney.com/archive/financial-systems-tak...
I don't think decentralized currency will actually solve the issues travelers have with this, at least without reproducing much of the infrastructure already in place for traditional currencies.
Ahead of its time. Not a bad call.
In a quasicapitalist utopia, crypto would be a very convenient way to enable the government to set a stock value for a universal cryptocredit and make that credit its default method of value transfer.
They could do something like pin the value to 1 credit = 1 hour of unskilled menial labor, and strictly control the supply.
With appropriate software monitoring and a lack of other methods of direct wealth transfer, it would make it impossible to not properly pay your taxes and vastly more difficult to exchange wealth without government oversight, and make money crimes vastly more difficult, from hiring criminals to do crimes to purchasing drugs and weapons for illicit purposes.
It's the perfect system for a dictatorship as well.
In a quasicapitalist utopia, crypto would be a very convenient way to enable the government to set a stock value for a universal cryptocredit and make that credit its default method of value transfer.
They could do something like pin the value to 1 credit = 1 hour of unskilled menial labor, and strictly control the supply.
With appropriate software monitoring and a lack of other methods of direct wealth transfer, it would make it impossible to not properly pay your taxes and vastly more difficult to exchange wealth without government oversight, and make money crimes vastly more difficult, from hiring criminals to do crimes to purchasing drugs and weapons for illicit purposes.
It's the perfect system for a dictatorship as well.
Crypto is complex but I don't think very many people could explain how Visa's merchant payment network functions. It just does, and no one has to think about it.
Yes and thats not the case for crypto. For crypto you need to choose a cryptocoin, need to understand what a wallet is, best case install a secure wallet from the internet etc.
You don't need to know how visa works as long as you know how to register for a cc and know how to put that card into a device when paying.
You don't need to know how visa works as long as you know how to register for a cc and know how to put that card into a device when paying.
Amother huge piece is that it (Bitcoin and most other major cryptos) is by design a deflationary money system.
Why would you spend crypto when you could get more for it if you wait a week?
You wouldn't.
And people don't.
Why would you spend crypto when you could get more for it if you wait a week?
You wouldn't.
And people don't.
>Why would you spend crypto when you could get more for it if you wait a week?
that never stopped capitalist from spending their money even if they make profit from their investment. If your logic was true, no one who has access to investment opportunities (eg. the stock market) would ever spend any money.
that never stopped capitalist from spending their money even if they make profit from their investment. If your logic was true, no one who has access to investment opportunities (eg. the stock market) would ever spend any money.
> If your logic was true...
I think you're taking a stronger interpretation than what I wrote.
I'm not saying no one ever spent any crypto.
I'm saying that because it was deflationary, people tended to spend less than otherwise. This was so bad with bitcoin that it failed to be usable as a currency.
If my logic were true, then when interest rates were higher and people could make more money doing nothing, then people with access to investment opportunities would tend to spend less money.
Which is exactly what we are currently seeing.
I think you're taking a stronger interpretation than what I wrote.
I'm not saying no one ever spent any crypto.
I'm saying that because it was deflationary, people tended to spend less than otherwise. This was so bad with bitcoin that it failed to be usable as a currency.
If my logic were true, then when interest rates were higher and people could make more money doing nothing, then people with access to investment opportunities would tend to spend less money.
Which is exactly what we are currently seeing.
15-60 minute settlement times early on certainly didn't help
Visa/Mastercard have settlement times of over 24 hours.
Meanwhile, for over a decade now, Litecoin has had a settlement time of 2.5 minutes. And, for tiny (sub $100) transactions, it’s totally reasonable to just look up the wallet’s holdings in an instant.
For online transactions, you can always let the customer go immediately. Just wait 3 minutes before you ship :P
Meanwhile, for over a decade now, Litecoin has had a settlement time of 2.5 minutes. And, for tiny (sub $100) transactions, it’s totally reasonable to just look up the wallet’s holdings in an instant.
For online transactions, you can always let the customer go immediately. Just wait 3 minutes before you ship :P
You are comparing apples to oranges. Settlement times in traditional credit card transactions are not felt by the customer, and provide safeguards for fraud prevention and charge backs. Furthermore, transactions are easily reversible through a claims system. Guess what crypto doesn't have?
This is exactly the apples I’m talking about. Merchants eat much higher fees on behalf of the customer so they can hide the much longer settlement times from the customer and accept that they’ll also have to just eat the occasional fraudulent chargeback from the customer. They put up with all this hassle because “That’s just how it’s always been if you want to do business.”
And, yet people say crypto can’t work because the fees are too high (they’re lower) and the settlement times are too slow (they’re faster).
Dealing with merchant fraud is a legit call-out though. I don’t know what a good crypto solution to that is. I can imagine replacing that department with a smart contract. But, I’ve haven’t looked around to see what’s been tried.
And, yet people say crypto can’t work because the fees are too high (they’re lower) and the settlement times are too slow (they’re faster).
Dealing with merchant fraud is a legit call-out though. I don’t know what a good crypto solution to that is. I can imagine replacing that department with a smart contract. But, I’ve haven’t looked around to see what’s been tried.
>this is why crypto never took off as a replacement for credit cards
I thought it was because transactions take minutes instead of seconds.
I thought it was because transactions take minutes instead of seconds.
And because it's uncompelling. I have a bunch of consumer protections around my credit card, why would I want to use crypto instead? Especially when it's a wildly fluctuating speculative asset and the burger I buy for $15 worth of coins today will be $60 dollars of coins tomorrow.
They can take either; waiting for confirmations is only a matter of reducing double-spend risk.
In practice, seconds after a transaction has been signed and broadcast, it is already very unlikely to double-spend. Miner incentives are such that the first-seen transaction is the most likely to be used. A delay of a couple seconds is sufficient to account for network-propagation lag.
You wouldn't do this for high-value transactions, but there's some threshold where real-world risk is lower than the convenience of a fast transaction, and that threshold is reasonably high.
In practice, seconds after a transaction has been signed and broadcast, it is already very unlikely to double-spend. Miner incentives are such that the first-seen transaction is the most likely to be used. A delay of a couple seconds is sufficient to account for network-propagation lag.
You wouldn't do this for high-value transactions, but there's some threshold where real-world risk is lower than the convenience of a fast transaction, and that threshold is reasonably high.
That is almost certainly one reason and an important one. But as the other commenter to your comment shows, there is a lot more. Protections is a big one. I also personally side that, you need a way for people to interface with their crypto like they do with their current bank and as simple as possible. Normal people don't want to have to juggle around keys. Hell, Im a software engineer and I hate having to keep track of keys. So every time I get a new machine, I create fresh new SSH keys. My SSH keys are disposable to me.
Funny, because I would pay twice the CC fee for credit card transactions to be as painless as crypto. I'd rather scan a barcode and wait two minutes, compared to typing my address, handing over my phone number, confirming my zip, waiting for my CC's TOTP to arrive. Only for it to still fail 5% of the time for who knows what reason.
You should try Apple Pay (or maybe Google Pay?) It addresses all those pain points and more, while still giving you the consumer protections and fast transactions of cards.
I'm not interested in giving more parties access to my financial data, certainly not an ad company. And I'm not about to buy an iPhone to use it. Also, merchant support for it is abysmal. But, appreciate the tip all the same.
I don’t know where you are but NFC terminals are extremely common here (I’m in CA). And Apple Pay doesn’t track your transactions. It actually protects you better than a regular card by using a distinct number tied to the secure element in the phone, and thus your passcode/biometrics. Even if the merchant is hacked your number is useless.
Well, for the example that started this subthread, it's not exactly as if I'm entering my address to swipe my card. I'm talking about online purchases.
And I already addressed Apple, and I certainly don't trust Google. Like, sure, I'd use Apple Pay, except the entire concept of their ecosystem has no place for someone like me. Apple chooses not to support Android, not the other way around. Not least of which, I'm not at all impressed at Apple's ability to run financial products, or manage online security.
Imagine my surprise upon finding out that the only way to use 2FA with an Apple ID is a phone number. Stunning.
And I already addressed Apple, and I certainly don't trust Google. Like, sure, I'd use Apple Pay, except the entire concept of their ecosystem has no place for someone like me. Apple chooses not to support Android, not the other way around. Not least of which, I'm not at all impressed at Apple's ability to run financial products, or manage online security.
Imagine my surprise upon finding out that the only way to use 2FA with an Apple ID is a phone number. Stunning.
Apple Pay also fills all of your address information when you buy online. You can tap Apple Pay, double click the side button and done. Trusted devices are the basis of Apple 2FA, not a phone number. All of your information stored with icloud (aside from email and calendar) can also be encrypted such that if you lose your recovery key and passcode, your data is gone forever. That’s the best online security available in a consumer device.
Bruh.
> Trusted devices are the basis of Apple 2FA, not a phone number.
I own a SINGLE Apple device, a Macbook. The only option for 2FA is a phone number. And again, Apple Pay is not available to me because Apple can't be bothered to add Android support.
I came here saying crypto's completely device agnostic, app agnostic, open protocol experience of "scan a barcode, hit pay, wait 2 minutes" was ideal.
You have suggested an alternative that is proprietary, unavailable to most users of the world, and requires me trusting a company that again, can't offer me real two-factor auth protection for my Apple ID.
I'm sorry, it's not a serious recommendation.
EDIT1: To produce this screenshot, I had to login twice, once after another, in different dialog boxes, both of which let me edit my input after submitting the contents. And then the entire process stopped. Then I hit "Turn On" again and ... it's just spinning. I'm sorry, I can't take any of this serious.
https://files.catbox.moe/p6kwv5.png
EDIT2: Oh and after taking that screenshot, writing this prose, and returning, now it wants my password, again. And now it's just an empty dialog:
https://files.catbox.moe/e4qi0a.png
EDIT3: And again, now it's loaded and asked me my security questions. And finally:
https://files.catbox.moe/eolfeu.png
No, no, no, a million times absolutely not.
> Trusted devices are the basis of Apple 2FA, not a phone number.
I own a SINGLE Apple device, a Macbook. The only option for 2FA is a phone number. And again, Apple Pay is not available to me because Apple can't be bothered to add Android support.
I came here saying crypto's completely device agnostic, app agnostic, open protocol experience of "scan a barcode, hit pay, wait 2 minutes" was ideal.
You have suggested an alternative that is proprietary, unavailable to most users of the world, and requires me trusting a company that again, can't offer me real two-factor auth protection for my Apple ID.
I'm sorry, it's not a serious recommendation.
EDIT1: To produce this screenshot, I had to login twice, once after another, in different dialog boxes, both of which let me edit my input after submitting the contents. And then the entire process stopped. Then I hit "Turn On" again and ... it's just spinning. I'm sorry, I can't take any of this serious.
https://files.catbox.moe/p6kwv5.png
EDIT2: Oh and after taking that screenshot, writing this prose, and returning, now it wants my password, again. And now it's just an empty dialog:
https://files.catbox.moe/e4qi0a.png
EDIT3: And again, now it's loaded and asked me my security questions. And finally:
https://files.catbox.moe/eolfeu.png
No, no, no, a million times absolutely not.
This is where a lot of tech folks fail. It's almost never about the technology. Most of the time all you need is a spreadsheet.
Most tech things are various forms of spreadsheet.
Blockchain is a distributed and complicated one.
Blockchain is a distributed and complicated one.
It's not just crypto it's any alternative payment system. Multiple payment vendors have tried to up-end the credit card companies by focusing on lower fees for merchants, but customers have no incentive to use that new system if they have a benefit to using their credit card, at least in the US.
It's why, though, there are a bunch of payments companies that have popped up in places throughout Asia that aren't competing with rewards systems off the back of interchange.
It's why, though, there are a bunch of payments companies that have popped up in places throughout Asia that aren't competing with rewards systems off the back of interchange.
I had high hopes for https://www.prnewswire.com/news-releases/ternio-blockcard-wi... but it was just too much hassle to keep transferring in money
While looking up a representative link for that, I also saw that it appears Venmo is in that game, too: https://www.cryptovantage.com/best-crypto-credit-cards/venmo...
While looking up a representative link for that, I also saw that it appears Venmo is in that game, too: https://www.cryptovantage.com/best-crypto-credit-cards/venmo...
> Fun fact: this is why crypto never took off as a replacement for credit cards. Too many entrepreneurs focused on “lower fees” as if it were some technical property.
I always thought the big problem with crypto was that the fees were atrocious for any small transaction.
And the fees only get higher as the network gets busier. You can choose to have a send some money with a small fee, but the miners will never confirm your transaction, as each block is limited.
I always thought the big problem with crypto was that the fees were atrocious for any small transaction.
And the fees only get higher as the network gets busier. You can choose to have a send some money with a small fee, but the miners will never confirm your transaction, as each block is limited.
Not quite the case anymore—rollup fees are often below $0.05 per transaction.[1]
[1] https://www.gasfees.io/
[1] https://www.gasfees.io/
Couple quick things - from a business operator
The only way to cost in cc fees is to always assume the highest tier plus one time fees. This is then built into the retail cost of everything
If you pay with a lower fee card, you subsidize the higher fee customers
If you pay cash, debit, or check and don’t say anything - you subsidize the higher fee credit card payers
If you ask me, I’ll give you 2% discount for cash or check. I’ve built in 3%+
Visa debit is the biggest scam going, they’ve found a way to charge 2.5% to take debit cards. In Canada forever it’s been 0.10 a transaction for debit for higher volume clients
Pretty much - you need to get a high reward cc and use it for all your purchases and pay it off every month. If not, and you don’t ask for a discount, you subsidize the people who do.
Example - last month I was “funded” $130,681.33 this includes debit cards which I pay a low flat rate for (but this is changing)
On $130,681.33 I paid $2,433.51 in service charges or 1.86% . Plus the liability of the possibility of a charge back, also I do not accept Amex.
The only way to cost in cc fees is to always assume the highest tier plus one time fees. This is then built into the retail cost of everything
If you pay with a lower fee card, you subsidize the higher fee customers
If you pay cash, debit, or check and don’t say anything - you subsidize the higher fee credit card payers
If you ask me, I’ll give you 2% discount for cash or check. I’ve built in 3%+
Visa debit is the biggest scam going, they’ve found a way to charge 2.5% to take debit cards. In Canada forever it’s been 0.10 a transaction for debit for higher volume clients
Pretty much - you need to get a high reward cc and use it for all your purchases and pay it off every month. If not, and you don’t ask for a discount, you subsidize the people who do.
Example - last month I was “funded” $130,681.33 this includes debit cards which I pay a low flat rate for (but this is changing)
On $130,681.33 I paid $2,433.51 in service charges or 1.86% . Plus the liability of the possibility of a charge back, also I do not accept Amex.
A lot of businesses give more than a 2% discount for cash. Personally I find that I instinctively tip less when I use cash than a credit card. The act of getting bills out of my wallet is viscerally more painful than writing numbers down, so I tip less without thinking.
- In the EU the main reason Rewards cards have declined is that the regulator capped interchange to a very small amount in 2015. The US will follow suit at some point (as noted debit cards have gone that way) but I guess not as low
- I think the simple answer to nkurz's point on why don't all cards charge the maximum in interchange is - it's just market forces. It's not worth enough money to long-term piss off the bigger merchants (i.e. Amazon). When you have a 30% APR card non-rewards card, the 3% interchange is small beans. Also the acquiring bank would probably want a bigger piece of the pie if it were more widespread
- Credit Card economics is radically different across different countries (for all sorts of reasons). So for example, a third of card users in the US explicitly seek the rewards and another third have it for the various protections/security vs. debit cards. In the UK only 12% seek rewards, with the two biggest use cases being to spread costs of big transactions or to improve their credit score. (so for that reason it's sort of hard to have a global view of this problem)
- I think the simple answer to nkurz's point on why don't all cards charge the maximum in interchange is - it's just market forces. It's not worth enough money to long-term piss off the bigger merchants (i.e. Amazon). When you have a 30% APR card non-rewards card, the 3% interchange is small beans. Also the acquiring bank would probably want a bigger piece of the pie if it were more widespread
- Credit Card economics is radically different across different countries (for all sorts of reasons). So for example, a third of card users in the US explicitly seek the rewards and another third have it for the various protections/security vs. debit cards. In the UK only 12% seek rewards, with the two biggest use cases being to spread costs of big transactions or to improve their credit score. (so for that reason it's sort of hard to have a global view of this problem)
A fun fact is that most US reward cards with up to 5% rewards work fine in the EU.
I have noticed some strange behavior with some cards at certain supermarkets. That may be them trying to fight back against the US interchange fees, but there are workarounds.
I have noticed some strange behavior with some cards at certain supermarkets. That may be them trying to fight back against the US interchange fees, but there are workarounds.
Reading the description of the interchange fee cap, it sounds like the cap should apply also for US-issued cards used in the EU [0]:
> ... the capping of interchange fees should result in lower fees charged by banks to retailers for processing card payments.
If users of US cards still get 5% rewards when using their cards in the EU, I'm curious about who pays for the 4.7% shortfall.
[0] https://ec.europa.eu/commission/presscorner/detail/en/MEMO_1...
> ... the capping of interchange fees should result in lower fees charged by banks to retailers for processing card payments.
If users of US cards still get 5% rewards when using their cards in the EU, I'm curious about who pays for the 4.7% shortfall.
[0] https://ec.europa.eu/commission/presscorner/detail/en/MEMO_1...
It’s uncommon enough that the credit card processors just eat the fee difference. Probably the issuing bank and not VISA/MC.
The number of people who can effectively use/abuse this consistently is probably pretty low.
The number of people who can effectively use/abuse this consistently is probably pretty low.
> abuse
Yes using the card as designed and promoted I don't know how I live with myself.
Yes using the card as designed and promoted I don't know how I live with myself.
"Abuse" in this context would probably mean intentionally getting a credit card in the US and then making a bunch of purchases in the EU with the specific intention of screwing over your bank/card company with the interchange fee difference, which obviously not many people are going to have the will, time, or money to do, especially not "consistently."
Even just using the word "use," US cards are designed for and promoted to people who live in the US, and are likely to do most (if not all) of their shopping in the US. Absolutely, there's nothing morally wrong with getting a US card and using it a bunch in the EU, but the point is that the number of people doing that is low enough for the banks/card companies to just subsidize the fees.
Even just using the word "use," US cards are designed for and promoted to people who live in the US, and are likely to do most (if not all) of their shopping in the US. Absolutely, there's nothing morally wrong with getting a US card and using it a bunch in the EU, but the point is that the number of people doing that is low enough for the banks/card companies to just subsidize the fees.
There is no possible way to construe abuse. None. Zilch.
Credit cards, from nearly their inception, have been widely promoted to be used when travelling. The cards could charge for foreign transactions but they choose not to, obviously to promote use overseas.
They could simply specify that the rewards only apply to US purchases, yet they don't.
They could notice that I've been committing this "abuse" for TEN YEARS and cut me off, yet they don't. They keep on upgrading me instead.
Credit cards, from nearly their inception, have been widely promoted to be used when travelling. The cards could charge for foreign transactions but they choose not to, obviously to promote use overseas.
They could simply specify that the rewards only apply to US purchases, yet they don't.
They could notice that I've been committing this "abuse" for TEN YEARS and cut me off, yet they don't. They keep on upgrading me instead.
> Credit cards, from nearly their inception, have been widely promoted to be used when travelling.
Sure, many of them might be "promoted" for travel (never mind you not providing any citations or statistics for this statement). The vast majority of people probably can't afford the money or vacation time to travel internationally more than once, maybe twice per year (at least in the United States, where most destinations require going overseas).
Nobody is attacking you, no need to take this so personally. The point was that the reason they still give you the rewards that the EU's lower processing fees can't fund is possibly because they're making enough extra from the customers not doing what you're doing to fund it. That's all.
Sure, many of them might be "promoted" for travel (never mind you not providing any citations or statistics for this statement). The vast majority of people probably can't afford the money or vacation time to travel internationally more than once, maybe twice per year (at least in the United States, where most destinations require going overseas).
Nobody is attacking you, no need to take this so personally. The point was that the reason they still give you the rewards that the EU's lower processing fees can't fund is possibly because they're making enough extra from the customers not doing what you're doing to fund it. That's all.
The card issuer and potentially the consumer via atrocious fees and a terrible exchange rate? I have a French-based American Express and their exchange rate + commission on any foreign currency transaction is flat out absurd (I'm talking like 50 euros commission on a 1k USD transaction, + a very bad course resulting in a total ~100+ euro difference than if I pay with a Revolut/N26/BoursoBank no-fee foreign currency payment card).
I only use cards without FX or other fees. The amount is charged to the US card in Euros and Visa or Mastercard take a 50 basis point commission on the currency conversion, but since their settlement is not real time (end of day in US or something) often this can be a exchange rate win depending on your luck.
Interesting. Europe has stricter regulations that cap interchange. As a result not a lot of rewards cards and less competition in that space. In US no caps, but much more players in the rewards cards space. I've checked recent foreign transactions and it looks like both of popular travel cards make some money on exchange rates, but not as much as in France.
Amex Plat did not charge foreign fee, but exchange rate is 1% less favorable according xe.com
Chase Sapphire Reserve also no fees, exchange rate is 0.3% different from xe.com
Amex Plat did not charge foreign fee, but exchange rate is 1% less favorable according xe.com
Chase Sapphire Reserve also no fees, exchange rate is 0.3% different from xe.com
> I've checked recent foreign transactions and it looks like both of popular travel cards make some money on exchange rates, but not as much as in France
Don't get me wrong, there are tons of options for cheap or downright free foreign exchange transactions (such as Revolut, N26, Fortuneo, BoursoBank just in France). It's Amex in particular that are borderline scamming their French customers on foreign transactions.
Don't get me wrong, there are tons of options for cheap or downright free foreign exchange transactions (such as Revolut, N26, Fortuneo, BoursoBank just in France). It's Amex in particular that are borderline scamming their French customers on foreign transactions.
Never heard about others but Revolut is not a great example. 1% exchange fee plus another 0.3% on exchange rate. I agree that Amex is scamming their european customers. But my point was that they don't do it in US despite the lack of regulations. Same Amex is nicer to their american customers than Revolut to europeans. And one of Revolut's main selling points is their great exchange rates.
https://www.revolut.com/currency-converter/
https://www.revolut.com/currency-converter/
Pretty much all Amex cards with an annual fee have no foreign transaction fees as a benefit. The issue is that a lot of small business merchants outside of the US don't accept Amex (or will at least say they don't to avoid the higher interchange fee).
> Pretty much all Amex cards with an annual fee have no foreign transaction fees as a benefit.
Even in the US, this is not true. The Blue Cash Preferred and Everyday Preferred cards have foreign transaction fees, as does the Business Green card.
Practically all non-US-issued Amex cards have foreign transaction fees as well. The US card market seems to be very competitive on that front.
Even in the US, this is not true. The Blue Cash Preferred and Everyday Preferred cards have foreign transaction fees, as does the Business Green card.
Practically all non-US-issued Amex cards have foreign transaction fees as well. The US card market seems to be very competitive on that front.
Not in France - I have an Amex Platinum and with it I get the above described absurd fees and bad exchange rates.
Funnily I've gotten notified a couple of times by Amex, as per ECB regulations, that the course they've used is significantly worse than the official one.
Funnily I've gotten notified a couple of times by Amex, as per ECB regulations, that the course they've used is significantly worse than the official one.
I don't think that's the case outside the US. Sweden here; all of the Amex cards available locally charge a 2% currency exchange fee.
Every foreign exchange writes "no transaction fee". What they forget to mention is their exchange rate.
Cross border interchange & scheme fees are a whole other category.
FX is expensive in general regardless of the way you do it.
FX is expensive in general regardless of the way you do it.
Similar but with my debit card from Europe. 0.1% cashback in Europe and UK, 1% everywhere else.
It's not worth enough money to long-term piss off the bigger merchants (i.e. Amazon)
My credit card is a Fidelity 2% cash back Visa. (I think it was originally American Express, but it's Visa now. Presumably that happened sometime after 2016.) I don't travel much, so getting cash deposited into my brokerage is more useful to me, and with a "2% on everything" card, it's not really worth it to me to carry around other cards for specific categories.
After I bought my current home, I put a bunch of expenses on the card. I didn't realize I had gone over the limit until I got a letter in the mail telling me that they automatically increased the limit. They keep increasing it every year or two, so at this point I could put a mid range car on the card.
All that said, I would prefer if rewards cards in general were banned and everything was just 2% cheaper. The whole concept feels a little dirty to me, like I'm taking a bribe to use a specific form of payment. But, at the same time, it doesn't make sense not to in the current market.
After I bought my current home, I put a bunch of expenses on the card. I didn't realize I had gone over the limit until I got a letter in the mail telling me that they automatically increased the limit. They keep increasing it every year or two, so at this point I could put a mid range car on the card.
All that said, I would prefer if rewards cards in general were banned and everything was just 2% cheaper. The whole concept feels a little dirty to me, like I'm taking a bribe to use a specific form of payment. But, at the same time, it doesn't make sense not to in the current market.
I likewise have this card and it worked for me in a certain point in my life but it depends on what you spend money on. As a family of 4 we spend a lot on groceries and eating out so its good to use a card for those things that gives us 3%. The sort of most obvious one is the amazon visa which you can connect to your amazon account and get the 3% off on everything there automatically.
It's not a life changing amount but it's free money.
It's not a life changing amount but it's free money.
Just an unsolicited pointer, but if you're US-based you might consider computing the cost/benefit of an Amex blue cash preferred.
It carries an annual fee of $95, but the 6% back on groceries (on your first $6000/yr) and 3% on gas add up pretty quickly.
It carries an annual fee of $95, but the 6% back on groceries (on your first $6000/yr) and 3% on gas add up pretty quickly.
> All that said, I would prefer if rewards cards in general were banned and everything was just 2% cheaper.
Would you prefer that reality literally, or just if it was effectively like that? Literally doing that seems way worse than payment methods competing for your business with rewards.
Would you prefer that reality literally, or just if it was effectively like that? Literally doing that seems way worse than payment methods competing for your business with rewards.
I think either would be an improvement over the current situation. I'd be happy with regulations that put a cap on the fees, similar to what the EU has.
I want payment methods to compete by offering better service for lower fees, not by bribing consumers with rewards (and explicitly charging the businesses higher fees to pay for those bribes).
I want payment methods to compete by offering better service for lower fees, not by bribing consumers with rewards (and explicitly charging the businesses higher fees to pay for those bribes).
I've had the Fidelity 2% card for a long time. It's simple, and mostly no-nonsense. It's one of my two "everyday carry" cards, and what I use for everything except Amazon and Whole Foods Market (WFM).
For Amazon and WFM, I use the Amazon (Chase) card. Since WFM has replaced or outlived most of the grocery stores near me, this is my other carry card, and it doubles as a backup card if the Fidelity 2% has a problem.
I almost added a Target 5% store card recently, because being a cheap bastid overrides being a minimalist bastid. But I abandoned the card application form, when something about it seemed a little too invasive. So I'll keep doing the Fidelity 2% card when I shop at Target, and that makes Target prices a little less competitive.
For Amazon and WFM, I use the Amazon (Chase) card. Since WFM has replaced or outlived most of the grocery stores near me, this is my other carry card, and it doubles as a backup card if the Fidelity 2% has a problem.
I almost added a Target 5% store card recently, because being a cheap bastid overrides being a minimalist bastid. But I abandoned the card application form, when something about it seemed a little too invasive. So I'll keep doing the Fidelity 2% card when I shop at Target, and that makes Target prices a little less competitive.
> It's simple, and mostly no-nonsense.
Yeah, that's the other reason I like it: I rarely have to think about it. Both paying off the monthly balance and cashing out the rewards are fully automated.
All I have to remember to do is save a copy of the annual summaries at least once every 3 years, because they don't let you go back farther than that.
I try to keep most of my finances "on rails" like that where bills, savings, etc. just happen automatically.
Yeah, that's the other reason I like it: I rarely have to think about it. Both paying off the monthly balance and cashing out the rewards are fully automated.
All I have to remember to do is save a copy of the annual summaries at least once every 3 years, because they don't let you go back farther than that.
I try to keep most of my finances "on rails" like that where bills, savings, etc. just happen automatically.
[deleted]
I am really interested in the content of this post, and I assume other posts from the author. But his writing style is extremely long winded.
For instance, this is somehow only two sentences.
For instance, this is somehow only two sentences.
It is a fee, ultimately paid by the card-accepting business, which gets sliced up between various parties in the credit card ecosystem to incentivize them to put their logos in the wallets and on the phones of well-heeled customers and increase the amount they spend and the frequency with which they spend it. (In industry, we sometimes distinguish interchange—which mostly goes to the issuing bank—and scheme fees—which mostly go to the credit card brand itself—but as interchange is much larger, let’s just call them both interchange for simplicity.)Agreed. I thought I was having a bad day unable to comprehend the content, but the style is off putting.
Agreed. Lots of parentheticals that distract from the main point.
This gentleman discusses topics that I think I'd be interested in, but like the half dozen times I've tried to read this guy, I've just lost my motivation so quickly. I feel some arrogance in his long-windedness. Is there any parallel to make with The Last Psychiatrist?
Came here just to write the same. I've squandered to find an explanation because I absolutely enjoy the subject. Perhaps it's because I'm not a native speaker and generally have non-native speakers around so I don't understand some of the metaphors, perhaps it's because I'm just not used to reading these kinds of long sentences anymore, or perhaps it's just not my kind of beer. I really don't know.
On the other hand, I really enjoy both reading and writing long sentences, as long as they are logically easy to follow, for they exude a certain eloquence and elegance that elevates the style and, most importantly, refines my audience by filtering away potential readers who had not had sufficient high school language classes to get used to understanding such long sentences effortlessly, which, this being a matter of personal expression rather than instruction, I certainly have the right to.
I agree with you.
They’re not essays you can skim. But I enjoy a word journey.
They’re not essays you can skim. But I enjoy a word journey.
Don't ever read Proust!
Not to go too off topic but I'm extremely interested in the throwaway comment about holding enough equity in your service provider of choice to justify calling investor relations when you have an issue. Is this a real thing that people do? If it works it sounds like an amazing life hack but I have my doubts how much influence they would have over the "real" support.
It's a thing the author of that article does, at least. He's got an article mostly about how to escalate identity theft complaints here that touches on it: https://www.kalzumeus.com/2017/09/09/identity-theft-credit-r...
It's very long so I'll just quote a small bit specifically about the Investor Relations:
> If you cannot route letters to the legal department, go as high up as required. Pro-tip: virtually every major US company has a department called Investor Relations which is trivially discoverable, very well-funded, publicly routable, and very bored during 80% of the year. You can excuse any letter to Investor Relations with: "I am a shareholder in BigBank. I was therefore profoundly displeased when I learned…"
> What’s a well-paid bored professional in Investor Relations going to do with your account information? Nothing? Nothing is a great way to get fired. No, they’re going to open up their internal phone tree or ticketing system and say “I have a letter from an investor which alleges an identity theft issue. Which group handles that? Your department? Great; handle it and call me when you’re done. Do you want it by fax, email, or FedEx?”
For this to work though you've got to present like your position in the stock is in the millions of dollars, even if it's actually like $100. The author of the article has been in the financial industry for a very long time, and has also spent a long time as a Japanese salaryman, so he can definitely pull that off.
It's very long so I'll just quote a small bit specifically about the Investor Relations:
> If you cannot route letters to the legal department, go as high up as required. Pro-tip: virtually every major US company has a department called Investor Relations which is trivially discoverable, very well-funded, publicly routable, and very bored during 80% of the year. You can excuse any letter to Investor Relations with: "I am a shareholder in BigBank. I was therefore profoundly displeased when I learned…"
> What’s a well-paid bored professional in Investor Relations going to do with your account information? Nothing? Nothing is a great way to get fired. No, they’re going to open up their internal phone tree or ticketing system and say “I have a letter from an investor which alleges an identity theft issue. Which group handles that? Your department? Great; handle it and call me when you’re done. Do you want it by fax, email, or FedEx?”
For this to work though you've got to present like your position in the stock is in the millions of dollars, even if it's actually like $100. The author of the article has been in the financial industry for a very long time, and has also spent a long time as a Japanese salaryman, so he can definitely pull that off.
There are a ton of free services only accessible to those with money. For example, if you buy jewelry from any luxury store you can often also bring it in for free cleaning. But they will honor this for any piece you bought from them. And if you bring in a mix of pieces they will often clean them all.
Luxury retail isn’t often worth it, but when it is it comes with lifetime services.
Luxury retail isn’t often worth it, but when it is it comes with lifetime services.
Probably going against the grain here, but I think it’s great that at least a modest fraction of the benefits of highly risk-optimized revolving credit and low-friction electronic payments are feeding back to the consumer, vs. having all the value derived from that technology captured by the banks and merchants.
In a world where these high-exchange-fee / high-reward cards were outlawed, merchants would pay less in aggregate in fees. But almost surely they’d lose out net from a drop in overall consumer spending.
That affiliate programs inspire gamification for consumers to optimize their spending patterns to “win prizes” seems like a neat bit of competitive market pressure: It’s obviously a win for all involved or they wouldn’t be so popular.
In a world where these high-exchange-fee / high-reward cards were outlawed, merchants would pay less in aggregate in fees. But almost surely they’d lose out net from a drop in overall consumer spending.
That affiliate programs inspire gamification for consumers to optimize their spending patterns to “win prizes” seems like a neat bit of competitive market pressure: It’s obviously a win for all involved or they wouldn’t be so popular.
> It’s obviously a win for all involved or they wouldn’t be so popular.
Definitely not a win for consumers, who in aggregate lose out. The margins to make the system work are built into the prices you pay at the checkout.
Other markets like Europe and Australia capped interchange and made it cheaper for retailers and consumers.
This forced banks to redesign their products/rewards/pricing to give consumers a real choice of whether to play or not.
Some consumers decide to fund more of the rewards cost themselves (via cards with annual fees). Some keep high rewards by using new bank-issued Amex (but pay surcharges at the checkout). Some keep much of the gains for themselves (via no rewards/low cost cards, with lower costs for the retailer).
So now, consumers who don't want to pay the overhead of interchange-funded rewards for everyone else don't have to.
(Disclosure: I ran portfolio management/cross sell/profitability/customer retention for an Australian credit card issuer during the period that interchange there was capped and progressively forced down. Later, I was the Netherlands representative on one of the card schemes' European advisory committee.)
Definitely not a win for consumers, who in aggregate lose out. The margins to make the system work are built into the prices you pay at the checkout.
Other markets like Europe and Australia capped interchange and made it cheaper for retailers and consumers.
This forced banks to redesign their products/rewards/pricing to give consumers a real choice of whether to play or not.
Some consumers decide to fund more of the rewards cost themselves (via cards with annual fees). Some keep high rewards by using new bank-issued Amex (but pay surcharges at the checkout). Some keep much of the gains for themselves (via no rewards/low cost cards, with lower costs for the retailer).
So now, consumers who don't want to pay the overhead of interchange-funded rewards for everyone else don't have to.
(Disclosure: I ran portfolio management/cross sell/profitability/customer retention for an Australian credit card issuer during the period that interchange there was capped and progressively forced down. Later, I was the Netherlands representative on one of the card schemes' European advisory committee.)
> Definitely not a win for consumers, who in aggregate lose out. The margins to make the system work are built into the prices you pay at the checkout.
While not wrong don't forget that cash also has costs that are built into the system - there are a number of theft ways to lose money with cash that don't apply to cards. Even when everyone is honest there is the time cost to count all that cash. Somewhere between the two is mistakes in counting.
While not wrong don't forget that cash also has costs that are built into the system - there are a number of theft ways to lose money with cash that don't apply to cards. Even when everyone is honest there is the time cost to count all that cash. Somewhere between the two is mistakes in counting.
Definitely not a win for consumers, who in aggregate lose out. The margins to make the system work are built into the prices you pay at the checkout.
Prices are a function of supply and demand. Higher interchange fees hit supply (costs more to produce and sell the same quantity of goods) but they also spur demand, or no merchant would accept the cards with these fees. And indeed some large merchants have (for example) excluded American Express or Discover from their available payment methods for just this reason.
Prices are a function of supply and demand. Higher interchange fees hit supply (costs more to produce and sell the same quantity of goods) but they also spur demand, or no merchant would accept the cards with these fees. And indeed some large merchants have (for example) excluded American Express or Discover from their available payment methods for just this reason.
> It’s obviously a win for all involved or they wouldn’t be so popular.
Why is it obvious that it's "a win for all involved", as opposed to some big powerful financial companies taking advantage of a bunch of less organized merchants while providing benefit to some subset of cardholders? Obviously the merchants benefit overall from accepting credit cards, but I don't think it's anywhere near obvious that they benefit from funding the rewards programs. If there was any way for them to opt out, I feel a lot of them would. And it's hard to see how the non-rewards cards customers are benefitting from the current system---would any of them choose the current system if given a choice?
I definitely agree that someone is winning from the current system, but I don't think it's obvious that it's everyone.
Why is it obvious that it's "a win for all involved", as opposed to some big powerful financial companies taking advantage of a bunch of less organized merchants while providing benefit to some subset of cardholders? Obviously the merchants benefit overall from accepting credit cards, but I don't think it's anywhere near obvious that they benefit from funding the rewards programs. If there was any way for them to opt out, I feel a lot of them would. And it's hard to see how the non-rewards cards customers are benefitting from the current system---would any of them choose the current system if given a choice?
I definitely agree that someone is winning from the current system, but I don't think it's obvious that it's everyone.
As the article says, those who get rewards are richer people who spend more money. so merchants are indirectly rewarding their customers who spend the most money.
> That affiliate programs inspire gamification... It’s obviously a win for all involved or they wouldn’t be so popular.
It's not a win for consumers having to spend their time learning the "game" in order to not be left behind and essentially lose money.
I use basically a single credit card with a simple, universal cash-back scheme. I do some extremely simple and low-touch investing on the side. I choose not to waste my time attempting to do a billion other things that everyone else is doing to extract more value from the system, but I'm well aware that I'm probably coming out behind a lot of people as a result. That's not a "win," it's a race to the bottom that I've partially conceded.
It's not a win for consumers having to spend their time learning the "game" in order to not be left behind and essentially lose money.
I use basically a single credit card with a simple, universal cash-back scheme. I do some extremely simple and low-touch investing on the side. I choose not to waste my time attempting to do a billion other things that everyone else is doing to extract more value from the system, but I'm well aware that I'm probably coming out behind a lot of people as a result. That's not a "win," it's a race to the bottom that I've partially conceded.
My problem with the system is the fact that merchants are prohibited from handling different cards differently, for example by passing reward fees to the consumers.
If that were not the case I would be happy and let the market pick the preferred way. My 2c.
If that were not the case I would be happy and let the market pick the preferred way. My 2c.
>low-friction electronic payments are feeding back to the consumer, vs. having all the value derived from that technology captured by the banks and merchants.
Are you talking about the cash back? Isn't that just a shell game? If the consumer is getting 2% cashback, but the merchant is charging consumers 2% more to pay for it as well, how is it "feeding back to the consumer"?
Are you talking about the cash back? Isn't that just a shell game? If the consumer is getting 2% cashback, but the merchant is charging consumers 2% more to pay for it as well, how is it "feeding back to the consumer"?
> Are you talking about the cash back? Isn't that just a shell game? If the consumer is getting 2% cashback, but the merchant is charging consumers 2% more to pay for it as well, how is it "feeding back to the consumer"?
One of the issues is that the cash back rate is not evenly distributed across the buying population.
One of the issues is that the cash back rate is not evenly distributed across the buying population.
The benefit for the customer is getting 2% back when prices are only 1.5% higher than they would be “otherwise” because of cash and debit payments.
The disadvantage to the customer is increased spending because of how easy it is, which probably far outweighs the 2%.
The disadvantage to the customer is increased spending because of how easy it is, which probably far outweighs the 2%.
The other disadvantage to the customer who gets that extra 0.5% is that they know they're profiting off the misery of those worse off than them, that they enjoy rewards while those with low credit scores, struggling to feed their family, face 1.5% higher prices.
I would hope the tarnish on your immortal soul and realization that you're profiting directly off other's misery would be a bigger downside.
I would hope the tarnish on your immortal soul and realization that you're profiting directly off other's misery would be a bigger downside.
If you start seriously considering all the misery required to bring us cheap iPhones and all we ravenously consume, you'll quickly end up in a shack in the woods sending packages USPS.
I wish stripe or some company would create a zero fee credit card that is truly equivalent to using cash. The wealth transfer from cash payers, merchants, and some card users to other card users and the cc companies is one of those gross injustices, a small and persistent leech on society. Surely there’s a way to do cc transactions for near zero? What is the point of all this tech otherwise?
There's still fraud detection / prevention, card terminals, and other various infrastructure to pay for. Someone's going to pay for it, somehow.
Also, suppose Stripe did offer a low / zero transaction cost card. What's the incentive for me (a customer) to get it? It isn't any better than the other no-monthly-fee CCs, and is strictly inferior to a rewards card.
For merchants, yes, they are incentivized to accept Stripe's new card. But they can't stop accepting the other ones until Stripe has a significant share of the transactions. And may not be able to do so even then.
And meanwhile Stripe is eating the cost of running this new zero fee card system, which effectively takes away money that they could invest in their own business.
Sounds like a lose, lose, lose all around.
The real solution is to have a law that caps the CC transaction fee. Or allow merchants to add a surcharge for rewards CCs.
Also, suppose Stripe did offer a low / zero transaction cost card. What's the incentive for me (a customer) to get it? It isn't any better than the other no-monthly-fee CCs, and is strictly inferior to a rewards card.
For merchants, yes, they are incentivized to accept Stripe's new card. But they can't stop accepting the other ones until Stripe has a significant share of the transactions. And may not be able to do so even then.
And meanwhile Stripe is eating the cost of running this new zero fee card system, which effectively takes away money that they could invest in their own business.
Sounds like a lose, lose, lose all around.
The real solution is to have a law that caps the CC transaction fee. Or allow merchants to add a surcharge for rewards CCs.
Just ask your parliament to limit the fee? It's 0.3% for credit cards and 0.2% for debit cards in the European Union:
https://www.consilium.europa.eu/en/press/press-releases/2015...
https://www.consilium.europa.eu/en/press/press-releases/2015...
They already started trying. The Credit Card Competition Act was introduced last year [1]. It doesn't explicitly limit interchange fees though. Instead it allows merchants to choose the payment network that payments go through which legislators hope would create a race to the bottom.
[1] https://www.congress.gov/bill/118th-congress/senate-bill/183...
[1] https://www.congress.gov/bill/118th-congress/senate-bill/183...
One side of this is cash isn't zero fee.
It has to be minted and circulated, we see it as "free" but in practice the gov foots the bill. And, for cards it would be issuers footing the bill.
Then moving cash isn't free either. Merchants handling a lot of cash also pay to get their cash moved, processed, exchanged etc. It's an aspect where card could be lower, but zero is also an impossoble goal.
It has to be minted and circulated, we see it as "free" but in practice the gov foots the bill. And, for cards it would be issuers footing the bill.
Then moving cash isn't free either. Merchants handling a lot of cash also pay to get their cash moved, processed, exchanged etc. It's an aspect where card could be lower, but zero is also an impossoble goal.
Agree but maintaining the infrastructure has a cost someone has to pay and I as a customer won’t see any benefit.
I think it would be healthy to be able to have options with near zero cost but I guess this would only happen with strong regulations, which seems almost impossible in this space (in the US)
I think it would be healthy to be able to have options with near zero cost but I guess this would only happen with strong regulations, which seems almost impossible in this space (in the US)
> Agree but maintaining the infrastructure has a cost someone has to pay
The bank? Keeping money in your account allows the bank to take out credit. Providing digital payments sounds like a reasonable service for a bank to provide. As well as fraud prevention. This is how it works in Europe, most people have debit cards. The insanity is having to take out a loan you don’t need to prove that you’re responsible.
The bank? Keeping money in your account allows the bank to take out credit. Providing digital payments sounds like a reasonable service for a bank to provide. As well as fraud prevention. This is how it works in Europe, most people have debit cards. The insanity is having to take out a loan you don’t need to prove that you’re responsible.
[deleted]
The leech is the point, there is no "otherwise."
We have something similar in India.
[below text is from google search results]
To facilitate the penetration and usage of RuPay Credit Cards on UPI, there will be no charge for transactions up to ₹2,000, an NPCI circular said. For transactions upwards of ₹2000, the applicable MDR amount will be borne by merchants and no additional charges will be levied upon the customers.
Disadvantages of Rupay Cards Limited International Acceptance: One of the main disadvantages of RuPay cards is their limited acceptance outside of India. ... Restricted Usage: RuPay cards are primarily designed for domestic use within India.
[below text is from google search results]
To facilitate the penetration and usage of RuPay Credit Cards on UPI, there will be no charge for transactions up to ₹2,000, an NPCI circular said. For transactions upwards of ₹2000, the applicable MDR amount will be borne by merchants and no additional charges will be levied upon the customers.
Disadvantages of Rupay Cards Limited International Acceptance: One of the main disadvantages of RuPay cards is their limited acceptance outside of India. ... Restricted Usage: RuPay cards are primarily designed for domestic use within India.
Isn't that called a debit card?
I wonder why no bank offers a debit-network-processed card that is backed by a line of credit.
Probably because there’s no money in it.
Probably because there’s no money in it.
Fun fact: there are plenty of "credit card as a service" platforms nowadays so you could start one: https://www.getpliant.com/en/cards-as-a-service/
>debit-network-processed card that is backed by a line of credit.
Because then it wouldn't be a debit card? I assume that the debit-network is reserved for debit cards?
Because then it wouldn't be a debit card? I assume that the debit-network is reserved for debit cards?
What would be the appeal of this to the customer? It is basically a prisoners dilemma. It is globally optimal to stop rewarding people for using credit cards but for each individual they lose if they don't do it. This is why in the EU regulation was passed to stop this nonsense.
The AI generated cover image was kind of distracting to be honest. If having a full-screen image to go with the post was so important, one would have contracted a designer or just purchased something cool.
The post was informative though.
The post was informative though.
The image content and size is annoying, agreed, but I imagine that, like myself, they would go without an image if it meant contacting a designer and spending time negotiating rates, ideating on designs, and waiting on project completion. It takes seconds and is free to generate a neat image with AI that can be very additive to something like this, but unless you’re NY Times or WSJ doing a long form article, it’s probably unreasonable to expect anyone to get something explicitly designed and paid for in this context.
I believe the parent was hinting at the other possibility: not use an image at all.
When I see these AI-generated cover images in posts I'm left with a bad taste in my mouth. They look "ok" when glanced but pay more than a second of attention and they're terrible and uncanny.
If you truly care about the image's place in relation to the post, you'd go through the process that you mention and most likely you will end with a chess board and piece set that make sense, as opposed to whatever the image in the OP actually represents.
I agree with the folks behind iA Writer on this:
> Average AI images drag down everything around them. An AI hero image is a comedian opening the show with a knock-knock joke. Good images enrich your article, bad images steal its soul.
[0]: https://ia.net/topics/ai-art-is-the-new-stock-image
When I see these AI-generated cover images in posts I'm left with a bad taste in my mouth. They look "ok" when glanced but pay more than a second of attention and they're terrible and uncanny.
If you truly care about the image's place in relation to the post, you'd go through the process that you mention and most likely you will end with a chess board and piece set that make sense, as opposed to whatever the image in the OP actually represents.
I agree with the folks behind iA Writer on this:
> Average AI images drag down everything around them. An AI hero image is a comedian opening the show with a knock-knock joke. Good images enrich your article, bad images steal its soul.
[0]: https://ia.net/topics/ai-art-is-the-new-stock-image
> it’s probably unreasonable to expect anyone to get something explicitly designed and paid for in this context.
Besides the obvious answer of "then don't use an image", they could also use a stock image.
Besides the obvious answer of "then don't use an image", they could also use a stock image.
Well, in that case I'd say it's better to publish a post without a cover image. There are plenty of websites that offer the choices between high-quality, royalty-free images or make it easy to buy one.
It also takes seconds, and is free, to Google for copyright-free photographs.
What do you think people were doing before Dall-E came along lmao
What do you think people were doing before Dall-E came along lmao
in 2013 we had generic unsplash bokeh-rich images for blog posts. Now, we have generic AI generated images. There's not that much different. I agree - in both cases they're fairly distracting.
The common wisdom among a number of publications I've written for is that you need some sort of graphic, even if generic, mostly for reasons of social media sharing (and, these days, because a lot of blog templates assume a post has an image).
Those publications usually had a contract with some provider of public domain or CC-licensed fairly generic graphics.
Those publications usually had a contract with some provider of public domain or CC-licensed fairly generic graphics.
You don’t like the upgraded variety of kings or the brand new bishopknoght that can move in a W shape?
The bishopknight beast is my favorite for sure!
I also wonder if in future search engines would rank pages containing AI generated images or content lower.
Google cites the problem of LLM powered SEO spam. They were very careful to avoid saying "AI" or to mention who developed this new technology. https://arstechnica.com/gadgets/2024/03/google-wants-to-clos...
The search engine companies are the ones shoving AI down our throats the hardest because they're the ones set up to profit most from it.
It would be great if they were not ranked at all and discarded.
Often times you will find cash only businesses, especially in Chinatown and restaurants that will give you a discount on the final bill if you pay in cash. I have been to some mid-range restaurants that will knock 10% off my bill if I pay in cash instead of credit. This is the merchant fighting back using their own stratagems.
In many cases in my experience the vendors who can successfully pull off this strategy have a high quality, high value product and operate in a no-frills store front and are often family owned, maybe a generation or two already. There is a Vietnamese banh mi sandwich vendor where I live who has been around for 30 years only accepts cash - they have the history and patronage to pull this off.
In many cases in my experience the vendors who can successfully pull off this strategy have a high quality, high value product and operate in a no-frills store front and are often family owned, maybe a generation or two already. There is a Vietnamese banh mi sandwich vendor where I live who has been around for 30 years only accepts cash - they have the history and patronage to pull this off.
And then there are plenty of other merchants that are 100% cashless, presumably because they don’t want the hassle (and perhaps cost) of handing, exchanging, storing, and transporting paper cash and coins to and from a bank.
> I have been to some mid-range restaurants that will knock 10% off my bill if I pay in cash instead of credit. This is the merchant fighting back using their own stratagems.
Not sure how things are in the USA, but in Germany, that has nothing to do with "fighting back" and everything with dodging VAT.
Not sure how things are in the USA, but in Germany, that has nothing to do with "fighting back" and everything with dodging VAT.
Cynically that's probably often the case but if you're offering <$10 food items at a mom & pop shop the credit card fees are non-trivial so there probably is a very legitimate incentive to take cash. There's also benefits to getting immediate cash that you can put in the bank for expenses at the end of the day vs waiting a day or two for credit card money.
> if you're offering <$10 food items at a mom & pop shop the credit card fees are non-trivial so there probably is a very legitimate incentive to take cash.
Yeah, but not a 10% incentive, especially given that depositing cash isn't free either, for commercial accounts.
> There's also benefits to getting immediate cash that you can put in the bank for expenses at the end of the day vs waiting a day or two for credit card money.
> There's also benefits to getting immediate cash that you can put in the bank for expenses at the end of the day vs waiting a day or two for credit card money.
patio11 actually argues that it's the opposite which explains why stores offer you to take out cash along with your purchase when you pay by debit card) in another article at https://www.bitsaboutmoney.com/archive/the-infrastructure-be... - "And so, getting magical paper out of the till and into your wallet without it first visiting the bank saves the retailer money. It can also, potentially, earn the retailer a small amount of float. Cash in its tills is dead money and may not be deposited until e.g. the end of the week or later, but selling that paper to a customer for real money results in it arriving in their bank account faster than physically walking it to the bank."
It might be different for a small mom&pop store that actually deposits their cash every day, of course.
Yeah, but not a 10% incentive, especially given that depositing cash isn't free either, for commercial accounts.
> There's also benefits to getting immediate cash that you can put in the bank for expenses at the end of the day vs waiting a day or two for credit card money.
> There's also benefits to getting immediate cash that you can put in the bank for expenses at the end of the day vs waiting a day or two for credit card money.
patio11 actually argues that it's the opposite which explains why stores offer you to take out cash along with your purchase when you pay by debit card) in another article at https://www.bitsaboutmoney.com/archive/the-infrastructure-be... - "And so, getting magical paper out of the till and into your wallet without it first visiting the bank saves the retailer money. It can also, potentially, earn the retailer a small amount of float. Cash in its tills is dead money and may not be deposited until e.g. the end of the week or later, but selling that paper to a customer for real money results in it arriving in their bank account faster than physically walking it to the bank."
It might be different for a small mom&pop store that actually deposits their cash every day, of course.
The sort of obvious thing is that taking cash doesn't just save the merchant credit card fees but enables them to play games with the income they report for tax. Same with like repairmen that will give you a much better deal if you pay cash - it's not just CC fees they are avoiding.
Fun fact, this is actually illegal here in Sweden! That is, merchants aren't allowed to adjust prices based on payment method. Not sure what the reasoning is.
Because the main purpose of cash payments in small businesses is tax evasion - not just VAT but also paying family members in cash and thus dodging even more.
Fun fact, credit card merchants successfully made it illegal in the USA too, but that legislation expired and now it is legal to charge more for credit card usage (though credit card companies prefer that you offer a "cash discount" than an equivalent "credit card fee").
In Costa Rica this is illegal too but going through the hassle of reporting it to the local authorities is a pain and you won't gain much, just annoy the dealership.
Usually the POS rate is around 2% so at the end of the day you'll split it evenly and get a 3% discount. A few years back it was even highter and I bought several home appliances and saved around $100 so it's worth for both parties.
Now imagine people that deal with ranges from 10K to 100K - It's definitely worth it shaving a few bucks here and there
Usually the POS rate is around 2% so at the end of the day you'll split it evenly and get a 3% discount. A few years back it was even highter and I bought several home appliances and saved around $100 so it's worth for both parties.
Now imagine people that deal with ranges from 10K to 100K - It's definitely worth it shaving a few bucks here and there
My local restaurant instituted a surcharge for card users. Kind of irritating but I understand why, considering the margins in the restaurant industry.
It used to be a violation of their merchant agreement but it seems a 2013 court case made it that as long as it's disclosed in a certain way, it seems to be ok. About 4 states still outlaw it, based on some digging, but none of the card rules that I could dig up allowed applying that fee to debit cards containing the logo (e.g. https://www.mastercard.us/en-us/business/overview/support/me... )
Pretty verbose article that can be summarized as “Credit cards charge merchants a fee, sometimes more when co-branded, to entice customers to use their credit card in favor over others.”
Agreed. I read it hoping to learn something I didn't already know. He kept teasing us with the promise of some inside baseball but didn't really deliver.
While this focuses mainly on the consumer-credit card company relationship, I wanted to add this interesting study on the relationship between consumers across socioeconomic strata:
``` Since retailers usually charge the same price regardless of payment method, payment card rewards programs with different levels of rewards effectively cause some customers to subsidize the consumption of others. The research presented confirms that households with income less than $75,000 per year collectively transfer over $3.5 billion to those making more than $75,000 per year. Furthermore, the cost of interchange fees to retailers can be significant, especially in competitive sectors such as gasoline and groceries. This study demonstrates that interchange costs are typically about 17 to 19 percent of retailer profit. Variance in these costs may induce risk-averse retailers to set higher prices, thus generating additional economic inefficiencies and hurting retail consumers. Negative impacts on low income and minority households and small businesses have become “entrenched” and are likely to get worse as interchange fees continue to increase. This economic inefficiency will not change unless there is a “sufficiently large shock” in the form of policy or technology to change the dynamics of the monopolies holding sway over the credit card system. ```
https://hispanicleadershipfund.org/wp-content/uploads/2022/0...
``` Since retailers usually charge the same price regardless of payment method, payment card rewards programs with different levels of rewards effectively cause some customers to subsidize the consumption of others. The research presented confirms that households with income less than $75,000 per year collectively transfer over $3.5 billion to those making more than $75,000 per year. Furthermore, the cost of interchange fees to retailers can be significant, especially in competitive sectors such as gasoline and groceries. This study demonstrates that interchange costs are typically about 17 to 19 percent of retailer profit. Variance in these costs may induce risk-averse retailers to set higher prices, thus generating additional economic inefficiencies and hurting retail consumers. Negative impacts on low income and minority households and small businesses have become “entrenched” and are likely to get worse as interchange fees continue to increase. This economic inefficiency will not change unless there is a “sufficiently large shock” in the form of policy or technology to change the dynamics of the monopolies holding sway over the credit card system. ```
https://hispanicleadershipfund.org/wp-content/uploads/2022/0...
A valid interpretation but not the only way to describe it. If a merchant offers a 10% discount for spending $1000 or more, are they making lower-spending customers subsidize the purchases of higher-spending ones? Are they transferring wealth from poor to rich?
Technically yes. But what would the impact be of outlawing the practice of volume discounts through a “policy change”?
Technically yes. But what would the impact be of outlawing the practice of volume discounts through a “policy change”?
> In industry, we sometimes distinguish interchange—which mostly goes to the issuing bank—and scheme fees—which mostly go to the credit card brand itself—but as interchange is much larger, let’s just call them both interchange for simplicity.
It’s frustrating to read an article that acknowledges (indirectly) that payment networks don’t earn revenue from interchange nor have anything to do with reward programs, but then goes on to say that for simplicity they will refer to it as if it did.
It’s frustrating to read an article that acknowledges (indirectly) that payment networks don’t earn revenue from interchange nor have anything to do with reward programs, but then goes on to say that for simplicity they will refer to it as if it did.
> gibbering madness
If there is a better name for the table of rates (or the list of rates on a monthly CC transaction table for your business) I don’t know it. It’s absolute madness and near impossible to make sense of.
Often I feel like they exist only to confuse the merchant into just throwing up their hands and saying “I mean, I guess it’s right”. It also means that almost none of them can tell you how much they’re paying for credit card transactions. All they know is the sales person said “I can get you the best rates” which may or may not be true, those people will lie to you and tell you anything that you want to hear, I know this from personal experience. These people are snakes and dealing with them makes my skin crawl.
I’m aware that there’s a chance that I’m leaving money on the table, but this is one of the main reasons I use Stripe. I prefer predictability an inscrutable of data that may or may not show that I’m saving a little bit more. It’s also why I normally avoid credit cards that have rotating categories or this or like. I prefer a flat, easy to understand rate that I can compare to other cards instead of having to keep track of which card I’m using which month. Again, this means I’m leaving money on the table, but I do it for my own sanity.
If there is a better name for the table of rates (or the list of rates on a monthly CC transaction table for your business) I don’t know it. It’s absolute madness and near impossible to make sense of.
Often I feel like they exist only to confuse the merchant into just throwing up their hands and saying “I mean, I guess it’s right”. It also means that almost none of them can tell you how much they’re paying for credit card transactions. All they know is the sales person said “I can get you the best rates” which may or may not be true, those people will lie to you and tell you anything that you want to hear, I know this from personal experience. These people are snakes and dealing with them makes my skin crawl.
I’m aware that there’s a chance that I’m leaving money on the table, but this is one of the main reasons I use Stripe. I prefer predictability an inscrutable of data that may or may not show that I’m saving a little bit more. It’s also why I normally avoid credit cards that have rotating categories or this or like. I prefer a flat, easy to understand rate that I can compare to other cards instead of having to keep track of which card I’m using which month. Again, this means I’m leaving money on the table, but I do it for my own sanity.
The big news in credit card rewards (that I was hoping this article would address) is that Robinhood just announced a 3% flat cash back card, highest I've ever seen, where the only catch is that the money is deposited into your Robinhood account.
At 3% they are clearly losing tons of money on every transaction. There is an annual fee but it is only $60. The money can be withdrawn from Robinhood as soon as it is deposited. How can they possibly afford this? What are people doing with their money in Robinhood that they are willing to pay people over 1% (I'm assuming) just to deposit money there in a roundabout way?
At 3% they are clearly losing tons of money on every transaction. There is an annual fee but it is only $60. The money can be withdrawn from Robinhood as soon as it is deposited. How can they possibly afford this? What are people doing with their money in Robinhood that they are willing to pay people over 1% (I'm assuming) just to deposit money there in a roundabout way?
recently relevant: https://news.ycombinator.com/item?id=39909035 (How can Robinhood afford 3% cash back on its new credit card?; Apr 2024; 21 comments)
Thanks, I missed that one. Seems like the answer is nobody really knows and it's all unsatisfying speculation.
They take a loss from every transaction and make up for it with volume. /s
My guess is that since Robinhood Gold gives you a lower margin interest rate, enticing people to use more margin, they hope to reap all the money back and then some.
Since the rebate money goes directly into your Robinhood account, rather than a checking account, they encourage it to stay in Robinhood.
My guess is that since Robinhood Gold gives you a lower margin interest rate, enticing people to use more margin, they hope to reap all the money back and then some.
Since the rebate money goes directly into your Robinhood account, rather than a checking account, they encourage it to stay in Robinhood.
> They take a loss from every transaction and make up for it with volume. /s
https://youtu.be/KodqIPMbyUg?t=54 (First CityWide Change Bank 2 - Saturday Night Live)
https://youtu.be/KodqIPMbyUg?t=54 (First CityWide Change Bank 2 - Saturday Night Live)
Well written and pretty interesting. Somewhat obvious I suppose.
I was hoping he would go into detail on how programs like Citi double cash work. In that program you get the normal 1% back at purchase and then 1% at payment. I assume the latter is subsidized from interest payments, but what about card holders that never pay interest? Are they subsidized by those that do?
I was hoping he would go into detail on how programs like Citi double cash work. In that program you get the normal 1% back at purchase and then 1% at payment. I assume the latter is subsidized from interest payments, but what about card holders that never pay interest? Are they subsidized by those that do?
Yes. Rewards are subsidized by anyone paying a fee for their card, and by everyone with higher prices. Reward programs incentive consumers to make that card “top of wallet” and prioritize spend on it, which is why the entire rewards system is afraid of interchange cram down and free instant payments in general.
(Work at a fintech, I see the financials but those I cannot share)
(Work at a fintech, I see the financials but those I cannot share)
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Yes and note that from a marketing pov, Citi looks like a "good player" by incentivising payback. But if everyone paid back in the grace period, the care would fail as transaction fees can't offset the costs of managing the process (payouts, fraud, chargebacks, limit management, etc). Interest and "nuisance" charges are the real money makers.
So, you pick a balance of how much to return assuming that you get a mix of revolvers (borrowers) and transactors, and recognize that if you hit it right, some folks will skip the "best outcome" (for most) option of grace-period payback and faster rewards, due to choice or need (running low on cash, etc). And that's how you get the 1 and 1: folks love to spend, and Citi estimates that the 1 on payback sounds good but can be spread out as folks still pay the minimum to revolve, garnering interest and fees along the way.
It's illegal in the US to reward for debt directly (you can't incentivize folks to revolve instead of paying in full), and this card is at least a step in the right direction of doing the opposite. But if they really incentivized best behavior for consumers, we'd see all the % rewards focused on payback (and none for spend), with a reduced reward for payback on revolving debt, to incentivize reducing avoidable debt where it makes sense.
But that card would fail as a business for most banks and fin companies. While the early trans fees would be great, it would self-select responsible payback folks who never generate interest or nuisance fees. Such a card would need a massive annual fee or have to be tied to some other profit driving product, at least in most companies I've seen.
But maybe somebody will figure a clever way to make it work.
So, you pick a balance of how much to return assuming that you get a mix of revolvers (borrowers) and transactors, and recognize that if you hit it right, some folks will skip the "best outcome" (for most) option of grace-period payback and faster rewards, due to choice or need (running low on cash, etc). And that's how you get the 1 and 1: folks love to spend, and Citi estimates that the 1 on payback sounds good but can be spread out as folks still pay the minimum to revolve, garnering interest and fees along the way.
It's illegal in the US to reward for debt directly (you can't incentivize folks to revolve instead of paying in full), and this card is at least a step in the right direction of doing the opposite. But if they really incentivized best behavior for consumers, we'd see all the % rewards focused on payback (and none for spend), with a reduced reward for payback on revolving debt, to incentivize reducing avoidable debt where it makes sense.
But that card would fail as a business for most banks and fin companies. While the early trans fees would be great, it would self-select responsible payback folks who never generate interest or nuisance fees. Such a card would need a massive annual fee or have to be tied to some other profit driving product, at least in most companies I've seen.
But maybe somebody will figure a clever way to make it work.
Citi DC is also a mastercard world elite which charges a higher fee for merchants. Afaik most (all?) 2% card are visa signature or mc word elite.
Quite interesting. I've had one encounter with such a credit card, which I only used for making a rather large payment over the course of four months without having to pay interest. To me, that was the attraction, not having to adjust my monthly budgeting much and also not having to dip into savings. My bank would have said 'yeah, lol, you pay our 8% interest if you want a loan you could actually cash out at any time'.
Where I live credit cards are still relatively uncommon, most cards in use are debit, and from the article it seems they have a simpler scheme behind them. The idea to have a 'book-buyers credit card' seems quite foreign, though I think some people have gas-station-related cards.
Where I live credit cards are still relatively uncommon, most cards in use are debit, and from the article it seems they have a simpler scheme behind them. The idea to have a 'book-buyers credit card' seems quite foreign, though I think some people have gas-station-related cards.
Before, the American economy has been built on excess consumption. Assuming that the rising tide lifts all boats, rewarding and encouraging excess consumption helped everyone, not just the wealthy. That's almost the opposite case when most goods purchased are now overseas imports. If the model doesn't make sense anymore, it should be replaced. Remove the ban on charging based on payment method.
Stripe is relevant. If customer and merchant incentives are aligned, I would say Stripe probably just wants to have low or minimum interchange? Have I misunderstood?
Stripe is relevant. If customer and merchant incentives are aligned, I would say Stripe probably just wants to have low or minimum interchange? Have I misunderstood?
Remember: there is no such thing as a free lunch.
If they're rewarding you with something, either you or someone else is paying for it. Someone else, in this case, means another cardholder. Maybe the merchant the rewards program is through is counting on you to spend on something you otherwise wouldn't. Sure as hell isn't the bank offering the card.
The credit-ification of everyday purchases in the United States since the 1980s has been a disaster for the average American's financial health.
If they're rewarding you with something, either you or someone else is paying for it. Someone else, in this case, means another cardholder. Maybe the merchant the rewards program is through is counting on you to spend on something you otherwise wouldn't. Sure as hell isn't the bank offering the card.
The credit-ification of everyday purchases in the United States since the 1980s has been a disaster for the average American's financial health.
What do you mean another cardholder? It's the vendors paying the credit card tax.
And where does the vendor get their money?
While the answer is technically cardholders that not mean that the vendor is not eating the loss
I don’t pay attention to “points” systems at all. I sense that this is the right decision but I’ve never been able to quantify whether this is true.
My logic is that the people who design credit card reward systems are smarter than I am about the topic they spend 8 hours a day on. So, every rewards system they offer is designed to trick me into suboptimal purchase decisions. Even the perception of beating the system is built into the system.
patio11 seems to confirm some of this, but I’d love it if someone who is informed about the design of these programs would say it to me straight. (Experts in “hacking” rewards systems will be disregarded because according to my thesis you are victims of mind control.)
For context I’m one of those never-carry-a-balance credit card users.
My logic is that the people who design credit card reward systems are smarter than I am about the topic they spend 8 hours a day on. So, every rewards system they offer is designed to trick me into suboptimal purchase decisions. Even the perception of beating the system is built into the system.
patio11 seems to confirm some of this, but I’d love it if someone who is informed about the design of these programs would say it to me straight. (Experts in “hacking” rewards systems will be disregarded because according to my thesis you are victims of mind control.)
For context I’m one of those never-carry-a-balance credit card users.
Part of the point of rewards cards is to encourage people with more choice (ie you) to use cards from that issuer. If the rewards are bad then you use a competitor card. If the rewards are good you use the issuer’s card and they make money on interchange. The cost of paying out the rewards decreases the amount the issuer makes from interchange, but they still make a profit. So never gaining from the points is probably bad – you’re basically giving that money to the issuer – and you could be better served by cashback instead. The point of using points from an issuers perspective is that they can have companies subsidise the cost of the rewards by treating the available rewards as ad space. They have eg some hotel chain pay the issuer to create some ‘money off these hotels’ reward, potentially also offering a higher-than normal value for the points. The hotel chain is happy because they expect this promotion is made to people who are more likely to spend more at their hotels even after the discount (or just because it brings people to their hotels rather than competitors). The card issuer is happy because they make more money for a given % of interchange paid out in rewards. The consumer is potentially happier with the card because they now get slightly more valuable rewards. The competing hotels now getting less custom are unhappy about it.
I think it’s reasonable to think points systems are, in some sense, trying to trick you, but also silly to ignore them because of this. Coupons are also trying to trick you in a similar way but that similarly doesn’t mean they’re a bad deal.
I think it’s reasonable to think points systems are, in some sense, trying to trick you, but also silly to ignore them because of this. Coupons are also trying to trick you in a similar way but that similarly doesn’t mean they’re a bad deal.
>Almost everybody writing about credit cards on the Internet receives some sort of spiff if you sign up after clicking through tagged links in their material.
This is something that really can't be said loud enough. The vast majority of credit card content on the Internet is just shilling for referral money. Like almost all of it. There's so much money in this space, and most people have no idea.
That's why Doctor of Credit is the only site I'll ever visit/use - https://www.doctorofcredit.com/were-removing-all-credit-card...
About a decade ago I found some blog about credit card rewards and signed up for their mailing list. The owner of the blog emailed me directly saying how he's going to "guide me through the process" and was pushing me to sign up for certain credit cards for sign up bonuses and wanted to know if I had any questions. He was acting like he was a friend just trying to guide me. I was a little taken aback but replied I was going to spend a large amount of money soon and I wanted to earn a sign up bonus for it and I found a sign up bonus that was comparable to what he was pushing on me from Navy Federal. I asked what he thought of it. He said it was no good and I needed to use the cards he was pushing for XYZ reason, blah,blah,blah. It was so fucking sketchy, I stopped responding, unsubbed from the mailing list, and sent all his emails in the trash. Never visited the blog again.
I didn't realize until later how much money he stood to earn from me using his sign up links and the only thing wrong with Navy Federal offer was it wouldn't earn him anything.
I ended up becoming really familiar with the major credits after that.
This is something that really can't be said loud enough. The vast majority of credit card content on the Internet is just shilling for referral money. Like almost all of it. There's so much money in this space, and most people have no idea.
That's why Doctor of Credit is the only site I'll ever visit/use - https://www.doctorofcredit.com/were-removing-all-credit-card...
About a decade ago I found some blog about credit card rewards and signed up for their mailing list. The owner of the blog emailed me directly saying how he's going to "guide me through the process" and was pushing me to sign up for certain credit cards for sign up bonuses and wanted to know if I had any questions. He was acting like he was a friend just trying to guide me. I was a little taken aback but replied I was going to spend a large amount of money soon and I wanted to earn a sign up bonus for it and I found a sign up bonus that was comparable to what he was pushing on me from Navy Federal. I asked what he thought of it. He said it was no good and I needed to use the cards he was pushing for XYZ reason, blah,blah,blah. It was so fucking sketchy, I stopped responding, unsubbed from the mailing list, and sent all his emails in the trash. Never visited the blog again.
I didn't realize until later how much money he stood to earn from me using his sign up links and the only thing wrong with Navy Federal offer was it wouldn't earn him anything.
I ended up becoming really familiar with the major credits after that.
Bottom line: Pay cash if you want to support your local shops. Use credit cards if you love enriching your local megacorporation.
This is mostly not true of the local shops near me. They’ve stopped taking cash because costs of cash are higher than cards.
There seems to be a split in my area with small businesses, mostly along generational lines.
The ones run by younger people are very credit-card-first, love not dealing with cash, etc. They usually have one of those Stripe iPad things. If you do pay with cash, they'll get a bit flustered because it breaks their flow.
The ones run by older people are either cash-only or try hard to disincentivize customers from using credit cards, sometimes with signs guilting customers about how much money card companies take from businesses.
It really feels like a generational thing depending on what people are used to. The older shop owners remember when cards were a lot more rare, and they've seen their swipe fee expenditure go up over the years. While the younger owners have only ever lived in a credit card oriented world and just bake the swipe fees into their prices from the beginning.
The ones run by younger people are very credit-card-first, love not dealing with cash, etc. They usually have one of those Stripe iPad things. If you do pay with cash, they'll get a bit flustered because it breaks their flow.
The ones run by older people are either cash-only or try hard to disincentivize customers from using credit cards, sometimes with signs guilting customers about how much money card companies take from businesses.
It really feels like a generational thing depending on what people are used to. The older shop owners remember when cards were a lot more rare, and they've seen their swipe fee expenditure go up over the years. While the younger owners have only ever lived in a credit card oriented world and just bake the swipe fees into their prices from the beginning.
My experience lines up with yours. I love paying with cash when I can, but even in my smaller city, so many places won't accept cash. My assumption is that handling cash is a cost they'd rather not deal with.
For food, most places will accept cash here. Hell, even a bookstore near me won't accept cash anymore.
For food, most places will accept cash here. Hell, even a bookstore near me won't accept cash anymore.
How do they get around the rules regarding cash? E.g. "This note is legal tender for all debts, public and private"?
I’m not a legal expert on this topic but it’s my understanding that you’ve not incurred a debt at the cash register. You just haven’t made any transaction at all.
If the store was extending you credit (ie leave now with the goods and in the future pay us back) they’d be required to accept cash at that point.
If the store was extending you credit (ie leave now with the goods and in the future pay us back) they’d be required to accept cash at that point.
That's my understanding as well.
That said, there are laws in some jurisdictions against card-only payment policies. I suspect they're not widely enforced for smaller places.
That said, there are laws in some jurisdictions against card-only payment policies. I suspect they're not widely enforced for smaller places.
https://www.federalreserve.gov/faqs/currency_12772.htm
There is no federal statute mandating that a private business, a person, or an organization must accept currency or coins as payment for goods or services.
(There are some specific local laws; generally though it appears not to be the case that you have to accept cash.)
There is no federal statute mandating that a private business, a person, or an organization must accept currency or coins as payment for goods or services.
(There are some specific local laws; generally though it appears not to be the case that you have to accept cash.)
Yet there is this curious clause in the US Constitution:
Article I, Section 10, Clause 1:
No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility.
Variously interpreted, that part about states can't make their own currency may be tangentially important.
Article I, Section 10, Clause 1:
No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility.
Variously interpreted, that part about states can't make their own currency may be tangentially important.
Why would it be important? This doesn't seem to be a case where a state is doing anything (it's shops), nor are the shops making their own currency (they accept payment in USD, the vehicle for that is just not physical paper).
Debit cards?
I used to love debit cards but one time a business overcharged me and that was money out of my actual bank account that I had to wait several business days to have back.
I also saw that places like gas stations "pre pay" if I select debit, trying to hold $60-$100 from my bank account until the final transaction comes back.
While this hasn't happened to me, I've read that if your debit card is compromised or if a charge back is required, you would have to fight your bank to get your money back and it's a bit easier with credit cards.
I also saw that places like gas stations "pre pay" if I select debit, trying to hold $60-$100 from my bank account until the final transaction comes back.
While this hasn't happened to me, I've read that if your debit card is compromised or if a charge back is required, you would have to fight your bank to get your money back and it's a bit easier with credit cards.
It seems some common vendors still charge their standard merchant fee even when the customer uses a debit card. I don’t know why this is permitted. It seems contrary to federal law.
All debit cards can be run as credit (if they have a visa/mc logo on them at least) and many merchants/customers don’t know/don’t care.
This is actually a lie.
Using a credit card is always cheaper to the merchant, maybe the merchant doesnt realize it but cash is a bad deal like Uber is a bad deal - They money is up front so you never realize the costs. In the case of user, it is fuel, vehicle wear and tear, and shifting demand.
In the case of cash, it is the cost of counting and keeping the drawer, security, deposits, change, and internal training/theft. Most estimates show it to be ~10-20% of income of a business is wasted. Always less than the cost of credit.
Well...that is...if you didn't do what maybe 50% of small businesses do: Screw the taxpayer. Sure, these credit card companies take 3%. Many small businesses take cash so they can do cash accounting and keep "money in" away from the IRS. They dont report it, they pay workers with it under the table and you, the customer and tax payer, may pay less, but you are getting screwed.
Using a credit card is always cheaper to the merchant, maybe the merchant doesnt realize it but cash is a bad deal like Uber is a bad deal - They money is up front so you never realize the costs. In the case of user, it is fuel, vehicle wear and tear, and shifting demand.
In the case of cash, it is the cost of counting and keeping the drawer, security, deposits, change, and internal training/theft. Most estimates show it to be ~10-20% of income of a business is wasted. Always less than the cost of credit.
Well...that is...if you didn't do what maybe 50% of small businesses do: Screw the taxpayer. Sure, these credit card companies take 3%. Many small businesses take cash so they can do cash accounting and keep "money in" away from the IRS. They dont report it, they pay workers with it under the table and you, the customer and tax payer, may pay less, but you are getting screwed.
Only from some indignant-irate viewpoint. Paying less is a win. Taxes are a fraction of what you would pay (in th other imaginary scenario) - a percentage of the margins on the transaction. If those are apparently reduced to zero through some chicanery as suggested, you still pay less than what those 'missing tax dollars' would have been. You participate in the savings.
I mean, if you only think from the scale of 'only I exist on earth and nobody else' then yes, but if you consider the grand scale of tax evasion, the cost in your taxes from all of this is vastly greater than any credit card fee.
No I don't think I want to pay more for goods and services because that way it generates more taxes. That's never gonna be a goal of mine.
Kinda hard to incentivize when a responsible credit card user will come out ahead financially by using a rewards card. I get roughly 2k a year in rewards for doing nothing more than swiping.
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So what's the deal with the Chase Sapphire Reserve card he mentions almost everyone having? I don't shop for credit cards often and when I Google it I see it's myriad of rules for points and perks, but nothing really jumped out at me as the killer feature that would lead to that sort of adoption.
When it came out, its signup bonus was quite generous, and its points could be redeemed for a lot of value if you used them right (travel). It's less generous now, but still pretty solid.
The big one is that points can be used for 1.5x travel or something like that. So 100 points buys $1.50 of travel, which can add up pretty quickly. The signup bonus was worth something like $1200. And its 'better than normal' categories fit well with professionals in cities who eat out a lot, with a high point-accumulation from that use.
The big one is that points can be used for 1.5x travel or something like that. So 100 points buys $1.50 of travel, which can add up pretty quickly. The signup bonus was worth something like $1200. And its 'better than normal' categories fit well with professionals in cities who eat out a lot, with a high point-accumulation from that use.
I think their point was that it was the first card of its kind outside of American Express. Back in 2016 there wasn't anything else really like it other than Amex's high tier cards. It also had a really generous sign up bonus when they first released it, 100,000 points if you spent a certain amount on the card in the first few months. Since then other issuers have been playing catch-up so the CSR stands out less.
An article from 2016:
https://www.bloomberg.com/news/articles/2016-09-02/chase-sap...
(Non-paywall link: https://archive.ph/vba5Y)
The rewards seem fairly normal these days, what with rewards inflation happening. Some cards now are offering 250k rewards points as a sign up bonus.
https://www.bloomberg.com/news/articles/2016-09-02/chase-sap...
(Non-paywall link: https://archive.ph/vba5Y)
The rewards seem fairly normal these days, what with rewards inflation happening. Some cards now are offering 250k rewards points as a sign up bonus.
I would prefer no rewards. Rewards transfer wealth from poorer people to wealthier people, because the latter spend more absolute dollars on rewards cards. This regressive effect is a big turn off imho in addition to the stupid points optimization games that rewards card owners have to play.
What a fascinating article. Probably an unsophisticated model but the way I approach my credit card rewards program is as a “forced savings” deal. I’m aware that they are subsidized, I’m also aware that I’ll pay the same thing if I were to pay with cash (at least in all the places I buy).
Would we be better off by having capped swipe fees? Idk. Would merchants actually lower their prices instead of keeping the extra revenue that everybody is now used to pay? Idk either. I don’t trust in the goodness of the heart of merchants or credit cards issuers.
But, would I have an unexpected 3 or even 4 figures “unexpected” rewards at the end of the year that I can only use for vacations? I don’t think so. I could possibly set up something with my bank, but I don’t need to think or plan rewards… they just happen.
Would we be better off by having capped swipe fees? Idk. Would merchants actually lower their prices instead of keeping the extra revenue that everybody is now used to pay? Idk either. I don’t trust in the goodness of the heart of merchants or credit cards issuers.
But, would I have an unexpected 3 or even 4 figures “unexpected” rewards at the end of the year that I can only use for vacations? I don’t think so. I could possibly set up something with my bank, but I don’t need to think or plan rewards… they just happen.
I’m seeing restaurants charge a credit card fee as a line item on receipts like a tax, with a percentage. I wish there were real time information what a particular card will cost the merchant, and that fee is what’s charged. The idea most people should subsidize other people’s kickback is obscene.
Also, I’m confused about the federal law flat rate fee on debit cards. I know merchants using Square and report that they’re charged the same fee for debit and credit cards, no discounted rate. For small businesses, I’d like to use my debit card, but not if the payment processor is going to pocket the difference between the discount debit fee and their fee to the merchant, and thus me.
Also, I’m confused about the federal law flat rate fee on debit cards. I know merchants using Square and report that they’re charged the same fee for debit and credit cards, no discounted rate. For small businesses, I’d like to use my debit card, but not if the payment processor is going to pocket the difference between the discount debit fee and their fee to the merchant, and thus me.
An "advisor" (not a regulated adviser with an e) at my bank here in Canada asked me how often I travelled because a rewards VISA card pays blah blah.
I said I don't travel. She literally froze for five seconds it looked like her head was going to implode. After that my bank practically abandoned me.
There was a recent story here how all banks in Canada push services to the point of daily meetings and managers tell staff to aggressively push products. Even ignoring federal banking rules obligating bank employees to tell customers to pay off debt first before investing.
I said I don't travel. She literally froze for five seconds it looked like her head was going to implode. After that my bank practically abandoned me.
There was a recent story here how all banks in Canada push services to the point of daily meetings and managers tell staff to aggressively push products. Even ignoring federal banking rules obligating bank employees to tell customers to pay off debt first before investing.
If you take a look here you can see how this type of tiering system works out:
https://usa.visa.com/content/dam/VCOM/download/merchants/vis...
Some of the tiers for Visa cards:
Visa Infinite Spend Qualified Visa Infinite Spend Not Qualified Visa Signature Preferred Visa Signature Traditional Rewards All Other Products
https://usa.visa.com/content/dam/VCOM/download/merchants/vis...
Some of the tiers for Visa cards:
Visa Infinite Spend Qualified Visa Infinite Spend Not Qualified Visa Signature Preferred Visa Signature Traditional Rewards All Other Products
CC Rewards programs are amusing to me (because of time effort spent on them). At any rate, I haven't seen those in Europe/EU for ages, probably because they slashed intercharge fees so they make much sense (the main reason was making card payment accepted everywhere without dumb sticker: "card payments only for shopping above x [currency]"
Good article, I wondered about the details of card rewards schemes as a kind of meta commentary on the financial system. Interesting to see that patio11 has left stripe now to work (seemingly) on this newsletter full time. I do miss the days when the articles were technical; there’s a deep software and writing skillset that we’ve lost to the financial system which isn’t nearly as fun.
I would recommend Payment Systems in the US and, Global Payments: And the FinTech Innovations Changing the Industry, for anyone looking to learn more about how value (aka payments) gets transferred, and the various players / their incentives along the value chain.
I’ve read previously that folks who pay their card in full monthly are internally known as “deadbeats”, because there is no interest to be gained from them.
This seems to run counter to that - there is revenue, perhaps less?
This seems to run counter to that - there is revenue, perhaps less?
Is this wholesome market optimization or cancerous busywork that would benefit all to be killed by capping the fees by "regulatory fiat"?
I honestly cannot decide.
I honestly cannot decide.
credit card transaction fees should be charged to the customer not the merchant.
I’m really curious about how the T-Mobile dining program works where by registering my credit card (which already gives 3% cashback on restaurant purchases), I get another 5% cashback through T-mobile.
It's fascinating to me how much people discount their privacy.
> There are many, many other sucker buttons.
Sucker buttons? How about (this is addressed to a certain group of people not everyone) spend your time trying to make money in some way rather than trying to max small amounts that you get from credit cards, reward programs what not. As if everyone is just some kind of retired person with time on their hands to think about miles, rewards etc as a way to keep busy.
Sucker buttons? How about (this is addressed to a certain group of people not everyone) spend your time trying to make money in some way rather than trying to max small amounts that you get from credit cards, reward programs what not. As if everyone is just some kind of retired person with time on their hands to think about miles, rewards etc as a way to keep busy.
> Due to long-standing practice, I am (homeopathically) exposed to the common equity of financial services companies that my family uses, so that I can call up Investor Relations if I ever need to escalate a routine banking issue.
For this to be effective, what parts-per-billion concentration do I need?
For this to be effective, what parts-per-billion concentration do I need?
What are these rewards programs? is this a USA specific thing?
Depending on the card, you get around 1 or 2 or even 3% back in cash or other types of rewards like airline miles on your purchase. Basically the credit card company charges a merchant something like 3% on a transaction they accept through a credit card, and the credit card company decides to pass on a portion of that fee to the credit card user as an incentive to use that credit card over another form of payment.
In my case, I pay for as much as I possibly can using a credit card and then pay it off at the end of the month so that I can get that % reward back and am not charged any fees.
In my case, I pay for as much as I possibly can using a credit card and then pay it off at the end of the month so that I can get that % reward back and am not charged any fees.
>In Europe, card acceptance is cheap by regulatory fiat and so rewards are far less common (or commonly lucrative) than in the U.S.
Once is while the EU does something right.
Once is while the EU does something right.
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I find it odd that a person who understands the madness of our current financial system so well, still is violently opposed of anything blockchain related.
Blockchains are costly and don't solve these problems.
It is as evidenced by the way blockchains are used now. Cryptocurrencies are the most important applications, and few people actually own them, and by "owning" I mean being able to make a blockchain transaction. In most cases, they have an account with a third party who does the blockchain stuff. In other words, a bank. In fact, it may be an actual bank, which is probably for the best because actual banks are highly regulated and are less likely to just take your money and disappear.
Cryptocurrencies quickly became just another financial product that is being integrated in our current system. And for the other ways cryptocurrencies are used, these are mostly illegal (drug trade, ransoms, scams, tax evasion, etc...) and governments are working on that.
Other prominent applications of blockchains: NFT, DAO, etc... are even crazier than cryptocurrencies. All the madness of our current financial system without the regulations that make it somewhat usable to grownups.
It is as evidenced by the way blockchains are used now. Cryptocurrencies are the most important applications, and few people actually own them, and by "owning" I mean being able to make a blockchain transaction. In most cases, they have an account with a third party who does the blockchain stuff. In other words, a bank. In fact, it may be an actual bank, which is probably for the best because actual banks are highly regulated and are less likely to just take your money and disappear.
Cryptocurrencies quickly became just another financial product that is being integrated in our current system. And for the other ways cryptocurrencies are used, these are mostly illegal (drug trade, ransoms, scams, tax evasion, etc...) and governments are working on that.
Other prominent applications of blockchains: NFT, DAO, etc... are even crazier than cryptocurrencies. All the madness of our current financial system without the regulations that make it somewhat usable to grownups.
Remind me again, what concrete, non-criminal financial problem does blockchain solve better than the alternatives?
Not op, but I want to make private payments through the internet in the same way I can privately use cash in the real world.
I’m not enamored with crypto per se, but as far as I know only crypto in general (and Monero in particular) are working on solving that problem.
I’m not enamored with crypto per se, but as far as I know only crypto in general (and Monero in particular) are working on solving that problem.
Yes, I hope the tech world gets very involved in this. Bitcoin is a horrible product for a cash replacement, since it is not private and the price fluctuates dramatically. We really should have a digital dollar or some gold, etc backed digital currency but it is absolutely essential that it is as or even more private than cash.
The banks are also working on that problem through things like Venmo and Zelle. Tech companies like Apple and Google and PayPal have payment services too.
But those aren’t private, right? There’s an entity in the middle that can see all the purchases I make.
If I use one of those to send you $500 right now, the entity in the middle can see that I sent you $500 but nothing more.
That's too much for me. It adds up to that entity having a record of all my transactions, who they're with, and how much they are. Def not private like cash.
Is it just the principle of it, or would fully private transactions solve an actual non-criminal financial problem?
A product that's a violates my principles _is_ a problem.
More practically, being surveilled creates a data store about my life that can last forever, theoretically. It's hard to conceive how that could be used if (when) that data gets mishandled. Might as well not leave a trail.
More practically, being surveilled creates a data store about my life that can last forever, theoretically. It's hard to conceive how that could be used if (when) that data gets mishandled. Might as well not leave a trail.
Say you are from a third world country. Your family back home needs money, but a bunch of red tape and fees in the traditional finance system (sending money to a third world country often raises KYC/AML questions and wire transfer fees are high) make it difficult and expensive. Moreover, in some countries with unstable currencies such as Lebanon and Argentina, the banks have to offer government mandated exchange rates that are wildly off the effective rates; there have even been cases where FX deposits were forcibly converted to the local currencies at these unrealistic rates. Rather than go through all this, you can just send BTC and sidestep all the issues.
I think you're expecting technology to solve a political problem. That doesn't work; those same countries probably wouldn't think twice about making it a crime and putting you in prison for working around it.
It solves the same problem gold does, except it is easier to transport and exchange.
The article goes on to ask the question "Why isn’t every card a rewards card?", meaning why doesn't every card pay cash back, but I think the more interesting question is why every card isn't branded in a way that makes the issuer more money. Why do they bother to issue cards where they get paid less? Why not brand every card as a "Signature Preferred" and then pocket the money instead of giving it to the less discerning customers?
And the most interesting question only gets a handwave: "The basic intuition underlying rewards cards as a product is that highly desirable customers have options in how they spend their money." But how far does this go in explaining why merchants "choose" to participate in this program. The obvious answer would seem to be that they get no benefit from the system as it exists but have no real choice, but maybe there is a better answer?
I liked the topic, but wished the author could have given more insight on what's happening behind the scenes to produce the outcome we see.