An interesting article, but it doesn't sufficiently emphasize the lede: When you use a reward card, the merchant is charged a higher fee than if you used a "normal" card. Simply by putting a different branding on the plastic you pay with, the credit card issuer gets more money from each transaction.
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.
>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...
If only Walmart would take contactless payments.
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.
It means you've got to take the card with you.
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.
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.
How often do you find yourself somewhere with your phone but not your wallet?
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.
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.
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.
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 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.
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 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
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.
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.
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.
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.
[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.
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.
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.
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.
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?
It has more to do with making Walmart Pay the only contactless option to drive adoption of their mobile app.
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.
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.
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)
It's tax evasion.
First comment I see that addresses this. This is a big part of accepting and paying cash. Tax evation. From both sides.
Unrecorded cash payment makes it much easier to pay undocumented staff
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.)
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.
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...
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.
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 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.
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.
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.
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.
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
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.
... 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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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/...
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.
Sales tax deduction still exists. 2017 law temporarily lowered but didn't eliminate it.
IF you itemize. 90% don't. Also, you can only deduct sales tax OR state and local income taxes but not both.
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 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.
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.
Ironic in hindsight; every monetary and fiscal policy as of late seems to be designed to punish savers and reward debtors.
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.
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.
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.
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.
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.
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.
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.
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?
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.
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.
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.)
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....
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 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).
The real estate lobby is the largest lobby in the US.
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.
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.
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/
Most insurances do charge lower fees for direct deposit - Allstate does it at well.
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.
> 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...
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.
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.
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)
"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.
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.
"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...
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
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.
it's even more intense in China
Europe varies a lot from largely cashless to you will probably need cash if you want to have a beer.
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?
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.)
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.
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/
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.
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...
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.
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.
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.
And salaries and pensions, etc.
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.
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.
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.
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 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.
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)
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.
Rewards cards should be illegal and basically are 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.
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
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.
Citibank reissued my credit card well before the expiration date to upgrade it to a "World Elite Mastercard" with attendant higher interchange.
Wow you thought of something the author didnt cover and think the whole article should be about your post.
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).
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.
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.