In Canada, we finally passed a law to allow merchants to add a credit card surcharge. People accustomed to getting free rewards will be paying up to 2.4% for the privilege. And yes, they're crying about it.
> In Canada, we finally passed a law to allow merchants to add a credit card surcharge. People accustomed to getting free rewards will be paying up to 2.4% for the privilege. And yes, they're crying about it.
Either way, it's a bit tone-deaf to say that people are crying about not getting free rewards. Many people are upset because companies like our notoriously anti-competitive telecom industry already factor merchant fees into the costs; adding on a separate charge is essentially double-dipping in a time of record inflation and profiteering.
The CRTC disallowed Telus from doing this, but every merchant not covered by the CRTC is now allowed to disregard any "best price" clause in their credit card agreements.
I expect the first merchants to take advantage of the new rules will be some of those Mom & Pop stores that currently have the "minimum $10 for credit card" signs.
Sure, that's an interesting case. The CRTC's ruling, if I'm reading that right, is narrow and only impacts telecoms. I do see that as a good thing. What I'd really want is for merchants to be able to pass exact interchange fees on to the customer with no overhead -- which, alas, isn't what the law encourages, along with a cap on interchange fees like was done in Europe (TIL).
This is allowed in the US. But it's not like the surcharge is tied to the amount of rewards on the card, at least here. If you have a no-rewards card, you pay the same surcharge as if you have a upper-tier Amex. And since most places don't make it very obvious that they're charging a cc surcharge, customers generally don't even realize they're paying it.
I was not thrilled when I saw it on my receipt, after not being told there was a credit card charge. I don't mind a surcharge but it felt like a cash-grab because they didn't tell people (or ask them, which would be even better).
Cash and check handling also have costs through leakage and bank fees (at least in the US banks charge money for taking cash deposits from businesses). Many merchants are happy to take credit cards and just mark up the price accordingly. Ask the Cannabis industry about the hassles of handling cash.
IMO it's much better to do it the EU way - cap on the fees, and a ban of adding a surcharge for cards (because now they're competitive if not cheaper than handling cash).
Meanwhile in Europe we just aggressively capped the fees card networks can charge merchants. No one has rewards but everyone benefits from cheap card payments.
I disagree with this. This assumes that cash is the baseline. And all too often the cost of handling cash is not taken into account when comparing it to credit cards.
Debit is my baseline. It's unfortunate that banking technology is so far behind; in Canada, anyway, debit doesn't incur interchange fees. That's great at point of sale, but notably kludgy for bill payments.
Some merchants were already allowed to add a credit card surcharge. Some post-secondary institutions did this for years before this change came in.
The funny thing is that, apart from the aforementioned post-secondary institutions, I haven't seen anyone else add this surcharge. Maybe I'm just not shopping in the right places, but so far this change has amounted to absolutely nothing.
It used to be the case that the credit card companies put language in their merchant agreements language requiring the merchant to change the same price for credit and cash transactions. I'm not sure how many places they just lost the leverage to do that sort of thing and how many places enacted legislation to prevent that kind of strong-arming.
I’ve seen it occasionally too, but it’s usually a violation of a merchants’ agreement with Visa/MC, who don’t want consumers to be discouraged to pay with their product.
Interesting to hear this. I was once visiting Canada about a decade ago and tuned in to a radio station (likely some local CBC station), and they were debating this very issue: Can it be made legal for businesses to charge more for CC transactions?
I learned one thing:
The amount a CC charges the business is not fixed - and cards with rewards result in a higher fee for the business.
At some point a retired CC industry shill (who clearly identified his background) called in and his explanation on all this was the most reasonable:
In the vast majority of cases, a business's revenue goes up by accepting CC payments. Some of it is because customers have become accustomed to paying with it and may not carry cash, but the bulk of it is due to the convenience - and this is heavily backed up by research: The easier and more convenient you make transactions, the more consumers spend. The amount businesses pay the CC company in fees is more than compensated for by the increased revenue.
Most businesses will treat these fees as part of the cost of doing business, and price their products accordingly. Just as they do when their utility rates go up or the price of gas goes up.
Businesses support the campaigns about this issue so that they can get the best of both worlds: Increased revenue due to CC usage as well as passing those fees on to the consumer. They are not waging this battle to benefit the consumer, but to offload a cost of doing business to the consumer. In principle, this is all fine, but the consumers need to be aware of it! Ultimately the consumer is paying those fees whether a business charges extra for it or not.
And of course, if the goods that business is selling is priced the same as other businesses not passing that charge on directly, then the consumer is "double paying" - the goods' price already has that fee baked into it even if they pay cash, and when they pay by card, they'll pay it twice at those businesses.
Having known some business owners, his take is highly believable :-)
As an example, the AirBnB cleaning fee is not just for cleaning, but a way for the host to make extra money (easy to Google, and I know multiple hosts personally). Almost any business that charges extra for optional amenities is using it as a way to make even more money.
And that was the CC shill's ultimate point. CC companies are doing things to increase their revenue, as are the businesses. A given business may say they're campaigning for this in order to benefit the consumer, but in most cases they're not really benefiting the consumer and are simply trying to increase their revenue. The exception is when they really do have reduced prices compared to other stores.
> The amount a CC charges the business is not fixed - and cards with rewards result in a higher fee for the business.
It should be noted that most businesses have limited visibility into that. The monthly bill from whatever company handles their card processing usually charges a fixed rate, or has multiple tiers of fixed rates, and all the merchant sees is that on their bill they are told the number and total amount of transactions for each tier.
I agree with the less privileged folks getting shafted statement, but for the rest:
I am 100% unwilling to use my debit card for any purchases.
Why?
Fraud. If I pay with cash, then fraud amounts to getting actually robbed. Identity theft and account compromising is literally impossible. If I pay with credit, it is MASSIVELY simple to get that fixed, and it becomes the cc company's problem.
With a debit card, any issues immediately become my issue, because the money is out of my account in that moment. Not good.
> If I pay with cash, then fraud amounts to getting actually robbed.
Getting robbed cash in your wallet you are 100% out of the money. But fraud on a debit card must be made whole by the bank within 30-60 days per “Regulation E”, which offers similar protections to debit cards that credit cards receive under “Regulation Z”
This is a popular take, but I found relatively little difference in how my bank handles CC and debit card fraud. In both cases, they credited the disputed amount to me right away.
Not that it buys you much; there's plenty of small / specialty merchants who might offer you a discount for paying with cash or check, but they treat credit and debit the same.
Using debit cards means that you need to keep a sufficient balance on a zero interest checking account in order to make transactions.
Using credit cards allows you to keep close to a zero checking account balance and manage your own cash flow, since credit card bill dates are deterministic.
Why would anybody want to keep _any_ amount of money in a non-interest bearing checking account right now especially when the risk free rate of interest (US treasury bills / equivalent money market funds invested in US treasuries) yields 4.00%+ APY now?
> Using debit cards means that you need to keep a sufficient balance on a zero interest checking account in order to make transactions.
Many banks allow linking a savings account to a checking account as a backup funding source.
> Why would anybody want to keep _any_ amount of money in a non-interest bearing checking account right now
Conversely, why would any credit card issuer give you an interest-free loan for a month in a world of 4.00%+ risk-free APYs?
Leaving aside all concerns of repayment risk, somebody is paying for your interest-free loan already.
Depending on how you view it, that's either yourself (via 2-3% of credit card fees baked into all retail prices) or other credit card users that don't pay their credit card bills in full every month, or a combination of both.
Or you know, completely disconnect the need for cards. My time in india is so much fun since I can walk out of my house with just my phone in hand knowing I can pay using QR codes directly and not worry about accounts or charges.
How does that work with fraud? I noticed that everyone accepts those QR codes.
I will say though as a tourist who was visiting my family but doesn't have a bank account, those QR codes are pretty nice but completely inaccessible to everyone outside of India :/
Handling cash is not free. You have to count it. It can be easily stolen. It is a target for armed robberies.
In addition, credit cards increase how fast you can process customers. Given all that, I am not sure that credit cards are such a bad deal for merchants.
Yeah, cash looks cheap when being handed over the counter, but the costs are realized later. Brinks and Loomis are both multi-billion dollar companies.
Not if the merchant wants to evade taxes. Which is why you see 10%+ discounts for cash (but not debit card or ACH) at some small businesses or independent contractors.
When the merchant is charged 3% for a credit card use, that gets factored into the price. When you get 1% cash back, you paid for that cash back. You're not receiving redistributions from other people.
The credit card processor for that merchant took into account the mix of reward cards they historically see across all the merchants on the same plan and set that 3% based on that.
If everyone was using a reward card and they all had the same reward percentage you would be right that there is no redistribution.
But because most merchants charge the same price to every credit card user (and often also to cash users) there is a redistribution from those using lower rewards rate cards to those with higher rewards rate cards.
> 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.
This is why I stay away from credit cards that offer rewards. Did you really think that big corporations give you pennies out of the goodness of their hearts? They might be people (according to Citizens United), but they have no heart.
Using a credit card that doesn't offer rewards doesn't mean the corporation offering it is any less greedy... it just means they aren't cutting you in on the greed.
If anything, using a credit card that doesn't offer rewards is even worse for redistribution... since it's redistributing credit card fees straight into the pocket of the big corporations. At least if you use a rewards CC properly, a portion of it is given back to you.
I don't feel bad about extensively using these rewards cards. If you are a net recipient in this distribution, your participation doesn't directly correlate with any higher participation by any of the victim groups. We simply make it more costly for the bank -- if anything, discouraging them from issuing such cards.
However I do withhold recommending these cards to others because they only make sense for people who don't carry debt or spend recklessly, and I usually cannot be certain that others meet those criteria.
> We simply make it more costly for the bank -- if anything, discouraging them from issuing such cards.
No, you aren't making it more costly for the bank. Banks would be stupid to offer such a setup. The banks pass that cost on to the merchants, who have no choice in the matter.
FedNow instant payments go live this year. This will allow bifurcation: if you need immediate settlement for commerce, you’ll be able to get it for a few cents per transaction. If you want to charge the customer who wants credit card float, you can pass along a credit card surcharge and let them pay for the feature. This should shrink this vacuum of value from those of less means to those with the means to efficiently use rewards cards.
Due to US politics and the financial services lobby, it’s unlikely we’ll see interchange caps like Europe enacted, killing most rewards programs, so you’ll have to rely on merchant economics to drive the change.
I don't have a moral problem with using a rewards card. If past me could avoid credit card debt while scraping by below the poverty line on disability, with nothing but a high school education, I believe everyone could with the proper discipline. It's basically a transfer from spendthrifts to savers.
> This is why I stay away from credit cards that offer rewards.
Why punish yourself like that?
I understand taking a moral stance even if makes your life harder, I do that with various things. But I guess I don't see it on this one since the vendor doesn't even know if you get any reward back when you hand them a credit card, so it doesn't show your posture in any way. All you're doing is gifting extra money to the credit card companies.
My wife and I are “hybrid digital nomads”. We fly around the US staying in hotels (mostly Hiltons) from mid March through the end of September. The other half of the year we own a unit in a “Condotel” in Florida that gets rented out like a hotel when we aren’t there to cover the cost. We also don’t have cars and depend on Ubers and the occasional rental car for ground transportation.
We will be in at least 13 cities this year. Some vacations. Some “nomadding” and some a little of both.
I also travel for business 7-8x a year (cloud consulting at $BigTech)
All that to say, credit card rewards and loyalty points makes traveling, staying on budget and being able to enjoy more expensive places possible.
For our major categories, we get the following “returns” from credit card points/loyalty points (miles, hotels, transferable credit card points)
- Hilton hotels - 20-25%
- Hyatt Hotels - 20%
- Delta/American Airlines - 14%
- Groceries/Dining Out - 5.5%
- Uber - 4.2%
- everything else 2.4%
Then there is also the concept of “churning” where you sign up for cards just for sign up bonuses. Those can be worth between $600-$1200 per card.
How do you manage to get 20-25% on Hilton hotels? True, I never accomplished anything more than Silver membership, but I also read the analysis that one Hilton point is worth like 0.6 cent. It takes a while to accumulate even 100.000 points, and then that's worth maybe 1 free night.
I don’t redeem HH points for any less than .7 cpp. You get a free night when you pay all of your nights with points.
But as far as collecting points. Each time I stay at a Hilton, per dollar, I get:
- 10 base points
- 10 points for being Diamond (automatic with the Amex Hilton Aspire)
- 14 points on the Aspire card.
That’s 34 points minimum or around 24%.
But Hilton ran a 3x special the third quarter of last year followed by two 2x specials for 54x and 44x. At 54x that’s almost 38% back.
I don’t use more than 70K points per night or 280K points for 5 nights (fifth night free).
Our “housing budget” is $3500/month. We spend that on our own place during the winter and hotels the rest of the year and the income pays for our mortgage at our “winter home”. I’m also traveling for reimbursed work trips. That means at times, I’m collecting points for two hotels at once if my wife doesn’t come with me.
There is an entire crowd source science around how to churn and different companies have different policies.
For instance signing up for business cards using your SSN as the EIN doesn’t show up on your credit report.
Once you have one card from Amex, they don’t do a credit pull for additional cards. Between personal and business, Amex has six Delta cards and four versions of the Platinum.
That means you can apply for as many Amex business cards as you want with no effect on your credit.
Chase has a hard 5/24 rule where you can’t have opened more than 5 cards with any issuer within 24 months. But that doesn’t include business cards.
You also have to space credit card applications out. It also helps that I have a long credit history. I opened my first card in 1996.
Banks seem to be OK giving cards to known churners. It should be trivial to figure out. My theory is it's either because the marketing department is happy to show off the success of their campaign, or that the banks are leveraging the high credit scores of churners to reduce the risk on-paper of customers with lower credit scores.
I love the idea but it seems like you’d have to be quite a minimalist when it comes to personal belongings. Do you keep stuff in storage when you’re not occupying the condo?
We threw away everything we owned that wouldn’t fit in three suitcases - two checked bags and one carry on.
Of course, I also have a large bookbag with my laptop a second portable display, my iPad and often a client laptop since we aren’t allowed to install a customer’s VPN on our work computers.
> We find a redistribution from low- to high-FICO consumers regardless of income. While super-
prime high-income consumers benefit the most from reward credit cards ($20.1 in net
rewards relative to classic cards), high-income consumers with sub-prime FICO scores
on average pay the most (-$12.8). Meanwhile, super-prime low-income consumers ben-
efit less ($9.7), but sub-prime low-income consumers also pay less (-$2.6). Thus, high-
income consumers with high FICO scores benefit from reward credit cards largely at the
expense of high-income consumers with low FICO scores.
> As our findings are inconsistent with the “reverse Robin Hood” hypothesis
tl;dr: it's a stupid tax. People with high incomes who are still financially unsavvy end up indirectly subsidizing lower income, savvier CC users.
Rewards aside, credit card also offers things like extended warranty, travel insurance, chargeback protection. These things makes them invaluable to customers. I use my credit cards for everything because it’s strictly better than debit and it works everywhere.
Accepting credit cards is a net benefit for merchants, even accounting for fees due to increases in volume. This is just greed. They want access to the network without actually paying for the privilege.
It’s not entirely one-sided, customers do pay for the rewards: My 3 credit cards are costing me 1500$ per year in membership fees.
Of course, without credit cards, people could only spend what they have so demand would fall, at least in the short term (or merchants would have to go back to offering credit themselves like the old days).
Credit card companies also offer a whole bunch of services to users like chargebacks and disputed that make it easier to enforce things like warranties.
Plus there are social benefits like reduced crime and saved time and energy visiting banks etc.
I don't think you can do a charge back on a debit card. At least not here in the UK. Though you are quite right about crime etc.
I mostly use debit cards because I have no real interest in getting credit and dealing with debt etc.
I never know the status of debit cards. I assumed they were free riding on the credit card infrastructure (hence the zero fees etc). Is that not correct?
Not necessarily. Ever notice how your card usually has a bunch of retailers you can pick to get discounts or extra points from? That's not just your bank being generous. That's usually paid for, in one way or another, by those retailers. They're basically sponsored rewards (I don't know what the industry term is). Credit card companies would still get paid transaction fees and get paid for those "sponsored" rewards, so they'd still be incentivized to make you spend more. But I imagine the rewards would be less generous, and perhaps differently structured.
No. A reward card might charge the merchant a 2.5% interchange fee, they kick back 1% to the customer. Versus a non-reward card that might charge a 1.5% interchange fee.
In Canada, we finally passed a law to allow merchants to add a credit card surcharge. People accustomed to getting free rewards will be paying up to 2.4% for the privilege. And yes, they're crying about it.
> In Canada, we finally passed a law to allow merchants to add a credit card surcharge. People accustomed to getting free rewards will be paying up to 2.4% for the privilege. And yes, they're crying about it.
Didn't the CTRC ultimately reject this? Or are you talking about broader legislation? https://www.canada.ca/en/radio-television-telecommunications...
Either way, it's a bit tone-deaf to say that people are crying about not getting free rewards. Many people are upset because companies like our notoriously anti-competitive telecom industry already factor merchant fees into the costs; adding on a separate charge is essentially double-dipping in a time of record inflation and profiteering.
The CRTC disallowed Telus from doing this, but every merchant not covered by the CRTC is now allowed to disregard any "best price" clause in their credit card agreements.
I expect the first merchants to take advantage of the new rules will be some of those Mom & Pop stores that currently have the "minimum $10 for credit card" signs.
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Sure, that's an interesting case. The CRTC's ruling, if I'm reading that right, is narrow and only impacts telecoms. I do see that as a good thing. What I'd really want is for merchants to be able to pass exact interchange fees on to the customer with no overhead -- which, alas, isn't what the law encourages, along with a cap on interchange fees like was done in Europe (TIL).
This is allowed in the US. But it's not like the surcharge is tied to the amount of rewards on the card, at least here. If you have a no-rewards card, you pay the same surcharge as if you have a upper-tier Amex. And since most places don't make it very obvious that they're charging a cc surcharge, customers generally don't even realize they're paying it.
I was not thrilled when I saw it on my receipt, after not being told there was a credit card charge. I don't mind a surcharge but it felt like a cash-grab because they didn't tell people (or ask them, which would be even better).
Cash and check handling also have costs through leakage and bank fees (at least in the US banks charge money for taking cash deposits from businesses). Many merchants are happy to take credit cards and just mark up the price accordingly. Ask the Cannabis industry about the hassles of handling cash.
IMO it's much better to do it the EU way - cap on the fees, and a ban of adding a surcharge for cards (because now they're competitive if not cheaper than handling cash).
Meanwhile in Europe we just aggressively capped the fees card networks can charge merchants. No one has rewards but everyone benefits from cheap card payments.
This is the correct way.
I disagree with this. This assumes that cash is the baseline. And all too often the cost of handling cash is not taken into account when comparing it to credit cards.
Debit is my baseline. It's unfortunate that banking technology is so far behind; in Canada, anyway, debit doesn't incur interchange fees. That's great at point of sale, but notably kludgy for bill payments.
Some merchants were already allowed to add a credit card surcharge. Some post-secondary institutions did this for years before this change came in.
The funny thing is that, apart from the aforementioned post-secondary institutions, I haven't seen anyone else add this surcharge. Maybe I'm just not shopping in the right places, but so far this change has amounted to absolutely nothing.
Merchants weren't allowed to do that before? I've seen it occasionally in the US
It used to be the case that the credit card companies put language in their merchant agreements language requiring the merchant to change the same price for credit and cash transactions. I'm not sure how many places they just lost the leverage to do that sort of thing and how many places enacted legislation to prevent that kind of strong-arming.
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I’ve seen it occasionally too, but it’s usually a violation of a merchants’ agreement with Visa/MC, who don’t want consumers to be discouraged to pay with their product.
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Interesting to hear this. I was once visiting Canada about a decade ago and tuned in to a radio station (likely some local CBC station), and they were debating this very issue: Can it be made legal for businesses to charge more for CC transactions?
I learned one thing:
The amount a CC charges the business is not fixed - and cards with rewards result in a higher fee for the business.
At some point a retired CC industry shill (who clearly identified his background) called in and his explanation on all this was the most reasonable:
In the vast majority of cases, a business's revenue goes up by accepting CC payments. Some of it is because customers have become accustomed to paying with it and may not carry cash, but the bulk of it is due to the convenience - and this is heavily backed up by research: The easier and more convenient you make transactions, the more consumers spend. The amount businesses pay the CC company in fees is more than compensated for by the increased revenue.
Most businesses will treat these fees as part of the cost of doing business, and price their products accordingly. Just as they do when their utility rates go up or the price of gas goes up.
Businesses support the campaigns about this issue so that they can get the best of both worlds: Increased revenue due to CC usage as well as passing those fees on to the consumer. They are not waging this battle to benefit the consumer, but to offload a cost of doing business to the consumer. In principle, this is all fine, but the consumers need to be aware of it! Ultimately the consumer is paying those fees whether a business charges extra for it or not.
And of course, if the goods that business is selling is priced the same as other businesses not passing that charge on directly, then the consumer is "double paying" - the goods' price already has that fee baked into it even if they pay cash, and when they pay by card, they'll pay it twice at those businesses.
Having known some business owners, his take is highly believable :-)
As an example, the AirBnB cleaning fee is not just for cleaning, but a way for the host to make extra money (easy to Google, and I know multiple hosts personally). Almost any business that charges extra for optional amenities is using it as a way to make even more money.
And that was the CC shill's ultimate point. CC companies are doing things to increase their revenue, as are the businesses. A given business may say they're campaigning for this in order to benefit the consumer, but in most cases they're not really benefiting the consumer and are simply trying to increase their revenue. The exception is when they really do have reduced prices compared to other stores.
> The amount a CC charges the business is not fixed - and cards with rewards result in a higher fee for the business.
It should be noted that most businesses have limited visibility into that. The monthly bill from whatever company handles their card processing usually charges a fixed rate, or has multiple tiers of fixed rates, and all the merchant sees is that on their bill they are told the number and total amount of transactions for each tier.
This whole thing is just so regressive. Every time I use my 2% back card, I know some less privileged folks paying cash gets shafted.
I wish everyone would use just debit cards over ccs, faster than trying to count out coins, less fees.
I agree with the less privileged folks getting shafted statement, but for the rest:
I am 100% unwilling to use my debit card for any purchases.
Why?
Fraud. If I pay with cash, then fraud amounts to getting actually robbed. Identity theft and account compromising is literally impossible. If I pay with credit, it is MASSIVELY simple to get that fixed, and it becomes the cc company's problem.
With a debit card, any issues immediately become my issue, because the money is out of my account in that moment. Not good.
> If I pay with cash, then fraud amounts to getting actually robbed.
Getting robbed cash in your wallet you are 100% out of the money. But fraud on a debit card must be made whole by the bank within 30-60 days per “Regulation E”, which offers similar protections to debit cards that credit cards receive under “Regulation Z”
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This is a popular take, but I found relatively little difference in how my bank handles CC and debit card fraud. In both cases, they credited the disputed amount to me right away.
Not that it buys you much; there's plenty of small / specialty merchants who might offer you a discount for paying with cash or check, but they treat credit and debit the same.
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For me it's this, plus it's not ADHD friendly.
It acts as a capacitor/battery for my money. My spending fluctuates, but my income is steady.
Using debit cards means that you need to keep a sufficient balance on a zero interest checking account in order to make transactions.
Using credit cards allows you to keep close to a zero checking account balance and manage your own cash flow, since credit card bill dates are deterministic.
Why would anybody want to keep _any_ amount of money in a non-interest bearing checking account right now especially when the risk free rate of interest (US treasury bills / equivalent money market funds invested in US treasuries) yields 4.00%+ APY now?
> Using debit cards means that you need to keep a sufficient balance on a zero interest checking account in order to make transactions.
Many banks allow linking a savings account to a checking account as a backup funding source.
> Why would anybody want to keep _any_ amount of money in a non-interest bearing checking account right now
Conversely, why would any credit card issuer give you an interest-free loan for a month in a world of 4.00%+ risk-free APYs?
Leaving aside all concerns of repayment risk, somebody is paying for your interest-free loan already.
Depending on how you view it, that's either yourself (via 2-3% of credit card fees baked into all retail prices) or other credit card users that don't pay their credit card bills in full every month, or a combination of both.
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Or you know, completely disconnect the need for cards. My time in india is so much fun since I can walk out of my house with just my phone in hand knowing I can pay using QR codes directly and not worry about accounts or charges.
You can do the same thing in the US with Apple Pay and the like. They're pretty widely accepted nowadays.
I don't really see how Apple Pay backed by a credit card or debit card is any different from how a QR code system would work in practice.
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And how is that any different? Money is still coming out of your account electronically. In the US, I can walk around with just my Watch to pay.
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How does that work with fraud? I noticed that everyone accepts those QR codes.
I will say though as a tourist who was visiting my family but doesn't have a bank account, those QR codes are pretty nice but completely inaccessible to everyone outside of India :/
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I think you may be forgetting about people who do not have a bank account.
Most of my points come from spending on airlines and hotels.
Handling cash is not free. You have to count it. It can be easily stolen. It is a target for armed robberies.
In addition, credit cards increase how fast you can process customers. Given all that, I am not sure that credit cards are such a bad deal for merchants.
Yeah, cash looks cheap when being handed over the counter, but the costs are realized later. Brinks and Loomis are both multi-billion dollar companies.
Debit cards is the cheapest payment mode for merchants. Then cash. Credit is most expensive.
Not if the merchant wants to evade taxes. Which is why you see 10%+ discounts for cash (but not debit card or ACH) at some small businesses or independent contractors.
When the merchant is charged 3% for a credit card use, that gets factored into the price. When you get 1% cash back, you paid for that cash back. You're not receiving redistributions from other people.
Yes the issue is that if you decide not to participate you still pay the same price and get 0% of the cash back.
For gas, there's one price for cash, a higher one for credit card. Guess what, that cash back covers only part of the price increment.
The idea is:
1. pay cash when there's a lower price for cash
2. pay with credit card when they're the same price
Many outfits will give you a discount for cash if you ask. That's even better for you than the cash back. All you gotta do is ask.
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While true, if there isn't a different cash price you are wasting money by not paying with a rewards card.
The credit card processor for that merchant took into account the mix of reward cards they historically see across all the merchants on the same plan and set that 3% based on that.
If everyone was using a reward card and they all had the same reward percentage you would be right that there is no redistribution.
But because most merchants charge the same price to every credit card user (and often also to cash users) there is a redistribution from those using lower rewards rate cards to those with higher rewards rate cards.
> When you get 1% cash back, you paid for that cash back. You're not receiving redistributions from other people.
Certainly, but given that it's how it is, you can participate in the game and get your 1-2% back (sometimes more), or not. Might as well get it back.
3% is small compared to not having to worry about getting robbed, employee theft etc.
The 'cash' price often includes paying with a check.
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> 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.
This is why I stay away from credit cards that offer rewards. Did you really think that big corporations give you pennies out of the goodness of their hearts? They might be people (according to Citizens United), but they have no heart.
Using a credit card that doesn't offer rewards doesn't mean the corporation offering it is any less greedy... it just means they aren't cutting you in on the greed.
If anything, using a credit card that doesn't offer rewards is even worse for redistribution... since it's redistributing credit card fees straight into the pocket of the big corporations. At least if you use a rewards CC properly, a portion of it is given back to you.
I don't feel bad about extensively using these rewards cards. If you are a net recipient in this distribution, your participation doesn't directly correlate with any higher participation by any of the victim groups. We simply make it more costly for the bank -- if anything, discouraging them from issuing such cards.
However I do withhold recommending these cards to others because they only make sense for people who don't carry debt or spend recklessly, and I usually cannot be certain that others meet those criteria.
> We simply make it more costly for the bank -- if anything, discouraging them from issuing such cards.
No, you aren't making it more costly for the bank. Banks would be stupid to offer such a setup. The banks pass that cost on to the merchants, who have no choice in the matter.
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The reforms needed everywhere in the world:
1. Fees related to mode of transaction (credit, debit, cash) are separate from price of product.
2. Cash-backs need to be banned altogether to prevent this pseudo-regressive tax.
FedNow instant payments go live this year. This will allow bifurcation: if you need immediate settlement for commerce, you’ll be able to get it for a few cents per transaction. If you want to charge the customer who wants credit card float, you can pass along a credit card surcharge and let them pay for the feature. This should shrink this vacuum of value from those of less means to those with the means to efficiently use rewards cards.
Due to US politics and the financial services lobby, it’s unlikely we’ll see interchange caps like Europe enacted, killing most rewards programs, so you’ll have to rely on merchant economics to drive the change.
I don't have a moral problem with using a rewards card. If past me could avoid credit card debt while scraping by below the poverty line on disability, with nothing but a high school education, I believe everyone could with the proper discipline. It's basically a transfer from spendthrifts to savers.
By you staying away from reward cards doesn’t reduce your costs.
> This is why I stay away from credit cards that offer rewards.
Why punish yourself like that?
I understand taking a moral stance even if makes your life harder, I do that with various things. But I guess I don't see it on this one since the vendor doesn't even know if you get any reward back when you hand them a credit card, so it doesn't show your posture in any way. All you're doing is gifting extra money to the credit card companies.
While understandable, game-theoretically, this approach seems like a non-starter for effecting change in the status quo.
My wife and I are “hybrid digital nomads”. We fly around the US staying in hotels (mostly Hiltons) from mid March through the end of September. The other half of the year we own a unit in a “Condotel” in Florida that gets rented out like a hotel when we aren’t there to cover the cost. We also don’t have cars and depend on Ubers and the occasional rental car for ground transportation.
We will be in at least 13 cities this year. Some vacations. Some “nomadding” and some a little of both.
I also travel for business 7-8x a year (cloud consulting at $BigTech)
All that to say, credit card rewards and loyalty points makes traveling, staying on budget and being able to enjoy more expensive places possible.
For our major categories, we get the following “returns” from credit card points/loyalty points (miles, hotels, transferable credit card points)
- Hilton hotels - 20-25%
- Hyatt Hotels - 20%
- Delta/American Airlines - 14%
- Groceries/Dining Out - 5.5%
- Uber - 4.2%
- everything else 2.4%
Then there is also the concept of “churning” where you sign up for cards just for sign up bonuses. Those can be worth between $600-$1200 per card.
Ask me anything…
What is the carbon footprint of that lifestyle?
Would any plane not fly if I weren’t on it?
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How do you manage to get 20-25% on Hilton hotels? True, I never accomplished anything more than Silver membership, but I also read the analysis that one Hilton point is worth like 0.6 cent. It takes a while to accumulate even 100.000 points, and then that's worth maybe 1 free night.
I don’t redeem HH points for any less than .7 cpp. You get a free night when you pay all of your nights with points.
But as far as collecting points. Each time I stay at a Hilton, per dollar, I get:
- 10 base points
- 10 points for being Diamond (automatic with the Amex Hilton Aspire)
- 14 points on the Aspire card.
That’s 34 points minimum or around 24%.
But Hilton ran a 3x special the third quarter of last year followed by two 2x specials for 54x and 44x. At 54x that’s almost 38% back.
I don’t use more than 70K points per night or 280K points for 5 nights (fifth night free).
Our “housing budget” is $3500/month. We spend that on our own place during the winter and hotels the rest of the year and the income pays for our mortgage at our “winter home”. I’m also traveling for reimbursed work trips. That means at times, I’m collecting points for two hotels at once if my wife doesn’t come with me.
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> Then there is also the concept of “churning” where you sign up for cards just for sign up bonuses. Those can be worth between $600-$1200 per card.
This doesn't work for long, IME. The banks quickly get wise to you, and won't give you any more bonus cards, at least for a while.
There is an entire crowd source science around how to churn and different companies have different policies.
For instance signing up for business cards using your SSN as the EIN doesn’t show up on your credit report.
Once you have one card from Amex, they don’t do a credit pull for additional cards. Between personal and business, Amex has six Delta cards and four versions of the Platinum.
That means you can apply for as many Amex business cards as you want with no effect on your credit.
Chase has a hard 5/24 rule where you can’t have opened more than 5 cards with any issuer within 24 months. But that doesn’t include business cards.
You also have to space credit card applications out. It also helps that I have a long credit history. I opened my first card in 1996.
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Banks seem to be OK giving cards to known churners. It should be trivial to figure out. My theory is it's either because the marketing department is happy to show off the success of their campaign, or that the banks are leveraging the high credit scores of churners to reduce the risk on-paper of customers with lower credit scores.
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I love the idea but it seems like you’d have to be quite a minimalist when it comes to personal belongings. Do you keep stuff in storage when you’re not occupying the condo?
We threw away everything we owned that wouldn’t fit in three suitcases - two checked bags and one carry on.
Of course, I also have a large bookbag with my laptop a second portable display, my iPad and often a client laptop since we aren’t allowed to install a customer’s VPN on our work computers.
It’s a very freeing experience
No one is reading the paper:
> We find a redistribution from low- to high-FICO consumers regardless of income. While super- prime high-income consumers benefit the most from reward credit cards ($20.1 in net rewards relative to classic cards), high-income consumers with sub-prime FICO scores on average pay the most (-$12.8). Meanwhile, super-prime low-income consumers ben- efit less ($9.7), but sub-prime low-income consumers also pay less (-$2.6). Thus, high- income consumers with high FICO scores benefit from reward credit cards largely at the expense of high-income consumers with low FICO scores.
> As our findings are inconsistent with the “reverse Robin Hood” hypothesis
tl;dr: it's a stupid tax. People with high incomes who are still financially unsavvy end up indirectly subsidizing lower income, savvier CC users.
Rewards aside, credit card also offers things like extended warranty, travel insurance, chargeback protection. These things makes them invaluable to customers. I use my credit cards for everything because it’s strictly better than debit and it works everywhere.
Accepting credit cards is a net benefit for merchants, even accounting for fees due to increases in volume. This is just greed. They want access to the network without actually paying for the privilege.
It’s not entirely one-sided, customers do pay for the rewards: My 3 credit cards are costing me 1500$ per year in membership fees.
Of course, without credit cards, people could only spend what they have so demand would fall, at least in the short term (or merchants would have to go back to offering credit themselves like the old days).
Credit card companies also offer a whole bunch of services to users like chargebacks and disputed that make it easier to enforce things like warranties.
Plus there are social benefits like reduced crime and saved time and energy visiting banks etc.
> [...] chargebacks and disputed that make it easier to enforce things like warranties.
> Plus there are social benefits like reduced crime and saved time and energy visiting banks etc.
All of these benefits are also applicable to debit cards.
I don't think you can do a charge back on a debit card. At least not here in the UK. Though you are quite right about crime etc.
I mostly use debit cards because I have no real interest in getting credit and dealing with debt etc.
I never know the status of debit cards. I assumed they were free riding on the credit card infrastructure (hence the zero fees etc). Is that not correct?
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If everyone treated their credit card like a debit card, and only spent what they have, would the rewards disappear?
Not necessarily. Ever notice how your card usually has a bunch of retailers you can pick to get discounts or extra points from? That's not just your bank being generous. That's usually paid for, in one way or another, by those retailers. They're basically sponsored rewards (I don't know what the industry term is). Credit card companies would still get paid transaction fees and get paid for those "sponsored" rewards, so they'd still be incentivized to make you spend more. But I imagine the rewards would be less generous, and perhaps differently structured.
No. A reward card might charge the merchant a 2.5% interchange fee, they kick back 1% to the customer. Versus a non-reward card that might charge a 1.5% interchange fee.
It would presumably still be a competitive market for card issuers.