Comment by abalone
2 years ago
> 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...
> 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.
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.
"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.
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> 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.
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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.
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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.
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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.
>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".
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>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.
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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.
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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?
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it's even more intense in China
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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.
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.
> 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.
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...
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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.
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.