Comment by buran77
16 days ago
What does that graph tell you? Because I think patio11 wanted to send one message and people accidentally misunderstand the graph.
That's the interchange income corresponding to wealthy people. Interchange is paid by the card-accepting business, not by the buyer. The buyer pays interest and other fees and that graph looks very different.
From that original study the full picture table says in % of ADB that the "poorest" (below 620 FICO) pay ~45% interest and fees but bring only 2% additionally in interchange income. The wealthy (at 800+) pay ~10% interest and fees but bring another almost 10% interchange income, on 4 times higher spending, and 3 times higher rewards (so the wealthy get ~12 times higher rewards in $ value than the "poor").
Just the percentages paid by each group more than offset the difference in spending. There are also way more "poor" accounts than wealthy accounts. Intuitively you can tell that the banks are effectively subsidizing the fees and interest for the wealthy with the income from the poor, for the sake of the interchange income which is mostly generated by the wealthy but doesn't come from their pocket.
Those poorest of people (<620 FICO) pay more interest and fees (percentage and absolute terms) than any other group. There's a range in the middle on the wealth scale where the customers are actually a net loss for the banks (the 660-760 FICO range).
Businesses raise prices to account for interchange fees. So they are essentially is paid by the consumer. If we outlawed rewards credit cards (by capping interchange fees), everything would likely be slightly cheaper.
> Businesses raise prices to account for interchange fees
Agreed, which makes the picture even worse for those low income people. Even poor people are guaranteed to occasionally pay the "rich person tax" included in the prices of some of the products and services. At least until some AI pricing starts changing the price real-time based on the buyer's estimated wealth (sort of already real).
> So they are essentially is paid by the consumer.
Not from a bank's perspective. Only in the sense that prices are higher between the seller and buyer.
> If we outlawed rewards credit cards (by capping interchange fees), everything would likely be slightly cheaper.
I don't agree on the second point as a blanket statement. When Epic game store lowered its fee not a single game got cheaper for the buyers.
> Agreed, which makes the picture even worse for those low income people. Even poor people are guaranteed to occasionally pay the "rich person tax" included in the prices of some of the products and services.
Credit card fees are baked into the price of everything that can be purchased with credit card, excluding merchants that offer a cash price and a credit price.
Any time someone pays the (credit card) price with cash or a debit card is paying more than someone that earns CC rewards, it’s virtually every transaction.
>When Epic game store lowered its fee not a single game got cheaper for the buyers.
At least one reason for this is that Valve has language in their agreements to prevent you from selling your game cheaper on other storefronts. Unambiguously anti-competitive.
Outlaw rewards credit cards? Or make it compulsory that the true cost of a specific credit card is revealed to the merchant who has the right to absorb or pass on, in a line item, that cost to that specific consumer?
If I know I'm paying for my own rewards, I'd choose a card that keeps more money in my pocket. I'd go as low as the PITA factor of cash.
It's not clear to me what the net benefit is of a credit card over a debit card.
But for sure the confusion ensuing from allowing debit cards to be charged as credit cards should be illegal. The merchant account providers are probably the ones reaping the free money on the racket.
Credit is the POS default, for whatever reason. Not all POS are the same. e.g. US Post Office consistently knows if I am using a debit card, and it prompts for a PIN when I do. Every restaurant, bar, service does not ask for PIN, and the handful of merchants I've inquired with say their debit card fees changed by the merchant account providers are the same as credit. Scammy.
At least in Colorado it's legal for businesses regardless of the TOS contract with a merchant account supplier to pass on the transaction and processing fees of credit cards. It's not legal to pass on cost/fees for debit cards, ACH, or cash.
The simple solution is the one Europe adopted: Just cap fees. We do this for Debit cards and it's fine.
>It's not clear to me what the net benefit is of a credit card over a debit card.
In a fair scheme, the net benefit to the purchaser is having a rolling line of credit for whatever they want to use that for, like managing cashflow. It's also a benefit in that it puts a behemoth with immense contractual power between you and the merchant. It doesn't matter how a merchant fucks you over, the credit card company WILL give you your money back and punish the merchant.
To the merchant, the benefits are that credit cards unlock significant consumption that humans normally would not do. It literally causes induced demand. As a consumer, you will spend more money using a credit card, and you will purchase things you otherwise wouldn't. The disconnect in your brain is known. It can also, in very specific contexts, reduce the cost of managing payments and cash. It can reduce employee theft. But this improvement is overstated.
The reason merchants put up with giving away 3% of all revenue and eating $20 per fraudulent transaction plus whatever the cost of the transaction was is entirely about the fact that a consumer using a credit card buys more than one not using a credit card. It's a big boost to your revenue.
But there is absolutely nothing about a payment network that requires such transaction fees. Certainly not "Risk", as the credit card payment network itself carries zero risk on each transaction. Every dollar fraudulently spent comes out of the pocket of merchants, not the payment network. Their only risk is consumer default, but the entire "Credit Score" system exists to nearly eliminate that risk.
The structure of the system is built to get consumers to spend more money than they normally would, and incentivize everyone to play along to get a kickback. Everything in payment infrastructure in America is designed around this. Even gift card companies are built around getting you to spend money you were not intending to and kicking a portion of that back to the brand name on the card.