5 ms·

I think this industry won't last for very long. Mile-earning cards are dependent on merchants paying high fees. In most of the developed world, interchange fees

by dvdhsu 10y ago

I think this industry won't last for very long. Mile-earning cards are dependent on merchants paying high fees. In most of the developed world, interchange fees have been capped (e.g. 40bp in the EU). Once that happens, these rewards credit cards disappear overnight (which is what happened in the UK shortly after the IC regulation). Eventually, I think the US will have its own cap on interchange fees. Credit card rewards will then cease to exist. It's fundamentally inefficient. (But perhaps lobbyists are more powerful here than in the EU / Australia?)

danielfoster 10y ago
Lobbyists are pretty powerful and Americans like the rewards, so I don't think it will change any time soon. In any case I would assume that merchant fees follow the same pattern as tax incidence. Just like taxes on goods, they are passed on to the consumer or merchant in relation to the supply and demand of the product: https://en.wikipedia.org/wiki/Tax_incidence https://en.wikipedia.org/wiki/Tax_incidence
Havoc 10y ago
>credit cards disappear overnight (which is what happened in the UK shortly after the IC regulation). huh? I've still got a UK issued British Airways Amex?
- Symbiote 10y ago
  Amex cards operate under slightly different rules. Presumably, the limited acceptance of Amex is related. According to [1], the exemption from the 0.3% cap only lasts three years -- that is, until December 2018. (I wonder what American Express will do? Doesn't their business depend on the high fees they charge merchants?) [1] https://www.adyen.com/blog/eu-interchange-fees-cap https://www.adyen.com/blog/eu-interchange-fees-cap
  - Havoc 10y ago
    >Doesn't their business depend on the high fees they charge merchants? I've got local businesses that charge extra for all cards -- except Amex. So no idea how this stuff works except for the fact that it's all over the show.
  - Havoc 10y ago
    >Amex cards operate under slightly different rules. Only noticed this later...just for the record this is bullsht. Amex operates under the exact same regulatory rules as everyone else.
gommm 10y ago
I don't think that will happen for multiple reasons: 1. Australia and UK still have mile earning credit cards. In fact, in my experience, countries that cap the maximum amount of late fees and interests tend to have lower mile earning possibilities through credit cards than countries that cap the interchange fees. 2. Lobbies in the US are powerful and consumer protection in the US are traditionally less strong. 3. A move to reduce credit card rewards would likely be unpopular (it's very easy for lobbyist to spin any move to cap interchange fees as politicians taking away the rewards from credit cards) I believe that credit card rewards are a form of tax on people who mismanage their money to benefit the ones who are good at managing their expenses and money. It's subsidized by all people paying interest on their balance, paying late fees and the interchange fees. I was going to say that it's a tax on the poor to benefit the rich but I know people with high income that never seem to manage to pay their credit card balance in full and I believe it's really those people that generate revenue for the banks.
- peferron 10y ago
  Credit card rewards are also indirectly subsidized by people who pay with cash or debit cards, since merchants effectively charge these people more than the people who pay with credit cards.

by dvdhsu 10y ago

danielfoster 10y ago

Lobbyists are pretty powerful and Americans like the rewards, so I don't think it will change any time soon. In any case I would assume that merchant fees follow the same pattern as tax incidence. Just like taxes on goods, they are passed on to the consumer or merchant in relation to the supply and demand of the product: https://en.wikipedia.org/wiki/Tax_incidence https://en.wikipedia.org/wiki/Tax_incidence

Havoc 10y ago

>credit cards disappear overnight (which is what happened in the UK shortly after the IC regulation). huh? I've still got a UK issued British Airways Amex?

Symbiote 10y ago
Amex cards operate under slightly different rules. Presumably, the limited acceptance of Amex is related. According to [1], the exemption from the 0.3% cap only lasts three years -- that is, until December 2018. (I wonder what American Express will do? Doesn't their business depend on the high fees they charge merchants?) [1] https://www.adyen.com/blog/eu-interchange-fees-cap https://www.adyen.com/blog/eu-interchange-fees-cap
- Havoc 10y ago
  >Doesn't their business depend on the high fees they charge merchants? I've got local businesses that charge extra for all cards -- except Amex. So no idea how this stuff works except for the fact that it's all over the show.
- Havoc 10y ago
  >Amex cards operate under slightly different rules. Only noticed this later...just for the record this is bullsht. Amex operates under the exact same regulatory rules as everyone else.

gommm 10y ago

I don't think that will happen for multiple reasons: 1. Australia and UK still have mile earning credit cards. In fact, in my experience, countries that cap the maximum amount of late fees and interests tend to have lower mile earning possibilities through credit cards than countries that cap the interchange fees. 2. Lobbies in the US are powerful and consumer protection in the US are traditionally less strong. 3. A move to reduce credit card rewards would likely be unpopular (it's very easy for lobbyist to spin any move to cap interchange fees as politicians taking away the rewards from credit cards) I believe that credit card rewards are a form of tax on people who mismanage their money to benefit the ones who are good at managing their expenses and money. It's subsidized by all people paying interest on their balance, paying late fees and the interchange fees. I was going to say that it's a tax on the poor to benefit the rich but I know people with high income that never seem to manage to pay their credit card balance in full and I believe it's really those people that generate revenue for the banks.

peferron 10y ago
Credit card rewards are also indirectly subsidized by people who pay with cash or debit cards, since merchants effectively charge these people more than the people who pay with credit cards.