4 ms·

Credit cards are totally unnecessary in the age of online banking. Why does it not die already?

by programmer_dude 9y ago

shishy 9y ago
Perhaps part of it is because it's such a heavily regulated industry that change takes a while/is hard to initiate.
- programmer_dude 9y ago
  Correct me if I am wrong but I thought the US already had (creditcardless) internet banking. It seems credit card inertia is hard to overcome. What is more frustrating is "trends" from the US keep washing up on our shores like a bad dream and upset any advances we have made. Case in point: Netflix India does not accept anything else other than credit cards. A similar phenomena can be observed in the healthcare industry. India is already moving towards the way (IMO) the broken US healthcare system works. It gives me nightmares. I hope the Indian government clamps down heavily on this unscrupulousness.
stevesimmons 9y ago
Credit cards provide protection that you don't get with debit payments: - Fraud protection and limited liability - Ability to charge back a transaction if the product is not delivered, if you have a dispute with the seller, or if the seller goes bankrupt. - For the seller, guaranteed payment even if the customer is a bad credit risk. Plus of course flexible payment options: - Delay repayment interest-free up to typically 45 days - Delay repayment over longer periods, with interest charged And potentially additional benefits: - Rewards and air miles - Extended purchase warranties - etc All these 'value added' services have a cost to deliver (e.g. fraud losses ~20bp). They are funded by a complex combination of upfront product/rewards fees, interchange fees paid by the merchant to their bank (the acquiring bank) and passed back to the customer's bank (issuing bank), penalty fees for late payments and going overlimit, and the customer. A slice also goes back to the card scheme, Visa/MasterCard. Customers may have to pay their bank for the product. The size of these cash flows varies greatly by country and product, influenced by marketing, competition and regulatory arbitrage considerations. (Disclosure: I used to run Operations/Portfolio Management/Strategy for credit card businesses, was involved in many product launches, introduction of EMV chip cards, commercial negotiations with card schemes, etc)

Credit cards are totally unnecessary in the age of online banking. Why does it not die already?

shishy 9y ago

Perhaps part of it is because it's such a heavily regulated industry that change takes a while/is hard to initiate.

programmer_dude 9y ago
Correct me if I am wrong but I thought the US already had (creditcardless) internet banking. It seems credit card inertia is hard to overcome. What is more frustrating is "trends" from the US keep washing up on our shores like a bad dream and upset any advances we have made. Case in point: Netflix India does not accept anything else other than credit cards. A similar phenomena can be observed in the healthcare industry. India is already moving towards the way (IMO) the broken US healthcare system works. It gives me nightmares. I hope the Indian government clamps down heavily on this unscrupulousness.

stevesimmons 9y ago

Credit cards provide protection that you don't get with debit payments: - Fraud protection and limited liability - Ability to charge back a transaction if the product is not delivered, if you have a dispute with the seller, or if the seller goes bankrupt. - For the seller, guaranteed payment even if the customer is a bad credit risk. Plus of course flexible payment options: - Delay repayment interest-free up to typically 45 days - Delay repayment over longer periods, with interest charged And potentially additional benefits: - Rewards and air miles - Extended purchase warranties - etc All these 'value added' services have a cost to deliver (e.g. fraud losses ~20bp). They are funded by a complex combination of upfront product/rewards fees, interchange fees paid by the merchant to their bank (the acquiring bank) and passed back to the customer's bank (issuing bank), penalty fees for late payments and going overlimit, and the customer. A slice also goes back to the card scheme, Visa/MasterCard. Customers may have to pay their bank for the product. The size of these cash flows varies greatly by country and product, influenced by marketing, competition and regulatory arbitrage considerations. (Disclosure: I used to run Operations/Portfolio Management/Strategy for credit card businesses, was involved in many product launches, introduction of EMV chip cards, commercial negotiations with card schemes, etc)