10 ms·

The credit-card model is spinning out of control. I have a good income and decent credit. So I have a credit card that gives me 2-3% cash back on everything,

• kazinator 8y ago
  I would ditch credit cards the moment all the merchants I use would give me a 2% discount for paying cash. Using credit cards is perfectly rational until then. What's more, it's rational even for credit cards that don't earn any rewards or cash back, let alone ones that do.
  • vardump 8y ago
    The merchants would probably love to do that if cash handling related costs were lower.
    • ahartmetz 8y ago
      Their contracts with credit card companies forbid different prices for credit card and cash. It's slightly insane IMO.
      • deleted 8y ago
        [deleted]
      • ensignavenger 8y ago
        That used to be true, but it was ruled illegal and so it is not anymore. See https://www.washingtonpost.com/business/capitalbusiness/as-rules-change-more-retailers-offer-discounts-for-cash-payments/2013/06/29/d4c84d7a-dcfc-11e2-bd83-e99e43c336ed_story.html?noredirect=on&utm_term=.6e45a190c290 https://www.washingtonpost.com/business/capitalbusiness/as-r...
    • senderista 8y ago
      I had around $25K stolen via a skimmed debit card from my Chase checking account (in a few hundred separate transactions). I finally noticed after about 6 weeks; they never did until I told them. This despite the fact that all the fraudulent transactions took place at least 100 miles from my residence, some as far as 2000 miles away. I did get all my money back eventually, but it took a month or two and a ton of back-and-forth in person and on the phone to sort out the bad transactions from the good ones (mostly due to their lack of attention to detail). I stopped using debit cards after that (and started monitoring my daily balance).
  • coldtea 8y ago
    >I would ditch credit cards the moment all the merchants I use would give me a 2% discount for paying cash. Using credit cards is perfectly rational until then. Only if you don't fall behind on payments and start paying the card their exorbitant interest, as most people end up doing.
    • Wowfunhappy 8y ago
      I use a debit card. All the convenience, but if I overspend, the transaction just gets blocked, end of story. (I always have money in other accounts for emergencies, but this keeps day-to-day spending in check.)
      • encoderer 8y ago
        Debit cards lack the same fraud protection that credit cards have. They have a weaker version.
        • kevin_thibedeau 8y ago
          I've never had issue with a bank refunding fraudulent debit charges. They catch them within minutes to hours.
          • encoderer 8y ago
            https://news.ycombinator.com/item?id=1206859 https://news.ycombinator.com/item?id=1206859
      • deleted 8y ago
        [deleted]
      • ToFundorNot 8y ago
        Incidentally, debit cards ('check cards') in the US are more expensive than credit cards as a ratio of processing costs to fees (they charge %~.75. These fees are more in line with costs in Canada (~$.03 a transaction). https://www.cardpaymentoptions.com/fee-sweep/debit-fees-explained/ https://www.cardpaymentoptions.com/fee-sweep/debit-fees-expl... These numbers align with my experience when working for a processor in the US.
  • Wowfunhappy 8y ago
    Is there a reason more merchants don't do this? I've seen it done at gas stations (of all things), but never anywhere else.
    • nemothekid 8y ago
      It is my understand that Visa/MC won't be happy if you offer discounts for Cash (meaning they won't let you process any Visa/MC card).
      • EpicEng 8y ago
        The posted price has to be the CC price, but retailers can offer a cash discount. They don't want to see a CC surcharge. https://www.cardfellow.com/blog/cash-discount-eliminate-processing-fees/ https://www.cardfellow.com/blog/cash-discount-eliminate-proc...
      • CardFellow 8y ago
        Nah, they've been fine with cash discounts for a long time. They only became okay with surcharging / adding a fee for cards as a result of a lawsuit in 2013. They'd still prefer businesses offer a cash discount, though. They know customers generally don't take them up on it, but also don't feel punished like they do with a surcharge.
    • ek750 8y ago
      As a small business owner in a past life, it’s probably because you don’t need to; not many businesses have customers looking to shave pennies off the price. The margins and competition in gas stations don’t happen elsewhere, I think. And you don’t want to. Adding another set of prices and complication isn’t worth it to the business owner. My 2c
  • chrischen 8y ago
    Pro tip: if you go to a Chinese restaurant that offers credit card payments, counteroffer with cash and you can get a discount as high as 10%.
    • nebolo 8y ago
      Credit card fees are about 2-3%. So if they are doing this, it must come from not charging tax.
      • chrischen 8y ago
        They are doing this. Also, there are fees from credit card fraud as well to factor in.
        • Wowfunhappy 8y ago
          I was under the impression that was factored into the 2–3%. Not true?
          • chrischen 8y ago
            Merchants are usually liable for fraud losses (both the loss in good or services + a fee imposed by the bank for the privilege...). This is on top of the transaction costs. Those transaction costs do not cover fraud liability or losses.
      • amalag 8y ago
        Yup a small chunk of off the book income which goes straight to cash is worth 10% to them
    • deleted 8y ago
      [deleted]
• AmericanChopper 8y ago
  Your argument that people with good credit pay less to use the network is sound, and in that sense it almost constitutes a minor poverty trap. But to call it taxation ignored all of the remarkable innovations that the card brands have made. They have successfully managed to connect nearly all of the worlds banks together in a way that facilitates almost instantaneous payments between them. Sure this innovation is old, but that doesn’t make it any less valuable to consumers. It’s still so valuable today, that a lot of our modern day payment innovations are still based on those very networks. Try and think back to a time before payment brand networks, and how tedious payments were then (especially international one) before dismissing the value of the card brands.
  • anoncake 8y ago
    > But to call it taxation ignored all of the remarkable innovations that the card brands have made. So something is only taxation if the money is wasted in your view?
    • AmericanChopper 8y ago
      I think a tax is any compulsory fee levied by the state. Even if you generalise the concept to all compulsory fees, I don't think it fits in here. You're free to not use the card brands payment networks, and pay them no fees. You can say that it's not practical to do so because that would severely limit your ability to pay for goods and services, but that's what transactions were like before the card brands innovated the industry. They render a service that provides extraordinary convenience for consumers, that's what you're paying for. It's no more a tax than any other expense that's factored into the margins of the goods and services you buy.
      • Armisael16 8y ago
        It is compulsory fee if merchants don't offer a cash-discount.
        • AmericanChopper 8y ago
• jfim 8y ago
  According to [1]: > On average, each cash-using household pays $149 to card-using households and each card-using household receives $1,133 from cash users every year. Because credit card spending and rewards are positively correlated with household income, the payment instrument transfer also induces a regressive transfer from low-income to high-income households in general. [1] https://www.bostonfed.org/publications/public-policy-discussion-paper/2010/who-gains-and-who-loses-from-credit-card-payments-theory-and-calibrations.aspx https://www.bostonfed.org/publications/public-policy-discuss...
  • wurst_case 8y ago
    I have to say, I have never thought of it this way but it seems so common sense. Every deal has a cost associated with it of course but if only a certain subsection of people can appreciate that deal (see: non low income earners), then those who can't will eventually end up paying for it. The most egregious example would be over the top ceo bonuses. I always thought that the major problem with the unbanked or this who didn't have access to lines of credit were that they didn't have as much upward mobility but now I can see they're actively being made poorer with essentially accelerated inflation of the prices of everyday goods. I wonder if other services like Amazon Prime have a similar effect.
• smileysteve 8y ago
  But if you get 2% and they charge 2% you're stating their fee is approaching 0. $0.25 and 2% is much less than the fees for Bitcoin, even cheaper than the ethereum gas. If you only want to compare to cash, the cost of one bad employee greatly exceeds 2%, then employees needing to transfer money to and from a safe, and the guards and trucks required to transport that money.
  • pas 8y ago
    As long as you do cash, you need to handle that anyway. And usually the people who want to pay with a card don't want to pay with cash. So if you don't accept cards at all, you'll likely see fewer sales. So it's probably worth it to have a POS terminal in your shop.
• ElatedOwl 8y ago
  It isn't just the card brand taking a slice. At best it's a 3 party system between the Gateway (Auth), Acquirer (person actually paying the merchant), and the card brand. I don't think it's uncommon for their to be middle-men between the acquirer and merchant.
• zdragnar 8y ago
  You're forgetting that it costs merchants money to handle cash; between miscounting at the till, plus petty theft, plus counting cash at the end of the night, plus time to take cash to the bank, plus time to take cash from the bank back (say when rolls of coins are needed). I'd be surprised if the cost adds up to 2% of the cost of all goods, but it's still there. > And if you're someone without access to great cards, then you still pay the same price in stores but you get no cash back, high APR, low credit limits, and crazy late fees. That's an entirely different discussion, and completely misses out on debit cards (no APR, typically includes some form of rewards), when the bad cards should be used to build a good credit history, not as a daily driver.
  • coldtea 8y ago
    >You're forgetting that it costs merchants money to handle cash Not that much. Which is why all-cash businesses invariantly offer stuff cheaper.
    • duado 8y ago
      There's a lot of correlated factors in all-cash businesses. Yes, they don't pay CC processing, but they often sell lower-end goods, are in worse neighborhoods with lower rent, may acquire some of their merchandise in sketchier ways, etc...
      • perfmode 8y ago
        are we at the point where we are criminalizing the behavior of people who choose to avoid credit cards and only accept cash?
        • daveFNbuck 8y ago
          We hit that point a long time ago when having a large amount of cash with you became a justification for civil asset forfeiture.
        • zdragnar 8y ago
• sixstringtheory 8y ago
  On top of that, I wonder what the average length of time credit card rewards spend accumulating and not being used, and how much depreciation that represents w.r.t. inflation, not to mention the opportunity cost of having invested it for the same amount of time. And to boot, you pay a yearly fee for those non-interest-bearing funds to sit around!
• pmart123 8y ago
  Mastercard and Visa take very little out of the transaction compared to the interchange fee that goes to the issuing bank. I believe the issuing bank would take $2.50 on a $100 dollar transaction vs $0.10 for Visa and Mastercard roughly.
  • apenwarr 8y ago
    To my knowledge the network and the bank take roughly a 50/50 split of the transaction fee. Visa and Mastercard are the ones with market control, so you wouldn't expect them to get only a tiny slice.
    • CardFellow 8y ago
      They actually only do get a tiny slice. Interchange fees to the issuing banks start around 1.5% while Visa's volume assessment is only 0.13%. But they get a tiny slice on an ungodly amount of transactions, so it adds up.
      • theshortofit 8y ago
        Actually Visa's Credit Assessment rate is .14%. They raised their prices by 1bpt in January 2019 and wrote themselves a $500 Million check by doing so. This is one of the reasons why Visa's stock performs so well over time.
        • pmart123 8y ago
          I can't remember the exact figure, but I believe there is roughly only a two basis point spread between what the network providers take versus the operating costs to run the network. Therefore, any "disruptor" trying to enter would have to burn cash to not only build out the network but to also lower prices to try and steal market share. And the result would really only be 1 BPS saved on each transaction for the consumer.
        • CardFellow 8y ago
          Yeah, credit assessment is .14, debit is .13.