5 ms·

Credit card issuers don't pay for the cash back, it's the merchant. The merchant's are charged a credit card transaction fee that includes a fixed/percent fee d

Credit card issuers don't pay for the cash back, it's the merchant. The merchant's are charged a credit card transaction fee that includes a fixed/percent fee determined by the negotiated contract with their bank (the acquirer), a small fixed/percent interchange fee that goes to the credit card payment networks (Visa, MasterCard, etc.), and finally a fee to the credit card issuer that provided the credit card to the consumer. The credit card issuer fees can be the worst because of these high reward credit cards. I'm very aware of this when shopping at a local small business. I'll pay either in cash or with my debit card, because the credit card fees are seriously squeezing small merchants.

mehrdadn 7y ago
Citation? It seems pretty crazy to me that every merchant would have to pay the difference when a customer decides to use a 5% cash back card. They can't even know the full list of cards out in circulation, and I doubt their contract says "the fee is whatever portion of the card's cash back we can't pay for" or something like that. It could work for a closed subset of cards they know about and might want to negotate separately, but I don't see how it can work for every card out there.
- kalenx 7y ago
  They do not pay the whole cash back, but they do pay more for "premium" cards (that they cannot refuse, also). See for instance this https://www.cfib-fcei.ca/sites/default/files/pdf/5513.pdf https://www.cfib-fcei.ca/sites/default/files/pdf/5513.pdf (in Canada, but the same thing applies to the US)
  - mehrdadn 7y ago
    Right, these are just Visa/MC/etc. card classes, which don't determine the cash back on them. And so if that doesn't make up the difference, then the card companies paying the rest, right? My point is that for high-cash-back cards there are easily customers who consistently make more in cash back than whatever fees these folks get and who don't rack up interest, meaning they're costing money, so why should they still be kept as customers?
    - ceejayoz 7y ago
      Enough of them wind up over-extending and paying interest to make it lucrative. I'm also not aware of any across-the-board 5% rewards cards, and most have an "up to $x,000 annual spend" on the categories that are that high.
      - mehrdadn 7y ago
        > Enough of them wind up over-extending and paying interest to make it lucrative. Yes. I understand this. I'm asking, why do they keep the others' accounts open? > I'm also not aware of any across-the-board 5% rewards cards I'm not either, but many people just rotate to a different card instead of using the same card for less cash back. And who never miss a payment or rack up interest. Meaning they always use those cards at a loss for the company. I'm asking why do these peoples' accounts get kept open.
        kccqzy 7y ago
        > why do they keep the others' accounts open? It's a loss leader.
        mehrdadn 7y ago
        Even for people who have years of history showing they have no intention of taking the bait?
        ceejayoz 7y ago
        I suspect you're overestimating how many of those there are.
        mehrdadn 7y ago
        I suspect you're underestimating? A lot of people (around half of Americans if not more) don't carry a balance. I don't know what fraction of them try to extract the most from their cards, but judging from the sheer number of websites that explain what card you should get to maximize which reward and bonus, I'm skeptical that the number of people who pay attention to this is negligible enough that it'd cost companies more to simply close their accounts than to let them go on.
- hnburnsy 7y ago
  Here is a good explanation... https://squareup.com/guides/credit-card-processing-fees-and-rates https://squareup.com/guides/credit-card-processing-fees-and-... "The card that’s used Debit cards with PINs are lower risk than credit cards, so they typically have a lower interchange rate. And rewards cards (travel, triple points, etc.) and business cards typically have have higher interchange rates."
  - mehrdadn 7y ago
    They don't make up the full 5% though, and there are people who do consistently use these cards only for their 5% categories.
    - C1sc0cat 7y ago
      I used to do this in the UK brought my monthly season ticket using a 3% cashback used to make just under £20 a month. Of course the badly implemented EU changes which in theory should have benefited the consumer did not - the merchants just took the reduction in interchange fees and didn't cut prices at all for the end consumers
- deleted 7y ago
  [deleted]
- kccqzy 7y ago
  The amount they need to pay can sometimes be deduced from the card itself. For MasterCard for example they will pay more if it is marked World Elite than if it is marked World. And for VISA, they pay more for Infinite than for Signature.

mehrdadn 7y ago

Citation? It seems pretty crazy to me that every merchant would have to pay the difference when a customer decides to use a 5% cash back card. They can't even know the full list of cards out in circulation, and I doubt their contract says "the fee is whatever portion of the card's cash back we can't pay for" or something like that. It could work for a closed subset of cards they know about and might want to negotate separately, but I don't see how it can work for every card out there.

kalenx 7y ago
They do not pay the whole cash back, but they do pay more for "premium" cards (that they cannot refuse, also). See for instance this https://www.cfib-fcei.ca/sites/default/files/pdf/5513.pdf https://www.cfib-fcei.ca/sites/default/files/pdf/5513.pdf (in Canada, but the same thing applies to the US)
- mehrdadn 7y ago
  Right, these are just Visa/MC/etc. card classes, which don't determine the cash back on them. And so if that doesn't make up the difference, then the card companies paying the rest, right? My point is that for high-cash-back cards there are easily customers who consistently make more in cash back than whatever fees these folks get and who don't rack up interest, meaning they're costing money, so why should they still be kept as customers?
  - ceejayoz 7y ago
    Enough of them wind up over-extending and paying interest to make it lucrative. I'm also not aware of any across-the-board 5% rewards cards, and most have an "up to $x,000 annual spend" on the categories that are that high.
    - mehrdadn 7y ago
      > Enough of them wind up over-extending and paying interest to make it lucrative. Yes. I understand this. I'm asking, why do they keep the others' accounts open? > I'm also not aware of any across-the-board 5% rewards cards I'm not either, but many people just rotate to a different card instead of using the same card for less cash back. And who never miss a payment or rack up interest. Meaning they always use those cards at a loss for the company. I'm asking why do these peoples' accounts get kept open.
      - kccqzy 7y ago
        > why do they keep the others' accounts open? It's a loss leader.
        mehrdadn 7y ago
        Even for people who have years of history showing they have no intention of taking the bait?
        ceejayoz 7y ago
        I suspect you're overestimating how many of those there are.
        mehrdadn 7y ago
        I suspect you're underestimating? A lot of people (around half of Americans if not more) don't carry a balance. I don't know what fraction of them try to extract the most from their cards, but judging from the sheer number of websites that explain what card you should get to maximize which reward and bonus, I'm skeptical that the number of people who pay attention to this is negligible enough that it'd cost companies more to simply close their accounts than to let them go on.
hnburnsy 7y ago
Here is a good explanation... https://squareup.com/guides/credit-card-processing-fees-and-rates https://squareup.com/guides/credit-card-processing-fees-and-... "The card that’s used Debit cards with PINs are lower risk than credit cards, so they typically have a lower interchange rate. And rewards cards (travel, triple points, etc.) and business cards typically have have higher interchange rates."
- mehrdadn 7y ago
  They don't make up the full 5% though, and there are people who do consistently use these cards only for their 5% categories.
  - C1sc0cat 7y ago
    I used to do this in the UK brought my monthly season ticket using a 3% cashback used to make just under £20 a month. Of course the badly implemented EU changes which in theory should have benefited the consumer did not - the merchants just took the reduction in interchange fees and didn't cut prices at all for the end consumers
deleted 7y ago
[deleted]
kccqzy 7y ago
The amount they need to pay can sometimes be deduced from the card itself. For MasterCard for example they will pay more if it is marked World Elite than if it is marked World. And for VISA, they pay more for Infinite than for Signature.