7 ms·
They don't charge 3%, they charge about a tenth of a percent (0.11%). What you think of as fees is actually a basket of charges going to different parties. al
by dmayle 7y ago
They don't charge 3%, they charge about a tenth of a percent (0.11%). What you think of as fees is actually a basket of charges going to different parties. almost 2% goes to your (the purchaser) credit card company to cover the risk of you not paying them, about a percent goes to the store's bank to cover the case when they have to give the money back (either because it was a fraudulent online transaction, or the store cheated the customer and the customer went to their card issuer, etc.) and that tiny little bit that's left goes to Visa/MasterCard.
Credit transaction fees actually make lots of sense and are grounded in the actual cost of the financial product. As a merchant, you can choose to accept only debit cards to avoid the cost
- JediWing 7y agoI get that this is how it works in the real world, but the argument that transaction fees are necessary for the credit company to cover the risk of the cardholder not paying is a bit feeble, because to my non-banker mind: that's what the interest rates are for. If someone is risky, simply don't approve their application, or raise their rate. Am I missing something?
- philwelch 7y agoThe 2% that goes back to the credit card company is what ends up paying for all the rewards points and cash back discounts—which work as mechanisms for you to get that money back so long as you actually pay your credit card bills.
- philwelch 7y agoAnd if you’re a savvy customer you get “cash back rewards” from your credit card, meaning some of the fees just end up coming back to you.
- reaperducer 7y agoA "savvy" customer has a card that doesn't make them perform a dog and pony show like you describe. A savvy customer's card charges the lowest reasonable rate in order to provide the service. Giving someone money and then feeling all giddy when you get a "reward" later means you've been gamed.
- brndn 7y ago> feeling all giddy when you get a "reward" later means you've been gamed. It doesn't really feel that way as you're flying to Hawaii for free.
- reaperducer 7y agoIt doesn't really feel that way as you're flying to Hawaii for free. There is no free lunch.
- woodhull 7y agoIn this particular case all of the people without premium cards who pay with cash or debit cards with no rewards are paying for our free lunch and flight to Hawaii. It's a tax on basically every transaction, paid to those participating in the rewards scheme The lunch is not free. You're buying it for us.
- henrikschroder 7y agoYou're not flying to Hawaii for free. Every single purchase you made with the card was more expensive than it had to be, because the merchants needed to cover their credit card fees. What you're doing is the equivalent of always paying with bills, and dropping your spare change in a jar. And when the jar is full, you buy a ticket to Hawaii with the money in it. Except with a credit card, they keep the jar, take half the quarters, give you back the rest, and make you feel grateful for the entire experience.
- deleted 7y ago[deleted]
- sutterbomb 7y agoSo you must have a recommendation for a card that charges lowest reasonable rate?
- 7y ago
- MarkyC4 7y ago> about a percent goes to the store's bank to cover the case when they have to give the money back (either because it was a fraudulent online transaction, or the store cheated the customer and the customer went to their card issuer, etc.) Is this right? It's been my experience (in Canada) that losing a fraud case or chargeback the store takes the hit.
- r00fus 7y agoWith the new "elite" cards that have higher transaction costs that you can't disallow as a merchant, it's becoming more like a tax.
- dd36 7y agoThey force merchants to accept the 3% as a function of their oligopoly power. Merchants don’t negotiate anything inside the basket.