4 ms·

Imagine if companies charged 2-5% less because they didn't have to fund CC company marketing tools like cashbacks.

newacct583 6y ago
Indeed, let's imagine. I'm guessing that the increase in seller revenue and decrease in consumer price would sum to... somewhere between two and five percent. No one cares about numbers like that. That's way, way below the convenience threshold for a typical consumer. Most of us, me included, would rather pay an extra 3.5% than fiddle with deciding on which card to use. Which is to say: the market has spoken. We've settled on the duopoly not because it's a trap but because it actually maximizes utility. The uniform convenience of "credit cards just work" has quantifiable economic value. And it turns out to be somewhere around 2-5% of the transaction.
crazygringo 6y ago
That is common. My grocery store, my bodega, my doctor's office, my dentist -- they all offer a 5% discount for paying in cash. Obviously not everyone does it, but it's certainly not uncommon. On the other hand, there are also a lot of costs associated with handling cash. The expense of tracking bills and coins and going to the bank every day is not insignificant. So it's pretty easy to argue that there's no reason for cash discounts either, because handling cash can actually be more expensive than handling cards, particularly when you're doing it for only 5 or 10 percent of customers.
- koheripbal 6y ago
  That's a little different. They offer discounts of 5% because they then don't report the income and don't pay taxes. The CC companies are only taking 2.5%-3.2%. If they're offering a 5% discount for cash - it's almost certainly tax evasion.
  - crazygringo 6y ago
    You're forgetting the percentages are on top of a ~$0.30 flat fee (though obviously this varies). So if you buy a $2 Coke, it's not a $0.054 fee (2.7%), it's $0.354 (or a whopping 17.7%). Maybe my dentist evades a few taxes, I dunno. But people buy cheap things at the bodega, so it probably is closer to the actual fees.
    - lotsofpulp 6y ago
      If the merchant doesn't offer the same cash discount for debit cards, then it's tax evasion. Debit card fees are a few cents, and the only reason to offer a big discount for cash, but not debit cards, is to not have the transaction on paper and hence evade taxes.
      - blacklion 6y ago
        How could I know are my card credit or debit from system's point of view? I have two cards in my bank, both are exactly same MC cards, embossed, and all (not some Maestro variation). One card is linked with my current account — I have real money at this account, my employer pays my salary by transfer to this account and such. I can not pay if thus account is depleted. Second card is linked with credit account, where I have some limit, and I need to pay off in 28 days after end of each month or I'll pay draconian interest. But cards are exactly the same, with very similar numbers. And I never had any problems with any if these cards, like one works and other doesn't. Is one of my cards debit and other is credit or they are credit both?
        lotsofpulp 6y ago
        Based on your description, you have one debit card and one credit card. If it says debit on the front of the card, it is debit. I’ve never seen this work in person, but some people claim their debit card worked as a credit card and whatnot. Even if that is true, all merchant systems I’ve worked with allow the merchant/cardholder to select debit or restrict transactions to only debit.
        6y ago
  - mmcconnell1618 6y ago
    Also, chargebacks are a cost to merchants. In many cases, merchants will have money clawed back until they prove that the charge was not fraudulent. This requires keeping copies of receipts, signatures, etc. So, the true cost is far higher than just the transaction processing fees. Remember, the credit card companies make the rules and decide who gets to keep the money in a dispute. The merchants have to decide if they will accept credit cards because customers demand it or if they will go with cash only and lose out on potential sales.
deadbunny 6y ago
So, Europe?
manquer 6y ago
There are payment standards like UPI in India and mobile number based banking , which offer transactions for very less or no cost ( mostly debit driven )
- smart_jackal 6y ago
  UPI is great and so is NEFT, many other Asian countries are in talks to replicate these successful models in their own countries. Also, India came up with RUPAY which is a great answer to VISA/MasterCard monopoly. But somehow it didn't catch up in usage I think.
briandear 6y ago
Businesses aren’t required to accept credit cards.
- quacker 6y ago
  But it obviously hinders their business if they don't, in the US at least. Even most food trucks typically have Square terminals (or similar) for card transactions. Which leads me to believe that it's generally worth it for businesses, despite the "fees".

Indeed, let's imagine. I'm guessing that the increase in seller revenue and decrease in consumer price would sum to... somewhere between two and five percent. No one cares about numbers like that. That's way, way below the convenience threshold for a typical consumer. Most of us, me included, would rather pay an extra 3.5% than fiddle with deciding on which card to use. Which is to say: the market has spoken. We've settled on the duopoly not because it's a trap but because it actually maximizes utility. The uniform convenience of "credit cards just work" has quantifiable economic value. And it turns out to be somewhere around 2-5% of the transaction.

crazygringo 6y ago

That is common. My grocery store, my bodega, my doctor's office, my dentist -- they all offer a 5% discount for paying in cash. Obviously not everyone does it, but it's certainly not uncommon. On the other hand, there are also a lot of costs associated with handling cash. The expense of tracking bills and coins and going to the bank every day is not insignificant. So it's pretty easy to argue that there's no reason for cash discounts either, because handling cash can actually be more expensive than handling cards, particularly when you're doing it for only 5 or 10 percent of customers.

koheripbal 6y ago
That's a little different. They offer discounts of 5% because they then don't report the income and don't pay taxes. The CC companies are only taking 2.5%-3.2%. If they're offering a 5% discount for cash - it's almost certainly tax evasion.
- crazygringo 6y ago
  You're forgetting the percentages are on top of a ~$0.30 flat fee (though obviously this varies). So if you buy a $2 Coke, it's not a $0.054 fee (2.7%), it's $0.354 (or a whopping 17.7%). Maybe my dentist evades a few taxes, I dunno. But people buy cheap things at the bodega, so it probably is closer to the actual fees.
  - lotsofpulp 6y ago
    If the merchant doesn't offer the same cash discount for debit cards, then it's tax evasion. Debit card fees are a few cents, and the only reason to offer a big discount for cash, but not debit cards, is to not have the transaction on paper and hence evade taxes.
    - blacklion 6y ago
      How could I know are my card credit or debit from system's point of view? I have two cards in my bank, both are exactly same MC cards, embossed, and all (not some Maestro variation). One card is linked with my current account — I have real money at this account, my employer pays my salary by transfer to this account and such. I can not pay if thus account is depleted. Second card is linked with credit account, where I have some limit, and I need to pay off in 28 days after end of each month or I'll pay draconian interest. But cards are exactly the same, with very similar numbers. And I never had any problems with any if these cards, like one works and other doesn't. Is one of my cards debit and other is credit or they are credit both?
      - lotsofpulp 6y ago
        Based on your description, you have one debit card and one credit card. If it says debit on the front of the card, it is debit. I’ve never seen this work in person, but some people claim their debit card worked as a credit card and whatnot. Even if that is true, all merchant systems I’ve worked with allow the merchant/cardholder to select debit or restrict transactions to only debit.
        6y ago
- mmcconnell1618 6y ago
  Also, chargebacks are a cost to merchants. In many cases, merchants will have money clawed back until they prove that the charge was not fraudulent. This requires keeping copies of receipts, signatures, etc. So, the true cost is far higher than just the transaction processing fees. Remember, the credit card companies make the rules and decide who gets to keep the money in a dispute. The merchants have to decide if they will accept credit cards because customers demand it or if they will go with cash only and lose out on potential sales.

deadbunny 6y ago

So, Europe?

manquer 6y ago

There are payment standards like UPI in India and mobile number based banking , which offer transactions for very less or no cost ( mostly debit driven )

smart_jackal 6y ago
UPI is great and so is NEFT, many other Asian countries are in talks to replicate these successful models in their own countries. Also, India came up with RUPAY which is a great answer to VISA/MasterCard monopoly. But somehow it didn't catch up in usage I think.

briandear 6y ago

Businesses aren’t required to accept credit cards.

quacker 6y ago
But it obviously hinders their business if they don't, in the US at least. Even most food trucks typically have Square terminals (or similar) for card transactions. Which leads me to believe that it's generally worth it for businesses, despite the "fees".