4 ms·

Doesn't the money have to come from somewhere? I assume merchants need to pay fees to credit card companies, and in turn this results in higher product/service

Doesn't the money have to come from somewhere? I assume merchants need to pay fees to credit card companies, and in turn this results in higher product/service prices?

xeromal 5y ago
Indeed that's the truth but they charge that for every customer including cash customers except specific places like arco. So if everyone is getting charged, best get some benefit from it!
- jjoonathan 5y ago
  ...which is a state of affairs the CC companies have arranged through anticompetitive terms in merchant contracts. Cash never had a chance to compete. The moment people realize they could get effectively twice the rewards points by squeezing out the fat cut taken by the CC companies, they absolutely will. CC companies will fight tooth and nail to make sure the fees stay invisible and unavoidable via cash.
  - ImPostingOnHN 5y ago
    Totally -- if the government passes some law that says, for example, credit card companies can't give out 5% rewards, but only if the prices of goods drops 5%, I would be 100% in support of that. Until that happens, I'll take the 5% cash back, since it is preferable to 0% cash back while paying the same price.
kj4ips 5y ago
That's where most of it comes from in the US, interchange rates on credit cards are not regulated, so they're generally somewhere around 2%. Which, coincidentally, is the benchmark for "decent" credit card rewards. Some cards will offer rewards on certain kinds of purchases, often up to 5%, but offering only 1%, or nothing for other purposes. Since the average person only has a single credit card, the majority of cardholders produce more in interchange fees than they collect in rewards. There's also some complicated accounting voodoo that I don't truly understand, that effectively means that banks can treat extended credit as a pseudo asset, plus, whenever alone is outstanding, it's value is added to the virtual money supply. It is possible for an individual customer to get significantly more in rewards than interchange, but as this is a relatively small portion of customers, most issuers do not seem to care.
gnopgnip 5y ago
Technically no, no one has to explicitly lose money or pay for these rewards. The economy is not a zero sum game. There are direct costs with handling cash for merchants, for smaller businesses these are often higher than credit card interchangge/merchant fees. There are also indirect costs like lower sales and consumers losing cash due to theft.

Doesn't the money have to come from somewhere? I assume merchants need to pay fees to credit card companies, and in turn this results in higher product/service prices?

xeromal 5y ago

Indeed that's the truth but they charge that for every customer including cash customers except specific places like arco. So if everyone is getting charged, best get some benefit from it!

jjoonathan 5y ago
...which is a state of affairs the CC companies have arranged through anticompetitive terms in merchant contracts. Cash never had a chance to compete. The moment people realize they could get effectively twice the rewards points by squeezing out the fat cut taken by the CC companies, they absolutely will. CC companies will fight tooth and nail to make sure the fees stay invisible and unavoidable via cash.
- ImPostingOnHN 5y ago
  Totally -- if the government passes some law that says, for example, credit card companies can't give out 5% rewards, but only if the prices of goods drops 5%, I would be 100% in support of that. Until that happens, I'll take the 5% cash back, since it is preferable to 0% cash back while paying the same price.

kj4ips 5y ago

That's where most of it comes from in the US, interchange rates on credit cards are not regulated, so they're generally somewhere around 2%. Which, coincidentally, is the benchmark for "decent" credit card rewards. Some cards will offer rewards on certain kinds of purchases, often up to 5%, but offering only 1%, or nothing for other purposes. Since the average person only has a single credit card, the majority of cardholders produce more in interchange fees than they collect in rewards. There's also some complicated accounting voodoo that I don't truly understand, that effectively means that banks can treat extended credit as a pseudo asset, plus, whenever alone is outstanding, it's value is added to the virtual money supply. It is possible for an individual customer to get significantly more in rewards than interchange, but as this is a relatively small portion of customers, most issuers do not seem to care.

gnopgnip 5y ago

Technically no, no one has to explicitly lose money or pay for these rewards. The economy is not a zero sum game. There are direct costs with handling cash for merchants, for smaller businesses these are often higher than credit card interchangge/merchant fees. There are also indirect costs like lower sales and consumers losing cash due to theft.