4 ms·

There are a number of credit card issuers in the US offering 1.5% cash back. Suppose you charge $1000 each month at the rate of about $33 per day, and also pay

There are a number of credit card issuers in the US offering 1.5% cash back. Suppose you charge $1000 each month at the rate of about $33 per day, and also pay it off when the bill is due. In a year, you've gotten 1.5% of $12,000 back which is $180, but you could also look at it as though they are paying you 36% per year to use (on average) $500 of their money. The latter interpretation makes it seem irresistible to me.

Jensson 5y ago
And you pay 3% on every transaction to get 1.5% back. Seems like a pretty bad deal. Or do you really think businesses just gives you 3% for free on every purchase rather than raising prices on everything to make up for that 3% loss? A raw 3% of revenue is huge, there is no way businesses can take that without raising prices as consumer sales is pretty efficient and has small margins already. So they raise prices for everyone or they raise prices for people paying for cards, but either way you are paying more than you get back for that 1.5%.
- rsj_hn 5y ago
  > A raw 3% of revenue is huge The business doesn't lose 3 percent of revenue, because it also saves money not dealing with cash: - eliminates cash theft - always a chronic problem for business. - reduces costs of transporting/dealing with cash - improves bookkeeping and paper work and it gains revenue by dealing with people who don't use cash. A large number of customers don't make routine purchases with cash, and these are higher income customers. So the choice isn't "pay 3% on X or don't pay 3% of X" The choice is "pay 3% on X" or "don't pay 3% on .9X".
  - Jensson 5y ago
    > The business doesn't lose 3 percent of revenue, because it also saves money not dealing with cash: Debit cards circumvents the need for cash as well and are much cheaper. Everyone uses debit cards where I live, cash is very rare so companies doesn't need to deal with it much. So the difference is really just a straight 3% vs 0.15% with no other consequences.
    - rsj_hn 5y ago
      That's an interesting point. I'm not aware of any POS payment processor used by business that accepts debit cards but not credit cards. Not sure why that is.
      - Jensson 5y ago
        I think it is mostly that it confuses buyers and that confusion costs more than credit cards costs. You'd need regulations to get around this.
    - perl4ever 5y ago
      I think 3% is an exaggeration. And in fact, you can get 2% cash back. I don't think there's very much being charged when all is said and done. This seems to show the fees can be considerably less than 3%, although PayPal or Square will charge nearly that: https://www.fool.com/the-ascent/research/average-credit-card-processing-fees-costs-america/ https://www.fool.com/the-ascent/research/average-credit-card... https://www.mastercard.us/en-us/business/overview/support/merchant-interchange-rates.html https://www.mastercard.us/en-us/business/overview/support/me...
- ghaff 5y ago
  I’m not personally—and I may or may not pay cash if someone charges extra for credit. (But handling cash isn’t free.) Yes, someone is paying for my 2% cash back card but it’s still a net benefit to me.
  - perl4ever 5y ago
    People misinterpret this as some sort of tragedy of the commons, but I think that's begging the question. We (anyone/anywhere) could pass a law that said no more fees, and the credit card companies could instantly raise interest rates and end grace periods to compensate exactly. And then instead of cash back, they would have cards with much lower rates. I don't see that anybody would be better or worse off, to first order. The difference is framing, and psychological response. People look at stuff totally differently when it's divided into different buckets.
    - ghaff 5y ago
      Not sure I understand that. I don’t really care about the interest rates under the current regime but of course I would care about lack of grace periods, cash back, and other card benefits.
    - Dylan16807 5y ago
      > the credit card companies could instantly raise interest rates and end grace periods to compensate exactly I don't think you can simplify it that much. If you end grace periods, the people that currently don't pay interest will suddenly be charged huge amounts. If you drastically lower the interest rates to make their costs match the old model, then other people that pay the card off slower will suddenly be paying much less than before. It's easy enough to ban fees charged to the business, and force them to be charged to the customer, to make pricing more transparent and remove the silliness around rewards. But trying to replace fees with interest rates doesn't work, unless you set up some crazy nonlinear '''interest rate''' calculation.
      - ghaff 5y ago
        Yes. Grace periods are basically the only way credit cards work for business users among others. Four and five figure balances—paid off on time at the end of the month—are how a lot of people routinely use credit cards.
- perl4ever 5y ago
  You're looking at it the wrong way. It's just a shell game to get around truth-in-lending laws. Using a credit card is borrowing money. Interest rates have to be disclosed. So the fees plus the grace period are a way of making it look like typical card users are not paying a lot of interest. People getting cash back are actually paying low interest rates, because the market dictates it. If the fees were prohibited, then not much of substance would change, except the numbers would all be higher.
  - Jensson 5y ago
    Well, I live in Europe, use debit and the transaction costs are 0.15% with no hidden fees anywhere in the system. And that is the norm, I don't know of anyone who uses credit cards here. (Although we call debit cards issued by Visa or Mastercard credit cards since Americans call those brands of cards credit cards, but people who use them don't have any credit, your account gets deducted instantly and you can't buy if there is no money left). I'm not sure why Americans say that credit cards with 3% fees would be better than this system, and make fun of Europeans for not wanting to use credit cards. To me it just feels like US finance industry tricked everyone into choosing the more expensive product since they hid the costs of it from the person making the choice. But when people has to pay the real costs of credit cards then basically nobody wants one.
    - ilammy 5y ago
      > But when people has to pay the real costs of credit cards then basically nobody wants one. I believe there is an opportunity cost for not using a credit card in US: you don't build your credit history. This might leave you disadvantaged in the future because... the finance industry (as an extension, the society) is structured in a way that you must have a good credit history.
      - perl4ever 5y ago
        I interpret your tone as suggesting the justification is circular and arbitrary, that finance doesn't serve a human need.
- emodendroket 5y ago
  Except for a handful of businesses like cash stations, almost nobody raises prices for credit card users in the US (in fact I think their merchant agreements forbid this). So if I use cash I'm the sucker subsidizing everyone else's rewards points.

Jensson 5y ago

And you pay 3% on every transaction to get 1.5% back. Seems like a pretty bad deal. Or do you really think businesses just gives you 3% for free on every purchase rather than raising prices on everything to make up for that 3% loss? A raw 3% of revenue is huge, there is no way businesses can take that without raising prices as consumer sales is pretty efficient and has small margins already. So they raise prices for everyone or they raise prices for people paying for cards, but either way you are paying more than you get back for that 1.5%.

rsj_hn 5y ago
> A raw 3% of revenue is huge The business doesn't lose 3 percent of revenue, because it also saves money not dealing with cash: - eliminates cash theft - always a chronic problem for business. - reduces costs of transporting/dealing with cash - improves bookkeeping and paper work and it gains revenue by dealing with people who don't use cash. A large number of customers don't make routine purchases with cash, and these are higher income customers. So the choice isn't "pay 3% on X or don't pay 3% of X" The choice is "pay 3% on X" or "don't pay 3% on .9X".
- Jensson 5y ago
  > The business doesn't lose 3 percent of revenue, because it also saves money not dealing with cash: Debit cards circumvents the need for cash as well and are much cheaper. Everyone uses debit cards where I live, cash is very rare so companies doesn't need to deal with it much. So the difference is really just a straight 3% vs 0.15% with no other consequences.
  - rsj_hn 5y ago
    That's an interesting point. I'm not aware of any POS payment processor used by business that accepts debit cards but not credit cards. Not sure why that is.
    - Jensson 5y ago
      I think it is mostly that it confuses buyers and that confusion costs more than credit cards costs. You'd need regulations to get around this.
  - perl4ever 5y ago
    I think 3% is an exaggeration. And in fact, you can get 2% cash back. I don't think there's very much being charged when all is said and done. This seems to show the fees can be considerably less than 3%, although PayPal or Square will charge nearly that: https://www.fool.com/the-ascent/research/average-credit-card-processing-fees-costs-america/ https://www.fool.com/the-ascent/research/average-credit-card... https://www.mastercard.us/en-us/business/overview/support/merchant-interchange-rates.html https://www.mastercard.us/en-us/business/overview/support/me...
ghaff 5y ago
I’m not personally—and I may or may not pay cash if someone charges extra for credit. (But handling cash isn’t free.) Yes, someone is paying for my 2% cash back card but it’s still a net benefit to me.
- perl4ever 5y ago
  People misinterpret this as some sort of tragedy of the commons, but I think that's begging the question. We (anyone/anywhere) could pass a law that said no more fees, and the credit card companies could instantly raise interest rates and end grace periods to compensate exactly. And then instead of cash back, they would have cards with much lower rates. I don't see that anybody would be better or worse off, to first order. The difference is framing, and psychological response. People look at stuff totally differently when it's divided into different buckets.
  - ghaff 5y ago
    Not sure I understand that. I don’t really care about the interest rates under the current regime but of course I would care about lack of grace periods, cash back, and other card benefits.
  - Dylan16807 5y ago
    > the credit card companies could instantly raise interest rates and end grace periods to compensate exactly I don't think you can simplify it that much. If you end grace periods, the people that currently don't pay interest will suddenly be charged huge amounts. If you drastically lower the interest rates to make their costs match the old model, then other people that pay the card off slower will suddenly be paying much less than before. It's easy enough to ban fees charged to the business, and force them to be charged to the customer, to make pricing more transparent and remove the silliness around rewards. But trying to replace fees with interest rates doesn't work, unless you set up some crazy nonlinear '''interest rate''' calculation.
    - ghaff 5y ago
      Yes. Grace periods are basically the only way credit cards work for business users among others. Four and five figure balances—paid off on time at the end of the month—are how a lot of people routinely use credit cards.
perl4ever 5y ago
You're looking at it the wrong way. It's just a shell game to get around truth-in-lending laws. Using a credit card is borrowing money. Interest rates have to be disclosed. So the fees plus the grace period are a way of making it look like typical card users are not paying a lot of interest. People getting cash back are actually paying low interest rates, because the market dictates it. If the fees were prohibited, then not much of substance would change, except the numbers would all be higher.
- Jensson 5y ago
  Well, I live in Europe, use debit and the transaction costs are 0.15% with no hidden fees anywhere in the system. And that is the norm, I don't know of anyone who uses credit cards here. (Although we call debit cards issued by Visa or Mastercard credit cards since Americans call those brands of cards credit cards, but people who use them don't have any credit, your account gets deducted instantly and you can't buy if there is no money left). I'm not sure why Americans say that credit cards with 3% fees would be better than this system, and make fun of Europeans for not wanting to use credit cards. To me it just feels like US finance industry tricked everyone into choosing the more expensive product since they hid the costs of it from the person making the choice. But when people has to pay the real costs of credit cards then basically nobody wants one.
  - ilammy 5y ago
    > But when people has to pay the real costs of credit cards then basically nobody wants one. I believe there is an opportunity cost for not using a credit card in US: you don't build your credit history. This might leave you disadvantaged in the future because... the finance industry (as an extension, the society) is structured in a way that you must have a good credit history.
    - perl4ever 5y ago
      I interpret your tone as suggesting the justification is circular and arbitrary, that finance doesn't serve a human need.
emodendroket 5y ago
Except for a handful of businesses like cash stations, almost nobody raises prices for credit card users in the US (in fact I think their merchant agreements forbid this). So if I use cash I'm the sucker subsidizing everyone else's rewards points.