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The concept of a credit card is an anachronism that filled a local maximum and is only kept there because those who have the power to change things benefit from

The concept of a credit card is an anachronism that filled a local maximum and is only kept there because those who have the power to change things benefit from the status-quo. Back in the early days of payment cards, settlement took days or weeks and checking whether the customer had enough balance in real-time wasn't possible. The technology to make a debit card just wasn't there, so it makes sense that payment cards started as being credit. In this day and age, there is no functional difference between a debit or a credit card - both are processed online in the vast majority of cases, and even debit cards will typically allow offline transactions up to a certain amount if the terminal can't check the balance online. Banks now issue both and your current account and credit card account can very well be rows in the same table of the same DB if you obtained both from the same bank. There are regulatory differences (in regards to fraud protection for example) but those are just because the law didn't catch up (or doesn't want to catch up - see last paragraph) rather than a technical difference. Nowadays there is no reason why credit should be tied to a specific card & account with very rigid rules regarding repayment schedules and fees. If you want to lend, just put the money into the customer's current account and let them use that amount with their debit card. Even better, we already have real-world implementations of this - most accounts offer an arranged overdraft which allows the balance to go negative and automatically repays itself as soon as you deposit money in. Some banks will even "helpfully" authorize transactions despite the lack of an arranged overdraft, just to immediately slap you with an unarranged overdraft fee. Clearly the technology is there and has been proven. The reason credit cards persist is because their rigid, often complex, and nonsensical - why should the same bank charge different fees or interest depending on whether it's a CC vs overdraft usage? - rules allow these banks to offer "free" money (in the forms of 0% interest or benefits) to those who know how to play the system to their advantage, subsidized by the poor and less financially-savvy who don't know or can't afford to play the system and end up getting played by said system instead, incurring late payment fees and/or interest.

jrsj 4y ago
The entire credit rating system is pretty dependent on credit cards too.
Mountain_Skies 4y ago
The main reason why I use a credit card and rarely use my checking account's debit card is that I see the credit card as being a firewall between the world of scammers and my bank account. If someone double charges my credit card or finds a way to engage in some other fraud on it, that's all encapsulated into that account until it is resolved. If they clean out my bank account, I might be able to get most of the money back, but that's going to take time. Meanwhile I have to find a new way of handling cash flows by moving funds out of more long term accounts.
- Animats 4y ago
  > I see the credit card as being a firewall between the world of scammers and my bank account. Yes. In the US, laws favor the credit card holder in scam situations. Most of fintech runs on "screw the customer, we have an EULA!"
  - Nextgrid 4y ago
    > Most of fintech runs on "screw the customer, we have an EULA!" Thankfully, finance is an area where in most countries the law is actually still enforced and will trump whatever EULAs or ToS you may have.
    - Godel_unicode 4y ago
      I’m sure that’s a great comfort to everyone who got wiped out by the UST crash. When are they being made whole, again?
      - Animats 4y ago
        It's not just crypto. It's PayPal freezing accounts for 6 months, or people having their accounts drained via Venmo.
  - htrp 4y ago
    > Most of fintech runs on "screw the customer, we have an EULA!" Most of fintech runs on "screw the customer!" FTFY
robocat 4y ago
> there is no functional difference between a debit or a credit card There is one huge difference: credit cards the bank or vendor takes the risk/liability of fraud and chargebacks. Debit cards mostly I take the risk/liability (fraud, bad vendor/product). And a minor difference: credit cards have better integration for selling data about your purchasing patterns. Two of my banks have replaced VISA with Master Card recently: I presume because Master Card is monetising my data stream more effectively (so can afford to give banks slightly better profits).
- Nextgrid 4y ago
  The only time that matters is when a card-network-level dispute fails. The vast majority of fraud gets resolved at the card network level and would be the same on a debit card. The only time credit-card-specific regulations come into play is when a card network dispute fails - in this case with debit cards you're SOL, with credit cards the law forces the lender to eat the cost. But again, my point isn't that there currently aren't any advantages to credit card, but rather that those advantages are purely artificial - there's no reason they can't apply to debit cards as well if there wasn't an interest to preserve the status-quo.
pdonis 4y ago
> The concept of a credit card is an anachronism No, it isn't. Having a financial intermediary between you and entities you buy things from is a genuine benefit to you as a consumer: it means you don't have to give everyone you buy things from direct access to your bank account, as a debit card does. It also means that if your credit card info is stolen, you have a third party that deals with the issues involved instead of you, and you don't have your bank account funds tied up while the issue is being resolved, as you would with a debit card. Of course, in a sane world this genuine service would be sold as what it is--financial intermediation--and the market price of this service would be determined in a free market. It's quite true that we don't live in that sane world, but that doesn't mean financial intermediation isn't a genuine service that is worth having even in the insane world we actually live in. > In this day and age, there is no functional difference between a debit or a credit card Yes, there is, there is a huge functional difference. See above. Ask anyone who has had their debit card info stolen and had funds fraudulently taken direct from their bank account.
- Nextgrid 4y ago
  > it means you don't have to give everyone you buy things from direct access to your bank account, as a debit card does I disagree that this means "giving someone else access to all your money". First off, you're authorizing a single transaction, and second, your bank is still the one mediating the transaction - if you experience fraud, what's actually happening is that your bank is the one who got defrauded by someone pretending to be you (by stealing your card/PIN/etc) and fraudulently convinced the bank to give them your money. I disagree that a debit card doesn't involve financial intermediation. The bank is still the intermediary and holds the money, just that the hold duration is seconds instead of a month (well technically settlement or presentment happens a few days after authorization, but that's all transparent to the cardholder). There's no technical difference, the difference is purely regulatory and there's no reason the regulations can't be amended to give debit card holders the same protections as credit card holders. > Ask anyone who has had their debit card info stolen and had funds fraudulently taken direct from their bank account. I don't know about you but all instances of fraud I had on my debit cards have been resolved painlessly. Most fraud gets resolved by card network disputes which don't care about the card type. The only time credit cards get preferential treatment is when card network disputes fail and the law forces lenders (but not debit card issuers) to eat the fraudulent transaction anyway, but those instances are relatively rare.
gamblor956 4y ago
Debit cards and credit cards are very different things, functionally, legally, and practically, though they can be implemented similarly on a technical level. Debit card transactions, legally and financially, withdraw money from the associated bank account at the time of the transaction. The only limit on the amount that can be debited is the amount of money in the associated bank account. If there is insufficient money, the transaction fails. The debit card user is at risk for losses due to fraud or payment disputes. Basically, a debit card is the same as cash but in a convenient thin plastic card form. A credit card transaction, legally and financially, withdraws money from the issuing bank, who then adds that amount to a debt ledger of money owed by the card user to the bank. The transaction only fails if the transaction would exceed an arbitrary credit limit as determined by the bank. The credit card user pays back the debt at the end of the month, or over time, based on the terms of the credit card agreement. The issuing bank is at risk for losses due to fraud or payment disputes. Basically, a credit card is the same as a short-term instantaneous loan agreement, but in the form of a single convenient thing plastic card instead of a dozen or more paper loan agreements.
- Nextgrid 4y ago
  What you mention are all policy/regulatory differences, which can be made to apply to debit cards if there's will to do so. My point is that the credit card concept now survives because there's no will to kill it off since it's a convenient way to siphon money from the pool/less-financially-savvy to the well off.
  - gamblor956 4y ago
    No, you're still not getting it. They aren't simply policy/regulatory differences. They are fundamental differences in what debit cards and credit cards are. One is a cash equivalent and one is a loan equivalent, and no amount of handwaving are going to make those the same thing. My point is that the credit card concept now survives because there's no will to kill it off since it's a convenient way to siphon money from the pool/less-financially-savvy to the well off. This is simply false and indicates a lack of understanding in what loans are or how credit cards work. Credit cards survive just fine in Europe without the points and other benefits.
lmm 4y ago
Someone has to take the risk. A credit card makes it visible what's happening; a current account offering an automatic overdraft is an ad-hoc, informally-specified implementation of half a credit card. I know which I prefer.

jrsj 4y ago

The entire credit rating system is pretty dependent on credit cards too.

Mountain_Skies 4y ago

The main reason why I use a credit card and rarely use my checking account's debit card is that I see the credit card as being a firewall between the world of scammers and my bank account. If someone double charges my credit card or finds a way to engage in some other fraud on it, that's all encapsulated into that account until it is resolved. If they clean out my bank account, I might be able to get most of the money back, but that's going to take time. Meanwhile I have to find a new way of handling cash flows by moving funds out of more long term accounts.

Animats 4y ago
> I see the credit card as being a firewall between the world of scammers and my bank account. Yes. In the US, laws favor the credit card holder in scam situations. Most of fintech runs on "screw the customer, we have an EULA!"
- Nextgrid 4y ago
  > Most of fintech runs on "screw the customer, we have an EULA!" Thankfully, finance is an area where in most countries the law is actually still enforced and will trump whatever EULAs or ToS you may have.
  - Godel_unicode 4y ago
    I’m sure that’s a great comfort to everyone who got wiped out by the UST crash. When are they being made whole, again?
    - Animats 4y ago
      It's not just crypto. It's PayPal freezing accounts for 6 months, or people having their accounts drained via Venmo.
- htrp 4y ago
  > Most of fintech runs on "screw the customer, we have an EULA!" Most of fintech runs on "screw the customer!" FTFY

robocat 4y ago

> there is no functional difference between a debit or a credit card There is one huge difference: credit cards the bank or vendor takes the risk/liability of fraud and chargebacks. Debit cards mostly I take the risk/liability (fraud, bad vendor/product). And a minor difference: credit cards have better integration for selling data about your purchasing patterns. Two of my banks have replaced VISA with Master Card recently: I presume because Master Card is monetising my data stream more effectively (so can afford to give banks slightly better profits).

Nextgrid 4y ago
The only time that matters is when a card-network-level dispute fails. The vast majority of fraud gets resolved at the card network level and would be the same on a debit card. The only time credit-card-specific regulations come into play is when a card network dispute fails - in this case with debit cards you're SOL, with credit cards the law forces the lender to eat the cost. But again, my point isn't that there currently aren't any advantages to credit card, but rather that those advantages are purely artificial - there's no reason they can't apply to debit cards as well if there wasn't an interest to preserve the status-quo.

pdonis 4y ago

> The concept of a credit card is an anachronism No, it isn't. Having a financial intermediary between you and entities you buy things from is a genuine benefit to you as a consumer: it means you don't have to give everyone you buy things from direct access to your bank account, as a debit card does. It also means that if your credit card info is stolen, you have a third party that deals with the issues involved instead of you, and you don't have your bank account funds tied up while the issue is being resolved, as you would with a debit card. Of course, in a sane world this genuine service would be sold as what it is--financial intermediation--and the market price of this service would be determined in a free market. It's quite true that we don't live in that sane world, but that doesn't mean financial intermediation isn't a genuine service that is worth having even in the insane world we actually live in. > In this day and age, there is no functional difference between a debit or a credit card Yes, there is, there is a huge functional difference. See above. Ask anyone who has had their debit card info stolen and had funds fraudulently taken direct from their bank account.

Nextgrid 4y ago
> it means you don't have to give everyone you buy things from direct access to your bank account, as a debit card does I disagree that this means "giving someone else access to all your money". First off, you're authorizing a single transaction, and second, your bank is still the one mediating the transaction - if you experience fraud, what's actually happening is that your bank is the one who got defrauded by someone pretending to be you (by stealing your card/PIN/etc) and fraudulently convinced the bank to give them your money. I disagree that a debit card doesn't involve financial intermediation. The bank is still the intermediary and holds the money, just that the hold duration is seconds instead of a month (well technically settlement or presentment happens a few days after authorization, but that's all transparent to the cardholder). There's no technical difference, the difference is purely regulatory and there's no reason the regulations can't be amended to give debit card holders the same protections as credit card holders. > Ask anyone who has had their debit card info stolen and had funds fraudulently taken direct from their bank account. I don't know about you but all instances of fraud I had on my debit cards have been resolved painlessly. Most fraud gets resolved by card network disputes which don't care about the card type. The only time credit cards get preferential treatment is when card network disputes fail and the law forces lenders (but not debit card issuers) to eat the fraudulent transaction anyway, but those instances are relatively rare.

gamblor956 4y ago

Debit cards and credit cards are very different things, functionally, legally, and practically, though they can be implemented similarly on a technical level. Debit card transactions, legally and financially, withdraw money from the associated bank account at the time of the transaction. The only limit on the amount that can be debited is the amount of money in the associated bank account. If there is insufficient money, the transaction fails. The debit card user is at risk for losses due to fraud or payment disputes. Basically, a debit card is the same as cash but in a convenient thin plastic card form. A credit card transaction, legally and financially, withdraws money from the issuing bank, who then adds that amount to a debt ledger of money owed by the card user to the bank. The transaction only fails if the transaction would exceed an arbitrary credit limit as determined by the bank. The credit card user pays back the debt at the end of the month, or over time, based on the terms of the credit card agreement. The issuing bank is at risk for losses due to fraud or payment disputes. Basically, a credit card is the same as a short-term instantaneous loan agreement, but in the form of a single convenient thing plastic card instead of a dozen or more paper loan agreements.

Nextgrid 4y ago
What you mention are all policy/regulatory differences, which can be made to apply to debit cards if there's will to do so. My point is that the credit card concept now survives because there's no will to kill it off since it's a convenient way to siphon money from the pool/less-financially-savvy to the well off.
- gamblor956 4y ago
  No, you're still not getting it. They aren't simply policy/regulatory differences. They are fundamental differences in what debit cards and credit cards are. One is a cash equivalent and one is a loan equivalent, and no amount of handwaving are going to make those the same thing. My point is that the credit card concept now survives because there's no will to kill it off since it's a convenient way to siphon money from the pool/less-financially-savvy to the well off. This is simply false and indicates a lack of understanding in what loans are or how credit cards work. Credit cards survive just fine in Europe without the points and other benefits.

lmm 4y ago

Someone has to take the risk. A credit card makes it visible what's happening; a current account offering an automatic overdraft is an ad-hoc, informally-specified implementation of half a credit card. I know which I prefer.