4 ms·

A lot of credit card companies offer cash back or redeemable points towards other purchases like for travel. If credit cards are used effectively (you pay back

by relyks 3y ago

A lot of credit card companies offer cash back or redeemable points towards other purchases like for travel. If credit cards are used effectively (you pay back every statement balance) and the merchant isn't significantly raising the price of goods or services for transaction costs, you can make a serious amount of money back, easily in the amount of thousands of dollars per year from normal everyday use. Edit: When I was referring to "transaction costs," I was referring to merchant fees

nevir 3y ago
But those thousands of dollars are effectively subsidized by every one making a credit card purchase (e.g. merchant fees) - and not everyone being able/savvy enough to utilize them well Consider how much cheaper things might be across the board with lower fees
eru 3y ago
That money still comes from your spending with the merchant, so ultimately out of your own pocket. But you are right, that the system is not very transparent, and merchants probably seldom give people the full discount of the costs saved when they use non-credit card payments.
- relyks 3y ago
  Most sadly don't give a discount for not using a credit card. I've only seen my local bagel place do that. Other places say they will charge a credit card transaction fee even if you use a debit card (which still has costs for the merchant but not as much as credit cards)
  - eru 3y ago
    Agreed. You can indirectly see some of this happening though: lots of places with lower margins (ie cheaper prices) won't accept American Express, but might accepts Visa and Mastercard. That's exactly because of the difference in fees. If you go shop at merchant A that accepts American Express, you pay a higher price no matter how you pay. But if you have a non-American Express means of payment, you can shop at merchant B, which has lower prices overall (no matter how you pay). The economic effect is similar to directly passing on the fees transparently.
adev_ 3y ago
Money does not grow on trees. From my understanding this cashback systems come from two sources: (1) Money taken on processing fees on Merchants themselves. (2) Money taken from the interests of debt from the people screwed by this entire system. The first one is just an hidden tax and garbage profits made possible only due to the monopolistic behaviour of credit card companies. The second one is just plain simply immoral.
- eru 3y ago
  I agree on your analysis of the sources. > The first one is just an hidden tax and garbage profits made possible only due to the monopolistic behaviour of credit card companies. I'm not sure any supposed monopoly is necessary here to explain anything. In fact, there's no monopoly and different competing issuers have different levels of fees and 'rewards'. Eg American Express explicitly has high fees and high rewards, and competes against Visa and Mastercard (and against domestic systems in eg Germany or Japan). A monopoly (or oligopoly or cartel) argument could perhaps explain why the smallest fees you can find are still 'high' by some arbitrary standard, but it couldn't explain why American Express is a viable competitor. See https://upgradedpoints.com/credit-cards/us-credit-card-market-share-by-network-issuer/ https://upgradedpoints.com/credit-cards/us-credit-card-marke... for market shares of the different payment networks in the US.
pavlov 3y ago
There’s nothing productive in the system creating that output. It’s just money redistributed from fees paid by the merchants and other customers. It’s a bit like a casino: somebody can get lucky and get out more money than they’re paying, but most don’t. And the house (Visa/MC/Amex) always wins.
- anovikov 3y ago
  Moreover, it's an inequality engine. Get money from those who can't pay their bills (poor - they are punished bad back-breaking late fees and penalties) to those who can (middle class and the rich who usually pay their cards off in full every month so never pay any interest, and get cashbacks and bonuses/airline miles/etc).
  - pavlov 3y ago
    A lot of the American consumer finance infrastructure seems to be set up like a regressive tax on poor people who can’t avoid using the system. If you don’t have money, banks will charge you $15 / month for a basic checking account, plus $50 overdraft fees if you make the slightest mistake in balancing the account (or if a company makes a fraudulent charge on your account — also dismayingly easy in the US system). If you have any reasonable income they start waiving the fees, and beyond that they’ll shower you with offers for credit card rewards and other benefits effectively paid from the massive windfall the banks and other companies collect from the poor. The market isn’t solving this, so there should be more regulation and very tight caps on these various fees. A bank account shouldn’t cost more than $2 / month. An overdraft shouldn’t be possible unless you opt in to a loan facility.
    - anovikov 3y ago
      Why is the market like this? It's naturally harder to make money off poor people because they have less money. It's also not how retail banking works in Europe, they tend to make money off the rich here in ridiculous ways ("keep $400,000 frozen on your deposit for an almost zero interest rate and get a few useless perks like a red-carpet priority lane at the airport"). And i don't think it's regulation. Maybe European poor and American poor are different (can't do the math, don't care, have planning horizon too short)?

by relyks 3y ago

nevir 3y ago

But those thousands of dollars are effectively subsidized by every one making a credit card purchase (e.g. merchant fees) - and not everyone being able/savvy enough to utilize them well Consider how much cheaper things might be across the board with lower fees

eru 3y ago

That money still comes from your spending with the merchant, so ultimately out of your own pocket. But you are right, that the system is not very transparent, and merchants probably seldom give people the full discount of the costs saved when they use non-credit card payments.

relyks 3y ago
Most sadly don't give a discount for not using a credit card. I've only seen my local bagel place do that. Other places say they will charge a credit card transaction fee even if you use a debit card (which still has costs for the merchant but not as much as credit cards)
- eru 3y ago
  Agreed. You can indirectly see some of this happening though: lots of places with lower margins (ie cheaper prices) won't accept American Express, but might accepts Visa and Mastercard. That's exactly because of the difference in fees. If you go shop at merchant A that accepts American Express, you pay a higher price no matter how you pay. But if you have a non-American Express means of payment, you can shop at merchant B, which has lower prices overall (no matter how you pay). The economic effect is similar to directly passing on the fees transparently.

adev_ 3y ago

Money does not grow on trees. From my understanding this cashback systems come from two sources: (1) Money taken on processing fees on Merchants themselves. (2) Money taken from the interests of debt from the people screwed by this entire system. The first one is just an hidden tax and garbage profits made possible only due to the monopolistic behaviour of credit card companies. The second one is just plain simply immoral.

eru 3y ago
I agree on your analysis of the sources. > The first one is just an hidden tax and garbage profits made possible only due to the monopolistic behaviour of credit card companies. I'm not sure any supposed monopoly is necessary here to explain anything. In fact, there's no monopoly and different competing issuers have different levels of fees and 'rewards'. Eg American Express explicitly has high fees and high rewards, and competes against Visa and Mastercard (and against domestic systems in eg Germany or Japan). A monopoly (or oligopoly or cartel) argument could perhaps explain why the smallest fees you can find are still 'high' by some arbitrary standard, but it couldn't explain why American Express is a viable competitor. See https://upgradedpoints.com/credit-cards/us-credit-card-market-share-by-network-issuer/ https://upgradedpoints.com/credit-cards/us-credit-card-marke... for market shares of the different payment networks in the US.

pavlov 3y ago

There’s nothing productive in the system creating that output. It’s just money redistributed from fees paid by the merchants and other customers. It’s a bit like a casino: somebody can get lucky and get out more money than they’re paying, but most don’t. And the house (Visa/MC/Amex) always wins.

anovikov 3y ago
Moreover, it's an inequality engine. Get money from those who can't pay their bills (poor - they are punished bad back-breaking late fees and penalties) to those who can (middle class and the rich who usually pay their cards off in full every month so never pay any interest, and get cashbacks and bonuses/airline miles/etc).
- pavlov 3y ago
  A lot of the American consumer finance infrastructure seems to be set up like a regressive tax on poor people who can’t avoid using the system. If you don’t have money, banks will charge you $15 / month for a basic checking account, plus $50 overdraft fees if you make the slightest mistake in balancing the account (or if a company makes a fraudulent charge on your account — also dismayingly easy in the US system). If you have any reasonable income they start waiving the fees, and beyond that they’ll shower you with offers for credit card rewards and other benefits effectively paid from the massive windfall the banks and other companies collect from the poor. The market isn’t solving this, so there should be more regulation and very tight caps on these various fees. A bank account shouldn’t cost more than $2 / month. An overdraft shouldn’t be possible unless you opt in to a loan facility.
  - anovikov 3y ago
    Why is the market like this? It's naturally harder to make money off poor people because they have less money. It's also not how retail banking works in Europe, they tend to make money off the rich here in ridiculous ways ("keep $400,000 frozen on your deposit for an almost zero interest rate and get a few useless perks like a red-carpet priority lane at the airport"). And i don't think it's regulation. Maybe European poor and American poor are different (can't do the math, don't care, have planning horizon too short)?