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Anatomy of a credit card rewards program

• ktosobcy 3y ago
  CC Rewards programs are amusing to me (because of time effort spent on them). At any rate, I haven't seen those in Europe/EU for ages, probably because they slashed intercharge fees so they make much sense (the main reason was making card payment accepted everywhere without dumb sticker: "card payments only for shopping above x [currency]"
• dghughes 3y ago
  An "advisor" (not a regulated adviser with an e) at my bank here in Canada asked me how often I travelled because a rewards VISA card pays blah blah. I said I don't travel. She literally froze for five seconds it looked like her head was going to implode. After that my bank practically abandoned me. There was a recent story here how all banks in Canada push services to the point of daily meetings and managers tell staff to aggressively push products. Even ignoring federal banking rules obligating bank employees to tell customers to pay off debt first before investing.
• amaccuish 3y ago
  I love this guy but some of his sentences, as a native speaker, are phenomenally difficult to parse; or is this just me?
  • kazz 3y ago
    nope, i love patio11 too and i feel the exact same way
• uconnectlol 3y ago
  [flagged]
• isodev 3y ago
  The AI generated cover image was kind of distracting to be honest. If having a full-screen image to go with the post was so important, one would have contracted a designer or just purchased something cool. The post was informative though.
  • madeofpalk 3y ago
    in 2013 we had generic unsplash bokeh-rich images for blog posts. Now, we have generic AI generated images. There's not that much different. I agree - in both cases they're fairly distracting.
    • ghaff 3y ago
      The common wisdom among a number of publications I've written for is that you need some sort of graphic, even if generic, mostly for reasons of social media sharing (and, these days, because a lot of blog templates assume a post has an image). Those publications usually had a contract with some provider of public domain or CC-licensed fairly generic graphics.
  • Waterluvian 3y ago
    You don’t like the upgraded variety of kings or the brand new bishopknoght that can move in a W shape?
    • pcl 3y ago
      The bishopknight beast is my favorite for sure!
  • vinni2 3y ago
    I also wonder if in future search engines would rank pages containing AI generated images or content lower.
    • vouaobrasil 3y ago
      It would be great if they were not ranked at all and discarded.
    • add-sub-mul-div 3y ago
      The search engine companies are the ones shoving AI down our throats the hardest because they're the ones set up to profit most from it.
• nkurz 3y ago
  An interesting article, but it doesn't sufficiently emphasize the lede: When you use a reward card, the merchant is charged a higher fee than if you used a "normal" card. Simply by putting a different branding on the plastic you pay with, the credit card issuer gets more money from each transaction. The article goes on to ask the question "Why isn’t every card a rewards card?", meaning why doesn't every card pay cash back, but I think the more interesting question is why every card isn't branded in a way that makes the issuer more money. Why do they bother to issue cards where they get paid less? Why not brand every card as a "Signature Preferred" and then pocket the money instead of giving it to the less discerning customers? And the most interesting question only gets a handwave: "The basic intuition underlying rewards cards as a product is that highly desirable customers have options in how they spend their money." But how far does this go in explaining why merchants "choose" to participate in this program. The obvious answer would seem to be that they get no benefit from the system as it exists but have no real choice, but maybe there is a better answer? I liked the topic, but wished the author could have given more insight on what's happening behind the scenes to produce the outcome we see.
  • empath-nirvana 3y ago
    Rewards cards should be illegal and basically are privately levied tax on the poor and a subsidy to the wealthy.
    • op00to 3y ago
      Returning merchandise should be illegal and allowing returns is basically a privately levied tax on those who make good purchase decisions and a subsidy to the impulse buyer.
    • smallmancontrov 3y ago
      > privately levied tax on the poor and a subsidy to the wealthy That's 2/3s of capitalism. Hold enough MA and V -- directly or through just having enough net worth in an index -- and you'll start to see this as a feature, not a bug.
      • 3y ago
• twoodfin 3y ago
  Probably going against the grain here, but I think it’s great that at least a modest fraction of the benefits of highly risk-optimized revolving credit and low-friction electronic payments are feeding back to the consumer, vs. having all the value derived from that technology captured by the banks and merchants. In a world where these high-exchange-fee / high-reward cards were outlawed, merchants would pay less in aggregate in fees. But almost surely they’d lose out net from a drop in overall consumer spending. That affiliate programs inspire gamification for consumers to optimize their spending patterns to “win prizes” seems like a neat bit of competitive market pressure: It’s obviously a win for all involved or they wouldn’t be so popular.
  • gruez 3y ago
    >low-friction electronic payments are feeding back to the consumer, vs. having all the value derived from that technology captured by the banks and merchants. Are you talking about the cash back? Isn't that just a shell game? If the consumer is getting 2% cashback, but the merchant is charging consumers 2% more to pay for it as well, how is it "feeding back to the consumer"?
    • nordsieck 3y ago
      > Are you talking about the cash back? Isn't that just a shell game? If the consumer is getting 2% cashback, but the merchant is charging consumers 2% more to pay for it as well, how is it "feeding back to the consumer"? One of the issues is that the cash back rate is not evenly distributed across the buying population.
      • bombcar 3y ago
        The benefit for the customer is getting 2% back when prices are only 1.5% higher than they would be “otherwise” because of cash and debit payments. The disadvantage to the customer is increased spending because of how easy it is, which probably far outweighs the 2%.
        • 3y ago
• time0ut 3y ago
  Well written and pretty interesting. Somewhat obvious I suppose. I was hoping he would go into detail on how programs like Citi double cash work. In that program you get the normal 1% back at purchase and then 1% at payment. I assume the latter is subsidized from interest payments, but what about card holders that never pay interest? Are they subsidized by those that do?
  • toomuchtodo 3y ago
    Yes. Rewards are subsidized by anyone paying a fee for their card, and by everyone with higher prices. Reward programs incentive consumers to make that card “top of wallet” and prioritize spend on it, which is why the entire rewards system is afraid of interchange cram down and free instant payments in general. (Work at a fintech, I see the financials but those I cannot share)
    • deleted 3y ago
      [deleted]
  • mwexler 3y ago
    Yes and note that from a marketing pov, Citi looks like a "good player" by incentivising payback. But if everyone paid back in the grace period, the care would fail as transaction fees can't offset the costs of managing the process (payouts, fraud, chargebacks, limit management, etc). Interest and "nuisance" charges are the real money makers. So, you pick a balance of how much to return assuming that you get a mix of revolvers (borrowers) and transactors, and recognize that if you hit it right, some folks will skip the "best outcome" (for most) option of grace-period payback and faster rewards, due to choice or need (running low on cash, etc). And that's how you get the 1 and 1: folks love to spend, and Citi estimates that the 1 on payback sounds good but can be spread out as folks still pay the minimum to revolve, garnering interest and fees along the way. It's illegal in the US to reward for debt directly (you can't incentivize folks to revolve instead of paying in full), and this card is at least a step in the right direction of doing the opposite. But if they really incentivized best behavior for consumers, we'd see all the % rewards focused on payback (and none for spend), with a reduced reward for payback on revolving debt, to incentivize reducing avoidable debt where it makes sense. But that card would fail as a business for most banks and fin companies. While the early trans fees would be great, it would self-select responsible payback folks who never generate interest or nuisance fees. Such a card would need a massive annual fee or have to be tied to some other profit driving product, at least in most companies I've seen. But maybe somebody will figure a clever way to make it work.
• treyfitty 3y ago
  Pretty verbose article that can be summarized as “Credit cards charge merchants a fee, sometimes more when co-branded, to entice customers to use their credit card in favor over others.”
  • triceratops 3y ago
    Agreed. I read it hoping to learn something I didn't already know. He kept teasing us with the promise of some inside baseball but didn't really deliver.
• _benj 3y ago
  What a fascinating article. Probably an unsophisticated model but the way I approach my credit card rewards program is as a “forced savings” deal. I’m aware that they are subsidized, I’m also aware that I’ll pay the same thing if I were to pay with cash (at least in all the places I buy). Would we be better off by having capped swipe fees? Idk. Would merchants actually lower their prices instead of keeping the extra revenue that everybody is now used to pay? Idk either. I don’t trust in the goodness of the heart of merchants or credit cards issuers. But, would I have an unexpected 3 or even 4 figures “unexpected” rewards at the end of the year that I can only use for vacations? I don’t think so. I could possibly set up something with my bank, but I don’t need to think or plan rewards… they just happen.
• joshstrange 3y ago
  > gibbering madness If there is a better name for the table of rates (or the list of rates on a monthly CC transaction table for your business) I don’t know it. It’s absolute madness and near impossible to make sense of. Often I feel like they exist only to confuse the merchant into just throwing up their hands and saying “I mean, I guess it’s right”. It also means that almost none of them can tell you how much they’re paying for credit card transactions. All they know is the sales person said “I can get you the best rates” which may or may not be true, those people will lie to you and tell you anything that you want to hear, I know this from personal experience. These people are snakes and dealing with them makes my skin crawl. I’m aware that there’s a chance that I’m leaving money on the table, but this is one of the main reasons I use Stripe. I prefer predictability an inscrutable of data that may or may not show that I’m saving a little bit more. It’s also why I normally avoid credit cards that have rotating categories or this or like. I prefer a flat, easy to understand rate that I can compare to other cards instead of having to keep track of which card I’m using which month. Again, this means I’m leaving money on the table, but I do it for my own sanity.
• alberth 3y ago
  > In industry, we sometimes distinguish interchange—which mostly goes to the issuing bank—and scheme fees—which mostly go to the credit card brand itself—but as interchange is much larger, let’s just call them both interchange for simplicity. It’s frustrating to read an article that acknowledges (indirectly) that payment networks don’t earn revenue from interchange nor have anything to do with reward programs, but then goes on to say that for simplicity they will refer to it as if it did.
• dsco 3y ago
  I find it odd that a person who understands the madness of our current financial system so well, still is violently opposed of anything blockchain related.
  • resolutebat 3y ago
    Remind me again, what concrete, non-criminal financial problem does blockchain solve better than the alternatives?
    • loughnane 3y ago
      Not op, but I want to make private payments through the internet in the same way I can privately use cash in the real world. I’m not enamored with crypto per se, but as far as I know only crypto in general (and Monero in particular) are working on solving that problem.
      • criddell 3y ago
        The banks are also working on that problem through things like Venmo and Zelle. Tech companies like Apple and Google and PayPal have payment services too.
        • loughnane 3y ago
          But those aren’t private, right? There’s an entity in the middle that can see all the purchases I make.
          • criddell 3y ago
            If I use one of those to send you $500 right now, the entity in the middle can see that I sent you $500 but nothing more.
            • loughnane 3y ago
              That's too much for me. It adds up to that entity having a record of all my transactions, who they're with, and how much they are. Def not private like cash.
• wlindley 3y ago
  Bottom line: Pay cash if you want to support your local shops. Use credit cards if you love enriching your local megacorporation.
  • kasey_junk 3y ago
    This is mostly not true of the local shops near me. They’ve stopped taking cash because costs of cash are higher than cards.
    • jjice 3y ago
      My experience lines up with yours. I love paying with cash when I can, but even in my smaller city, so many places won't accept cash. My assumption is that handling cash is a cost they'd rather not deal with. For food, most places will accept cash here. Hell, even a bookstore near me won't accept cash anymore.
    • jowea 3y ago
      Debit cards?
      • cmurf 3y ago
        It seems some common vendors still charge their standard merchant fee even when the customer uses a debit card. I don’t know why this is permitted. It seems contrary to federal law.
        • bombcar 3y ago
          All debit cards can be run as credit (if they have a visa/mc logo on them at least) and many merchants/customers don’t know/don’t care.
      • ajdude 3y ago
        I used to love debit cards but one time a business overcharged me and that was money out of my actual bank account that I had to wait several business days to have back. I also saw that places like gas stations "pre pay" if I select debit, trying to hold $60-$100 from my bank account until the final transaction comes back. While this hasn't happened to me, I've read that if your debit card is compromised or if a charge back is required, you would have to fight your bank to get your money back and it's a bit easier with credit cards.
• wepple 3y ago
  I’ve read previously that folks who pay their card in full monthly are internally known as “deadbeats”, because there is no interest to be gained from them. This seems to run counter to that - there is revenue, perhaps less?
• quantumwoke 3y ago
  Good article, I wondered about the details of card rewards schemes as a kind of meta commentary on the financial system. Interesting to see that patio11 has left stripe now to work (seemingly) on this newsletter full time. I do miss the days when the articles were technical; there’s a deep software and writing skillset that we’ve lost to the financial system which isn’t nearly as fun.
• hnthrow289570 3y ago
  >Redditors are frequently sophisticated with their spreadsheets; many of them could clearly earn three orders of magnitude more from the financial industry if they stopped thinking that the right way to monetize spreadsheet skill was in gaming credit card signup bonuses. It's a pretty decent outlet for having something complicated to work on. Another would be EVE Online with the added bonus that it's also an actual game. My guess is most of those people are just trying to min-max what the companies allow them, rather than trying to find an exploit in the system that prints money per spreadsheet CPU cycle. I am suspicious that anyone can get a job in finance with only churning (or EVE) spreadsheet skills. I have rarely found "well if you can do that hobbyist but seemingly proximal activity, you can walk into a decent-paying job" to be true in tech and I suspect it's true for finance too. Maybe the finance bros just need a leetcode-for-spreadsheets website to run their technical interviews to open the floodgates though.
  • kkukshtel 3y ago
    I think churning is just a hobby for bored divorced guys and used as a proxy for developing any real (non-financialized) interests. Normal cash back for most cards is good enough for most people, and you aren't going to get big point kickbacks unless you already have a lot of money to spend.
  • hnuser123456 3y ago
    Microsoft Excel World Championship 2023 - Finals: https://www.youtube.com/watch?v=UDGdPE_C9u8 https://www.youtube.com/watch?v=UDGdPE_C9u8
  • ghaff 3y ago
    At the end of the day, it's mostly a hobby and you either find keeping track of everything and making effective use of rewards worth it or not. Personally, I have a few cards for targeted use but mostly I just take 2% cash back on a free card and figure that's close enough.
  • sam2426679 3y ago
    I was also intrigued by that quote and find it rather dubious. Coincidentally today, I and 5 other family members are boarding business class international flights worth ~$60k cash, paid for with signup bonus points. This doesn’t even include the other tens of $thousands of redemptions we’re doing on both this trip and the rest of the year. This is also just side hustle/hobby-that-pays-for-itself “money,” in addition to the (not) “three orders of magnitude” faang income. This was otherwise an interesting article.
• yeknoda 3y ago
  I wish stripe or some company would create a zero fee credit card that is truly equivalent to using cash. The wealth transfer from cash payers, merchants, and some card users to other card users and the cc companies is one of those gross injustices, a small and persistent leech on society. Surely there’s a way to do cc transactions for near zero? What is the point of all this tech otherwise?
  • smallmancontrov 3y ago
    The leech is the point, there is no "otherwise."
  • ansible 3y ago
    There's still fraud detection / prevention, card terminals, and other various infrastructure to pay for. Someone's going to pay for it, somehow. Also, suppose Stripe did offer a low / zero transaction cost card. What's the incentive for me (a customer) to get it? It isn't any better than the other no-monthly-fee CCs, and is strictly inferior to a rewards card. For merchants, yes, they are incentivized to accept Stripe's new card. But they can't stop accepting the other ones until Stripe has a significant share of the transactions. And may not be able to do so even then. And meanwhile Stripe is eating the cost of running this new zero fee card system, which effectively takes away money that they could invest in their own business. Sounds like a lose, lose, lose all around. The real solution is to have a law that caps the CC transaction fee. Or allow merchants to add a surcharge for rewards CCs.
  • melenaboija 3y ago
    Agree but maintaining the infrastructure has a cost someone has to pay and I as a customer won’t see any benefit. I think it would be healthy to be able to have options with near zero cost but I guess this would only happen with strong regulations, which seems almost impossible in this space (in the US)
    • klabb3 3y ago
      > Agree but maintaining the infrastructure has a cost someone has to pay The bank? Keeping money in your account allows the bank to take out credit. Providing digital payments sounds like a reasonable service for a bank to provide. As well as fraud prevention. This is how it works in Europe, most people have debit cards. The insanity is having to take out a loan you don’t need to prove that you’re responsible.
• euix 3y ago
  Often times you will find cash only businesses, especially in Chinatown and restaurants that will give you a discount on the final bill if you pay in cash. I have been to some mid-range restaurants that will knock 10% off my bill if I pay in cash instead of credit. This is the merchant fighting back using their own stratagems. In many cases in my experience the vendors who can successfully pull off this strategy have a high quality, high value product and operate in a no-frills store front and are often family owned, maybe a generation or two already. There is a Vietnamese banh mi sandwich vendor where I live who has been around for 30 years only accepts cash - they have the history and patronage to pull this off.
  • coddle-hark 3y ago
    Fun fact, this is actually illegal here in Sweden! That is, merchants aren't allowed to adjust prices based on payment method. Not sure what the reasoning is.
    • liotier 3y ago
      Because the main purpose of cash payments in small businesses is tax evasion - not just VAT but also paying family members in cash and thus dodging even more.
    • luisgvv 3y ago
      In Costa Rica this is illegal too but going through the hassle of reporting it to the local authorities is a pain and you won't gain much, just annoy the dealership. Usually the POS rate is around 2% so at the end of the day you'll split it evenly and get a 3% discount. A few years back it was even highter and I bought several home appliances and saved around $100 so it's worth for both parties. Now imagine people that deal with ranges from 10K to 100K - It's definitely worth it shaving a few bucks here and there
    • inanutshellus 3y ago
      Fun fact, credit card merchants successfully made it illegal in the USA too, but that legislation expired and now it is legal to charge more for credit card usage (though credit card companies prefer that you offer a "cash discount" than an equivalent "credit card fee").
• deleted 3y ago
  [deleted]
• jmuguy 3y ago
  I am really interested in the content of this post, and I assume other posts from the author. But his writing style is extremely long winded. For instance, this is somehow only two sentences. It is a fee, ultimately paid by the card-accepting business, which gets sliced up between various parties in the credit card ecosystem to incentivize them to put their logos in the wallets and on the phones of well-heeled customers and increase the amount they spend and the frequency with which they spend it. (In industry, we sometimes distinguish interchange—which mostly goes to the issuing bank—and scheme fees—which mostly go to the credit card brand itself—but as interchange is much larger, let’s just call them both interchange for simplicity.)
  • kccqzy 3y ago
    On the other hand, I really enjoy both reading and writing long sentences, as long as they are logically easy to follow, for they exude a certain eloquence and elegance that elevates the style and, most importantly, refines my audience by filtering away potential readers who had not had sufficient high school language classes to get used to understanding such long sentences effortlessly, which, this being a matter of personal expression rather than instruction, I certainly have the right to.
    • patch_cable 3y ago
      I agree with you. They’re not essays you can skim. But I enjoy a word journey.
  • bogtog 3y ago
    This gentleman discusses topics that I think I'd be interested in, but like the half dozen times I've tried to read this guy, I've just lost my motivation so quickly. I feel some arrogance in his long-windedness. Is there any parallel to make with The Last Psychiatrist?
  • sxg 3y ago
    Agreed. Lots of parentheticals that distract from the main point.
  • 3y ago
• ErrantX 3y ago
  - In the EU the main reason Rewards cards have declined is that the regulator capped interchange to a very small amount in 2015. The US will follow suit at some point (as noted debit cards have gone that way) but I guess not as low - I think the simple answer to nkurz's point on why don't all cards charge the maximum in interchange is - it's just market forces. It's not worth enough money to long-term piss off the bigger merchants (i.e. Amazon). When you have a 30% APR card non-rewards card, the 3% interchange is small beans. Also the acquiring bank would probably want a bigger piece of the pie if it were more widespread - Credit Card economics is radically different across different countries (for all sorts of reasons). So for example, a third of card users in the US explicitly seek the rewards and another third have it for the various protections/security vs. debit cards. In the UK only 12% seek rewards, with the two biggest use cases being to spread costs of big transactions or to improve their credit score. (so for that reason it's sort of hard to have a global view of this problem)
  • dkjaudyeqooe 3y ago
    A fun fact is that most US reward cards with up to 5% rewards work fine in the EU. I have noticed some strange behavior with some cards at certain supermarkets. That may be them trying to fight back against the US interchange fees, but there are workarounds.
    • EZ-E 3y ago
      Similar but with my debit card from Europe. 0.1% cashback in Europe and UK, 1% everywhere else.
    • jplrssn 3y ago
      Reading the description of the interchange fee cap, it sounds like the cap should apply also for US-issued cards used in the EU [0]: > ... the capping of interchange fees should result in lower fees charged by banks to retailers for processing card payments. If users of US cards still get 5% rewards when using their cards in the EU, I'm curious about who pays for the 4.7% shortfall. [0] https://ec.europa.eu/commission/presscorner/detail/en/MEMO_16_2162 https://ec.europa.eu/commission/presscorner/detail/en/MEMO_1...
• cmurf 3y ago
  I’m seeing restaurants charge a credit card fee as a line item on receipts like a tax, with a percentage. I wish there were real time information what a particular card will cost the merchant, and that fee is what’s charged. The idea most people should subsidize other people’s kickback is obscene. Also, I’m confused about the federal law flat rate fee on debit cards. I know merchants using Square and report that they’re charged the same fee for debit and credit cards, no discounted rate. For small businesses, I’d like to use my debit card, but not if the payment processor is going to pocket the difference between the discount debit fee and their fee to the merchant, and thus me.
• jtchang 3y ago
  If you take a look here you can see how this type of tiering system works out: https://usa.visa.com/content/dam/VCOM/download/merchants/visa-usa-interchange-reimbursement-fees.pdf https://usa.visa.com/content/dam/VCOM/download/merchants/vis... Some of the tiers for Visa cards: Visa Infinite Spend Qualified Visa Infinite Spend Not Qualified Visa Signature Preferred Visa Signature Traditional Rewards All Other Products
• ismokedoinks 3y ago
  While this focuses mainly on the consumer-credit card company relationship, I wanted to add this interesting study on the relationship between consumers across socioeconomic strata: ``` Since retailers usually charge the same price regardless of payment method, payment card rewards programs with different levels of rewards effectively cause some customers to subsidize the consumption of others. The research presented confirms that households with income less than $75,000 per year collectively transfer over $3.5 billion to those making more than $75,000 per year. Furthermore, the cost of interchange fees to retailers can be significant, especially in competitive sectors such as gasoline and groceries. This study demonstrates that interchange costs are typically about 17 to 19 percent of retailer profit. Variance in these costs may induce risk-averse retailers to set higher prices, thus generating additional economic inefficiencies and hurting retail consumers. Negative impacts on low income and minority households and small businesses have become “entrenched” and are likely to get worse as interchange fees continue to increase. This economic inefficiency will not change unless there is a “sufficiently large shock” in the form of policy or technology to change the dynamics of the monopolies holding sway over the credit card system. ``` https://hispanicleadershipfund.org/wp-content/uploads/2022/05/HLF_Report_RewardingTheRich-InterchangeFees_03May22.pdf https://hispanicleadershipfund.org/wp-content/uploads/2022/0...
  • abalone 3y ago
    A valid interpretation but not the only way to describe it. If a merchant offers a 10% discount for spending $1000 or more, are they making lower-spending customers subsidize the purchases of higher-spending ones? Are they transferring wealth from poor to rich? Technically yes. But what would the impact be of outlawing the practice of volume discounts through a “policy change”?
• abalone 3y ago
  Fun fact: this is why crypto never took off as a replacement for credit cards. Too many entrepreneurs focused on “lower fees” as if it were some technical property. But it was never about the technology. Interchange fees primarily fund consumer rewards programs and benefits. To become an appealing choice for consumers, any new payment method has to offer competitive benefits. Those benefits are funded by the fees. Visa/MC/AmEx have essentially created a system whereby higher-spending customers are able to wrench more value from merchants in the form of higher fees. This is reflected in the fee schedules that slice and dice merchants by category and customers by card tier. If you want to build a new payment system it is important to understand that it’s not just a negotiation between merchants and issuers. It’s a two-sided market where customers also leverage their spending power, directly or indirectly.
  • ninepoints 3y ago
    Surely that isn't the only reason
    • MrSkyNet 3y ago
      The complexity of crypto is probably the biggest. The second biggest is the missing need: Most people don't have any advantage of using crypto. They go to work, get a salary, buy/sell things and thats it. If you don't need to buy something illegal or really believe that there is still a soviety left to take some crypto in worst case scenario, fiat is great.
      • clocot 3y ago
        [dead]
      • twosdai 3y ago
        I have this pet theory that the idea of decentralized currency is a bit ahead of its time, and the best consumer use case is for frequent travelers since you could more easily sidestep foreign exchange issues, and hassles. There's a bunch of backend and b2b use cases to be explored but those also take time. All this assumes the volatility issue is solved.
• ReptileMan 3y ago
  >In Europe, card acceptance is cheap by regulatory fiat and so rewards are far less common (or commonly lucrative) than in the U.S. Once is while the EU does something right.
• thundergolfer 3y ago
  The Acquired podcast did an episode on the history of Visa that covers a lot of how the credit card industry works. As another commenter noted, this article doesn’t pull out clearly how this whole credit card reward scheme actually works. The Acquired episode does, by the end. It works like this: the ‘luxury’ credit card providers, partnering with Visa, take money away from merchants in order to extract profit for themselves while keeping the credit card consumers happy. The merchants are pissed about this, and regularly make lawsuits to regulate interchange. The money extracted by the credit card companies and Visa causes merchants to raise prices for everyone regardless of whether they have a rewards card or use a credit card at all. This creates in effect a massive money transfer from the poor, who do not use rewards cards, to the rich consumers who do. The Acquired podcast provides specific numbers on just how much worse off poor consumers are given this system, and how much the richest consumers benefit. I come from Australia where interchange fee regulation tamps down on the kind of credit card mania and fetishism seen in the USA.
  • kjkjadksj 3y ago
    Some businesses do give you the money back though vs raising prices. Gas stations usually have a cheaper price for cash. Same with some restaurants.
  • humansareok1 3y ago
    Theres a net gain between credit card rewards and higher prices for reward card users?
    • Retric 3y ago
      Yes because they are required to charge non reward customers the same amount and competitive markets forced prices down. Suppose the reward is 2% so someone is paying 98% of the listed price. Now if everyone was a rewards customer the price just moves to 102.04$ from 100$, in effect nothing changes. However not everyone uses a rewards card, and the prices stay the same. Net result with an even split would be that 98% discount applies to 101$ and Bob an unrelated customer is stuck paying the extra 1% to give the reward customer their 1% savings. However, it’s not split 50/50 so rewards cards sometimes have more victims funding their rewards and other times few victims and it’s effectively just a marketing gimmick.
• astura 3y ago
  >Almost everybody writing about credit cards on the Internet receives some sort of spiff if you sign up after clicking through tagged links in their material. This is something that really can't be said loud enough. The vast majority of credit card content on the Internet is just shilling for referral money. Like almost all of it. There's so much money in this space, and most people have no idea. That's why Doctor of Credit is the only site I'll ever visit/use - https://www.doctorofcredit.com/were-removing-all-credit-card-affiliate-links-heres-why/ https://www.doctorofcredit.com/were-removing-all-credit-card... About a decade ago I found some blog about credit card rewards and signed up for their mailing list. The owner of the blog emailed me directly saying how he's going to "guide me through the process" and was pushing me to sign up for certain credit cards for sign up bonuses and wanted to know if I had any questions. He was acting like he was a friend just trying to guide me. I was a little taken aback but replied I was going to spend a large amount of money soon and I wanted to earn a sign up bonus for it and I found a sign up bonus that was comparable to what he was pushing on me from Navy Federal. I asked what he thought of it. He said it was no good and I needed to use the cards he was pushing for XYZ reason, blah,blah,blah. It was so fucking sketchy, I stopped responding, unsubbed from the mailing list, and sent all his emails in the trash. Never visited the blog again. I didn't realize until later how much money he stood to earn from me using his sign up links and the only thing wrong with Navy Federal offer was it wouldn't earn him anything. I ended up becoming really familiar with the major credits after that.
• lastofthemojito 3y ago
  So what's the deal with the Chase Sapphire Reserve card he mentions almost everyone having? I don't shop for credit cards often and when I Google it I see it's myriad of rules for points and perks, but nothing really jumped out at me as the killer feature that would lead to that sort of adoption.
  • ValentineC 3y ago
    An article from 2016: https://www.bloomberg.com/news/articles/2016-09-02/chase-sapphire-reserve-deal-seeking-obsessives-have-a-new-favorite-credit-card https://www.bloomberg.com/news/articles/2016-09-02/chase-sap... (Non-paywall link: https://archive.ph/vba5Y https://archive.ph/vba5Y) The rewards seem fairly normal these days, what with rewards inflation happening. Some cards now are offering 250k rewards points as a sign up bonus.
  • versuspinecone 3y ago
    I think their point was that it was the first card of its kind outside of American Express. Back in 2016 there wasn't anything else really like it other than Amex's high tier cards. It also had a really generous sign up bonus when they first released it, 100,000 points if you spent a certain amount on the card in the first few months. Since then other issuers have been playing catch-up so the CSR stands out less.
  • cschneid 3y ago
    When it came out, its signup bonus was quite generous, and its points could be redeemed for a lot of value if you used them right (travel). It's less generous now, but still pretty solid. The big one is that points can be used for 1.5x travel or something like that. So 100 points buys $1.50 of travel, which can add up pretty quickly. The signup bonus was worth something like $1200. And its 'better than normal' categories fit well with professionals in cities who eat out a lot, with a high point-accumulation from that use.
• modeless 3y ago
  The big news in credit card rewards (that I was hoping this article would address) is that Robinhood just announced a 3% flat cash back card, highest I've ever seen, where the only catch is that the money is deposited into your Robinhood account. At 3% they are clearly losing tons of money on every transaction. There is an annual fee but it is only $60. The money can be withdrawn from Robinhood as soon as it is deposited. How can they possibly afford this? What are people doing with their money in Robinhood that they are willing to pay people over 1% (I'm assuming) just to deposit money there in a roundabout way?
  • Sohcahtoa82 3y ago
    They take a loss from every transaction and make up for it with volume. /s My guess is that since Robinhood Gold gives you a lower margin interest rate, enticing people to use more margin, they hope to reap all the money back and then some. Since the rebate money goes directly into your Robinhood account, rather than a checking account, they encourage it to stay in Robinhood.
    • mdaniel 3y ago
      > They take a loss from every transaction and make up for it with volume. /s https://youtu.be/KodqIPMbyUg?t=54 https://youtu.be/KodqIPMbyUg?t=54 (First CityWide Change Bank 2 - Saturday Night Live)
  • mdaniel 3y ago
    recently relevant: https://news.ycombinator.com/item?id=39909035 https://news.ycombinator.com/item?id=39909035 (How can Robinhood afford 3% cash back on its new credit card?; Apr 2024; 21 comments)
    • modeless 3y ago
      Thanks, I missed that one. Seems like the answer is nobody really knows and it's all unsatisfying speculation.
  • vl 3y ago
• waynesonfire 3y ago
  credit card transaction fees should be charged to the customer not the merchant.
• dhosek 3y ago
  I’m really curious about how the T-Mobile dining program works where by registering my credit card (which already gives 3% cashback on restaurant purchases), I get another 5% cashback through T-mobile.
• cess11 3y ago
  Quite interesting. I've had one encounter with such a credit card, which I only used for making a rather large payment over the course of four months without having to pay interest. To me, that was the attraction, not having to adjust my monthly budgeting much and also not having to dip into savings. My bank would have said 'yeah, lol, you pay our 8% interest if you want a loan you could actually cash out at any time'. Where I live credit cards are still relatively uncommon, most cards in use are debit, and from the article it seems they have a simpler scheme behind them. The idea to have a 'book-buyers credit card' seems quite foreign, though I think some people have gas-station-related cards.
• yruthewaythatur 3y ago
  What are these rewards programs? is this a USA specific thing?
  • skrbjc 3y ago
    Depending on the card, you get around 1 or 2 or even 3% back in cash or other types of rewards like airline miles on your purchase. Basically the credit card company charges a merchant something like 3% on a transaction they accept through a credit card, and the credit card company decides to pass on a portion of that fee to the credit card user as an incentive to use that credit card over another form of payment. In my case, I pay for as much as I possibly can using a credit card and then pay it off at the end of the month so that I can get that % reward back and am not charged any fees.
• nfriedly 3y ago
  My credit card is a Fidelity 2% cash back Visa. (I think it was originally American Express, but it's Visa now. Presumably that happened sometime after 2016.) I don't travel much, so getting cash deposited into my brokerage is more useful to me, and with a "2% on everything" card, it's not really worth it to me to carry around other cards for specific categories. After I bought my current home, I put a bunch of expenses on the card. I didn't realize I had gone over the limit until I got a letter in the mail telling me that they automatically increased the limit. They keep increasing it every year or two, so at this point I could put a mid range car on the card. All that said, I would prefer if rewards cards in general were banned and everything was just 2% cheaper. The whole concept feels a little dirty to me, like I'm taking a bribe to use a specific form of payment. But, at the same time, it doesn't make sense not to in the current market.
  • nonethewiser 3y ago
    > All that said, I would prefer if rewards cards in general were banned and everything was just 2% cheaper. Would you prefer that reality literally, or just if it was effectively like that? Literally doing that seems way worse than payment methods competing for your business with rewards.
    • nfriedly 3y ago
      I think either would be an improvement over the current situation. I'd be happy with regulations that put a cap on the fees, similar to what the EU has. I want payment methods to compete by offering better service for lower fees, not by bribing consumers with rewards (and explicitly charging the businesses higher fees to pay for those bribes).
  • xyzelement 3y ago
    I likewise have this card and it worked for me in a certain point in my life but it depends on what you spend money on. As a family of 4 we spend a lot on groceries and eating out so its good to use a card for those things that gives us 3%. The sort of most obvious one is the amazon visa which you can connect to your amazon account and get the 3% off on everything there automatically. It's not a life changing amount but it's free money.
• gist 3y ago
  > There are many, many other sucker buttons. Sucker buttons? How about (this is addressed to a certain group of people not everyone) spend your time trying to make money in some way rather than trying to max small amounts that you get from credit cards, reward programs what not. As if everyone is just some kind of retired person with time on their hands to think about miles, rewards etc as a way to keep busy.
• lenerdenator 3y ago
  Remember: there is no such thing as a free lunch. If they're rewarding you with something, either you or someone else is paying for it. Someone else, in this case, means another cardholder. Maybe the merchant the rewards program is through is counting on you to spend on something you otherwise wouldn't. Sure as hell isn't the bank offering the card. The credit-ification of everyday purchases in the United States since the 1980s has been a disaster for the average American's financial health.
  • spywaregorilla 3y ago
    What do you mean another cardholder? It's the vendors paying the credit card tax.
    • lenerdenator 3y ago
      And where does the vendor get their money?
      • spywaregorilla 3y ago
        While the answer is technically cardholders that not mean that the vendor is not eating the loss
• neilv 3y ago
  > Due to long-standing practice, I am (homeopathically) exposed to the common equity of financial services companies that my family uses, so that I can call up Investor Relations if I ever need to escalate a routine banking issue. For this to be effective, what parts-per-billion concentration do I need?
• wtatum 3y ago
  Not to go too off topic but I'm extremely interested in the throwaway comment about holding enough equity in your service provider of choice to justify calling investor relations when you have an issue. Is this a real thing that people do? If it works it sounds like an amazing life hack but I have my doubts how much influence they would have over the "real" support.
  • renhanxue 3y ago
    It's a thing the author of that article does, at least. He's got an article mostly about how to escalate identity theft complaints here that touches on it: https://www.kalzumeus.com/2017/09/09/identity-theft-credit-reports/ https://www.kalzumeus.com/2017/09/09/identity-theft-credit-r... It's very long so I'll just quote a small bit specifically about the Investor Relations: > If you cannot route letters to the legal department, go as high up as required. Pro-tip: virtually every major US company has a department called Investor Relations which is trivially discoverable, very well-funded, publicly routable, and very bored during 80% of the year. You can excuse any letter to Investor Relations with: "I am a shareholder in BigBank. I was therefore profoundly displeased when I learned…" > What’s a well-paid bored professional in Investor Relations going to do with your account information? Nothing? Nothing is a great way to get fired. No, they’re going to open up their internal phone tree or ticketing system and say “I have a letter from an investor which alleges an identity theft issue. Which group handles that? Your department? Great; handle it and call me when you’re done. Do you want it by fax, email, or FedEx?” For this to work though you've got to present like your position in the stock is in the millions of dollars, even if it's actually like $100. The author of the article has been in the financial industry for a very long time, and has also spent a long time as a Japanese salaryman, so he can definitely pull that off.
    • dexwiz 3y ago
      There are a ton of free services only accessible to those with money. For example, if you buy jewelry from any luxury store you can often also bring it in for free cleaning. But they will honor this for any piece you bought from them. And if you bring in a mix of pieces they will often clean them all. Luxury retail isn’t often worth it, but when it is it comes with lifetime services.
• steelframe 3y ago
  It's fascinating to me how much people discount their privacy.
• acyou 3y ago
  Before, the American economy has been built on excess consumption. Assuming that the rising tide lifts all boats, rewarding and encouraging excess consumption helped everyone, not just the wealthy. That's almost the opposite case when most goods purchased are now overseas imports. If the model doesn't make sense anymore, it should be replaced. Remove the ban on charging based on payment method. Stripe is relevant. If customer and merchant incentives are aligned, I would say Stripe probably just wants to have low or minimum interchange? Have I misunderstood?
• 486sx33 3y ago
  Couple quick things - from a business operator The only way to cost in cc fees is to always assume the highest tier plus one time fees. This is then built into the retail cost of everything If you pay with a lower fee card, you subsidize the higher fee customers If you pay cash, debit, or check and don’t say anything - you subsidize the higher fee credit card payers If you ask me, I’ll give you 2% discount for cash or check. I’ve built in 3%+ Visa debit is the biggest scam going, they’ve found a way to charge 2.5% to take debit cards. In Canada forever it’s been 0.10 a transaction for debit for higher volume clients Pretty much - you need to get a high reward cc and use it for all your purchases and pay it off every month. If not, and you don’t ask for a discount, you subsidize the people who do. Example - last month I was “funded” $130,681.33 this includes debit cards which I pay a low flat rate for (but this is changing) On $130,681.33 I paid $2,433.51 in service charges or 1.86% . Plus the liability of the possibility of a charge back, also I do not accept Amex.
  • kccqzy 3y ago
    A lot of businesses give more than a 2% discount for cash. Personally I find that I instinctively tip less when I use cash than a credit card. The act of getting bills out of my wallet is viscerally more painful than writing numbers down, so I tip less without thinking.
• purplepatrick 3y ago
  I would prefer no rewards. Rewards transfer wealth from poorer people to wealthier people, because the latter spend more absolute dollars on rewards cards. This regressive effect is a big turn off imho in addition to the stupid points optimization games that rewards card owners have to play.
• Vic-Bhatia 3y ago
  I would recommend Payment Systems in the US and, Global Payments: And the FinTech Innovations Changing the Industry, for anyone looking to learn more about how value (aka payments) gets transferred, and the various players / their incentives along the value chain.
• neilk 3y ago
  I don’t pay attention to “points” systems at all. I sense that this is the right decision but I’ve never been able to quantify whether this is true. My logic is that the people who design credit card reward systems are smarter than I am about the topic they spend 8 hours a day on. So, every rewards system they offer is designed to trick me into suboptimal purchase decisions. Even the perception of beating the system is built into the system. patio11 seems to confirm some of this, but I’d love it if someone who is informed about the design of these programs would say it to me straight. (Experts in “hacking” rewards systems will be disregarded because according to my thesis you are victims of mind control.) For context I’m one of those never-carry-a-balance credit card users.
  • dan-robertson 3y ago
    Part of the point of rewards cards is to encourage people with more choice (ie you) to use cards from that issuer. If the rewards are bad then you use a competitor card. If the rewards are good you use the issuer’s card and they make money on interchange. The cost of paying out the rewards decreases the amount the issuer makes from interchange, but they still make a profit. So never gaining from the points is probably bad – you’re basically giving that money to the issuer – and you could be better served by cashback instead. The point of using points from an issuers perspective is that they can have companies subsidise the cost of the rewards by treating the available rewards as ad space. They have eg some hotel chain pay the issuer to create some ‘money off these hotels’ reward, potentially also offering a higher-than normal value for the points. The hotel chain is happy because they expect this promotion is made to people who are more likely to spend more at their hotels even after the discount (or just because it brings people to their hotels rather than competitors). The card issuer is happy because they make more money for a given % of interchange paid out in rewards. The consumer is potentially happier with the card because they now get slightly more valuable rewards. The competing hotels now getting less custom are unhappy about it. I think it’s reasonable to think points systems are, in some sense, trying to trick you, but also silly to ignore them because of this. Coupons are also trying to trick you in a similar way but that similarly doesn’t mean they’re a bad deal.
• hoseja 3y ago
  Is this wholesome market optimization or cancerous busywork that would benefit all to be killed by capping the fees by "regulatory fiat"? I honestly cannot decide.