4 ms·

The answer is that the system doesn’t work if a 3%-fee card isn’t held by a low-risk, high-spend rich person. Indeed if that weren’t the case, merchants would r

The answer is that the system doesn’t work if a 3%-fee card isn’t held by a low-risk, high-spend rich person. Indeed if that weren’t the case, merchants would reject the tiered fee structure. (This is also the answer as to why in the absence of regulation, exchange fees aren’t higher than they already are.)

ptero 3y ago
Sorry, can you explain why the high spend is important? What is the benefit of a low risk buyer having a single card vs three different cards? Low risk is clear -- the lower the risk the more money is left, after handling problems, for the rebates and profits.
- kasey_junk 3y ago
  Interchange. The fees go directly to the issuer not the network (which collects much smaller scheme fees). If you have 3 cards they’d almost certainly be for 3 different issuers so they’d split the interchange. Making you less valuable.
- robertlagrant 3y ago
  > for the rebates and profits And salaries and pensions, etc.
- twoodfin 3y ago
  In this context, it’s important to the merchants: They want these customers, so they grit their teeth on the higher interchange fees demanded by the banks. If the banks started handing out these cards to everyone, the merchants would revolt.
nordsieck 3y ago
> the system doesn’t work if a 3%-fee card isn’t held by a low-risk, high-spend rich person There's many rewards cards that require an annual fee (which encourages a high spend to recoup the fee with rewards). But there are plenty of 1.5%-2% cards with no annual fee. You just need a good credit score.
- scarface_74 3y ago
  Almost every card with an annual fee has enough credits and perks to offset the annual fee without spending any money. The second and third tier Delta cards come with a $250 and $650 Annual fee. The second tier card (Delta Platinum) has an annual fee of $350. But it comes with a $150 Delta Stays credit for hotels and one round trip an economy companion pass - basically buy one get one free - for any place in the US, Mexico, Central America or the Caribbean. The higher end Delta Reserve comes with similar benefits. But a first class companion pass. If you never use either card except for the credit, the benefits more than offset the annual fee. The Reserve also comes with airport lounge access I have three Delta cards just for those benefits. I could explain the Amex Platinum, Gold, Green, every cobranded hotel card, the high end Capital One cards the same way. The credit card companies as the article says are betting that the typical customer will use credit cards in a suboptimal manner. They are banking on most credit card users not to be like the typical r/creditcards users who carry 6-8 credit cards including “sock drawer” cards that are just held for the outsized benefits to annual fees and aren’t their primary cards. My wife and I travel a lot and yes I have nine cards and $2700 worth of annual fees. Most of those cards are “sock drawer” cards that are just used because the “coupons” make travel cheaper.
  - ghaff 3y ago
    You need the right spending pattern and you need to manage the card rewards. When my travel went way down, I dropped a couple cards though I keep a pretty low-cost United cobranded card to basically keep me with some semblance of status. But things like airline club membership just weren't worth it any longer.
    - scarface_74 3y ago
      I agree completely and I didn’t even discuss the entire “churning” strategy where there is an entire cottage industry, a subreddit and a flowchart discussing how to get sign up bonuses and how to get the best return. (I am not affiliated with this site in any way) https://www.offeroptimist.com/ https://www.offeroptimist.com/

ptero 3y ago

Sorry, can you explain why the high spend is important? What is the benefit of a low risk buyer having a single card vs three different cards? Low risk is clear -- the lower the risk the more money is left, after handling problems, for the rebates and profits.

kasey_junk 3y ago
Interchange. The fees go directly to the issuer not the network (which collects much smaller scheme fees). If you have 3 cards they’d almost certainly be for 3 different issuers so they’d split the interchange. Making you less valuable.
robertlagrant 3y ago
> for the rebates and profits And salaries and pensions, etc.
twoodfin 3y ago
In this context, it’s important to the merchants: They want these customers, so they grit their teeth on the higher interchange fees demanded by the banks. If the banks started handing out these cards to everyone, the merchants would revolt.

nordsieck 3y ago

> the system doesn’t work if a 3%-fee card isn’t held by a low-risk, high-spend rich person There's many rewards cards that require an annual fee (which encourages a high spend to recoup the fee with rewards). But there are plenty of 1.5%-2% cards with no annual fee. You just need a good credit score.

scarface_74 3y ago
Almost every card with an annual fee has enough credits and perks to offset the annual fee without spending any money. The second and third tier Delta cards come with a $250 and $650 Annual fee. The second tier card (Delta Platinum) has an annual fee of $350. But it comes with a $150 Delta Stays credit for hotels and one round trip an economy companion pass - basically buy one get one free - for any place in the US, Mexico, Central America or the Caribbean. The higher end Delta Reserve comes with similar benefits. But a first class companion pass. If you never use either card except for the credit, the benefits more than offset the annual fee. The Reserve also comes with airport lounge access I have three Delta cards just for those benefits. I could explain the Amex Platinum, Gold, Green, every cobranded hotel card, the high end Capital One cards the same way. The credit card companies as the article says are betting that the typical customer will use credit cards in a suboptimal manner. They are banking on most credit card users not to be like the typical r/creditcards users who carry 6-8 credit cards including “sock drawer” cards that are just held for the outsized benefits to annual fees and aren’t their primary cards. My wife and I travel a lot and yes I have nine cards and $2700 worth of annual fees. Most of those cards are “sock drawer” cards that are just used because the “coupons” make travel cheaper.
- ghaff 3y ago
  You need the right spending pattern and you need to manage the card rewards. When my travel went way down, I dropped a couple cards though I keep a pretty low-cost United cobranded card to basically keep me with some semblance of status. But things like airline club membership just weren't worth it any longer.
  - scarface_74 3y ago
    I agree completely and I didn’t even discuss the entire “churning” strategy where there is an entire cottage industry, a subreddit and a flowchart discussing how to get sign up bonuses and how to get the best return. (I am not affiliated with this site in any way) https://www.offeroptimist.com/ https://www.offeroptimist.com/