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Right, but the interesting part of TFA is about how the rates paid by merchants are higher for the top 10% of cards. Your example assumes the same rate paid by

Right, but the interesting part of TFA is about how the rates paid by merchants are higher for the top 10% of cards. Your example assumes the same rate paid by everyone. Because only a small portion of transactions incur the high rate/high reward, it seems far less likely that the split between pass-through vs eat-it still won't benefit high end cardholders.

AnthonyMouse 3y ago
That still depends on what the split is. If the average fee is 3% and the high-end customer is getting 2% back, the merchant could be passing on e.g. 2.1% and causing you to come out behind while still passing on only 70% of the cost. And for anyone getting less cash back the math is even worse, which from the same premise will be the majority of people or else the merchant's costs (and so the amount they pass on) would be even higher.
- willseth 3y ago
  > If the average fee is 3% and the high-end customer is getting 2% back ... You're not picking realistic numbers. The fees range from around 1.5% to ~3%, and the 2.5%-3%+ fees are limited to ~10% of customers. An average fee of 3% doesn't make sense. Very basic napkin math would be 0.9((1.5+2.5)/2)+0.1((2.5+3)/2) = ~2.1% average. So only in the 100% passthrough case does the high end cardholder actually lose. That's not likely. And if you look at the chart, if 740 is 10%, there are probably far fewer than 10% of transactions averaging 2.75%, so this is likely still way overestimating.
  - AnthonyMouse 3y ago
    > The fees range from around 1.5% to ~3%, and the 2.5%-3%+ fees are limited to ~10% of customers. An average fee of 3% doesn't make sense. That's just the interchange fee, not what merchants are actually paying. Stripe charges a flat 2.9% + $0.30 and this is considered competitive: https://stripe.com/pricing https://stripe.com/pricing For a $20 transaction, that's 4.4%, and that's for everybody, not just the people with rewards cards.
    - abalone 3y ago
      > and this is considered competitive Stripe is hella expensive! But they are easy to get started with. Competitive rates depend on the type of business, i.e. their volume and their fraud risk. The most transparent form of pricing is called “interchange plus” where it’s a flat markup on the interchange schedule. High volume merchants should be able to find a markup in the fractions of a percent. It is my understanding that the big Stripe customers negotiate lower rates with them as they scale.
      - AnthonyMouse 3y ago
        > High volume merchants should be able to find a markup in the fractions of a percent. And this is why small businesses are more likely to offer cash discounts than larger ones.
        pbhjpbhj 3y ago
        5 years ago HSBC were charging us, a micro-business (2 employees, not software) about the same for cash handling as we paid for debit card processing. If small businesses give discounts for cash it's because they're committing tax fraud, I presume.
        AnthonyMouse 3y ago
        Cash handling is typically in the neighborhood of 0.2%-0.3%, so you were apparently overpaying: https://www.nerdwallet.com/article/banking/business-checking-fees-beginners-guide https://www.nerdwallet.com/article/banking/business-checking... And that's assuming you're depositing all of your revenue. If your business allows you to pay some of your suppliers in cash, you could have >50% of your revenue in cash and never pay a bank for cash handling because you're immediately spending it on business expenses rather than depositing it. > If small businesses give discounts for cash it's because they're committing tax fraud, I presume. I have seen governments charge a convenience fee for credit card processing. Is the government committing tax fraud?

AnthonyMouse 3y ago

That still depends on what the split is. If the average fee is 3% and the high-end customer is getting 2% back, the merchant could be passing on e.g. 2.1% and causing you to come out behind while still passing on only 70% of the cost. And for anyone getting less cash back the math is even worse, which from the same premise will be the majority of people or else the merchant's costs (and so the amount they pass on) would be even higher.

willseth 3y ago
> If the average fee is 3% and the high-end customer is getting 2% back ... You're not picking realistic numbers. The fees range from around 1.5% to ~3%, and the 2.5%-3%+ fees are limited to ~10% of customers. An average fee of 3% doesn't make sense. Very basic napkin math would be 0.9((1.5+2.5)/2)+0.1((2.5+3)/2) = ~2.1% average. So only in the 100% passthrough case does the high end cardholder actually lose. That's not likely. And if you look at the chart, if 740 is 10%, there are probably far fewer than 10% of transactions averaging 2.75%, so this is likely still way overestimating.
- AnthonyMouse 3y ago
  > The fees range from around 1.5% to ~3%, and the 2.5%-3%+ fees are limited to ~10% of customers. An average fee of 3% doesn't make sense. That's just the interchange fee, not what merchants are actually paying. Stripe charges a flat 2.9% + $0.30 and this is considered competitive: https://stripe.com/pricing https://stripe.com/pricing For a $20 transaction, that's 4.4%, and that's for everybody, not just the people with rewards cards.
  - abalone 3y ago
    > and this is considered competitive Stripe is hella expensive! But they are easy to get started with. Competitive rates depend on the type of business, i.e. their volume and their fraud risk. The most transparent form of pricing is called “interchange plus” where it’s a flat markup on the interchange schedule. High volume merchants should be able to find a markup in the fractions of a percent. It is my understanding that the big Stripe customers negotiate lower rates with them as they scale.
    - AnthonyMouse 3y ago
      > High volume merchants should be able to find a markup in the fractions of a percent. And this is why small businesses are more likely to offer cash discounts than larger ones.
      - pbhjpbhj 3y ago
        5 years ago HSBC were charging us, a micro-business (2 employees, not software) about the same for cash handling as we paid for debit card processing. If small businesses give discounts for cash it's because they're committing tax fraud, I presume.
        AnthonyMouse 3y ago
        Cash handling is typically in the neighborhood of 0.2%-0.3%, so you were apparently overpaying: https://www.nerdwallet.com/article/banking/business-checking-fees-beginners-guide https://www.nerdwallet.com/article/banking/business-checking... And that's assuming you're depositing all of your revenue. If your business allows you to pay some of your suppliers in cash, you could have >50% of your revenue in cash and never pay a bank for cash handling because you're immediately spending it on business expenses rather than depositing it. > If small businesses give discounts for cash it's because they're committing tax fraud, I presume. I have seen governments charge a convenience fee for credit card processing. Is the government committing tax fraud?