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Credit cards are probably the most consumer friendly innovation ever — a product of the time they were developed. It was an era when the federal government func

Credit cards are probably the most consumer friendly innovation ever — a product of the time they were developed. It was an era when the federal government functioned and the credit card operations were so problematic a heavy hand was required. Every supposedly better alternative adds margin for the supplier, increases the risk of fraud, and leaves the user with poor recourse due to the lack govnerment regulation. Adding a 3% overhead is cheap for the value. Let the suppliers be squeezed - it’s tiny for big merchants and the little ones are bitching because they’d rather lose sales than pay taxes.

lxgr 2y ago
If they provide that much value to consumers intrinsically, then why are banks paying the same consumers to use them? I completely agree that credit (and just as much, if not more, debit) cards are an incredibly useful invention and great accelerator for online commerce. I don't know of any other way of paying a merchant I know next to nothing of that will allow me to get my money back if they do not deliver on their side of the contract. But at the same time, the price discovery mechanisms for what exact value they provide (and who, i.e. the networks or the issuing banks, and to whom!) are next to nonexistent. In an efficient market, credit card cashback would not be a thing, for example. You could argue that that doesn't matter, that the status quo is good enough, but that's what people used to say about incumbent phone companies as well. The EU just demonstrated that an alternative is very possible (at least on the interchange side, which is the bulk of what merchants pay).
- dangus 2y ago
  I think you're missing the point here a little bit. To break this down more simply: Credit cards: Merchants pay 3% and pass the cost on to the customer, IRS gets the vast majority of business taxes paid (no way to under-report taxable income), average person gets all the benefits of a fully funded government plus 1-2% of their purchase back in credit card rewards. Average person also gets a revolving credit line with okay-ish interest rates considering how no collateral is needed and approval is instant. Cash: Merchants broadly and easily commit tax fraud and under-report earnings, average person then has to pay a higher tax rate to overcome the tax fraud rates and get the same government services in return, merchant still pays something similar to or higher than 3% in transaction costs to handle cash (shrinkage (employees stealing, miscounting, lost cash), physical storage, movement, and processing, armored truck service, etc) and passes those costs on to the customer. Customers have no access to revolving credit which is totally fine but before credit cards people would resort to much more poorly regulated/higher interest/illegal sources of short term loans. I would also point out that debit card swipe fees are already regulated to under 1% and have many of the same benefits as credit cards.
  - lxgr 2y ago
    With your last sentence, you supply your own counterexample demonstrating that "tax-evasion-enabling cash or credit cards costing the merchant 2-3%, pick one" is a false dichotomy. As I've mentioned, another counterexample is that Visa and Mastercard credit cards very much continue to exist in the EU, even after consumer credit card interchange rates have been capped to 0.3%.
    - bruce511 2y ago
      I'm shocked, shocked, to discover that in the land of the "free market" the market optimizes for corporate profit not low prices. This is not news. In the US people vote for politicians who promise low regulation, business friendly and "economy" priorities. Those politicians run with corporate money and favor corporations. Other places (like the EU) have people who vote differently and have more appetite for reigning in the "free market" while serving consumers as the priority. It's not impossible for people to change, just unlikely. We tend to assume the pond we live in has the best water.
      - AnthonyMouse 2y ago
        > In the US people vote for politicians who promise low regulation, business friendly and "economy" priorities. People vote for those politicians because that's what they want. But is the problem with what they want, or what they get? Regulatory capture that puts up barriers to anyone trying to compete with the incumbents is neither "low regulation" nor what people want, but it's the status quo in the US.
        dangus 2y ago
        It’s lower friction and more palatable to influence what people believe they want than it is to refuse to give them what they want.
    - dangus 2y ago
      I never said "tax-evasion-enabling cash or credit cards costing the merchant 2-3%, pick one." I'm absolutely all for credit card merchant fees getting capped and treated more like a highly-regulated monopoly. In that scenario my argument in support of credit cards gets even stronger.
- Spooky23 2y ago
  In a market, participants woo customers with financial and other incentives to select their product. The price discovery stuff is pretty obvious. Do business with PayPal. It works great… until PayPal arbitrarily decides to freeze your account. Use Venmo or cash app… except sellers will pressure you to treat it like a gift vs. a purchase. You can use ACH, but now some random company has access to your checking account. Or… you can use a credit card, probably get a 2% kickback, and the merchant pays like 3% unless they’re in a high risk business. If there’s a problem like fraud, the bank eats it. The biggest whiners about fees are small businesses, especially restaurants. These are businesses where it’s super easy to launder cash and avoid tax reporting.
  - hattmall 2y ago
    The bank doesn't eat the fraud. They charge it back to the merchant. That's why restaurants and bars don't like them, and if you fight the charge backs they raise the rates or drop you entirely.
    - lxgr 2y ago
      That’s only true for online payments (and even then only if 3DS is not used). Merchants are not liable for fraud at the POS (which includes almost all restaurants, except maybe those doing deliveries or taking down payments for reservations via the phone etc.)
      - hattmall 2y ago
        Is this new? My bar got quite a bit of charge backs when I worked there but that was ~15 years ago.
  - AnthonyMouse 2y ago
    > Do business with PayPal. It works great… until PayPal arbitrarily decides to freeze your account. Use Venmo or cash app… except sellers will pressure you to treat it like a gift vs. a purchase. You can use ACH, but now some random company has access to your checking account. Pretty much everything except for credit cards and ACH are really using one of those two behind the scenes, whereas what you want is something that allows you to transfer money using ACH-level fees without the totally unnecessary ACH misfeature that you can't revoke merchants or predefine limits on how much they can charge. But that's where the "Visa has captured the regulators to prevent things like that from existing" problem comes in. > The biggest whiners about fees are small businesses The biggest whiners about fees are small businesses because a) they have very thin margins to begin with, so 3% often means that Visa is taking more of the sale price than they keep themselves and can be the difference between a sustainable business and bankruptcy, and b) larger companies can negotiate deals and pay less than 3%, which creates another competitive advantage for big business that small businesses can't achieve, which small businesses rightfully dislike. 3% sounds like a small number until you're talking to someone with a 5% profit margin before they lose 3% of revenue to the credit card companies. Then you're telling them that they shouldn't care about losing 60% of their personal income to corrupt banking laws.
- bruce511 2y ago
  >> If they provide that much value to consumers intrinsically, then why are banks paying the same consumers to use them? The clue to this is in the question. Banks offer cash-backs (and other rewards) not Visa or MC. They do so because credit cards are a commodity and they need to differentiate their product from all the other card providers. In effect some of the fee paid by suppliers is routed back to the customers. To suppliers the cost is part of doing business, and built into the price. As a supplier I much prefer customers to use cards over cash. Cash is very expensive to deal with in any volume. And is far more vulnerable to theft (by external people, but also staff.)
  - jncfhnb 2y ago
    The rationale of the banks is clear. The problem is that these are perverse incentives. The costs hit all customers, not just the ones who use credit cards. And the benefits accrue largely to the cardholders of premium cards, which are wealthy people. It’s a tax on being poor to subsidize the wealthy and the middlemen. Cards should be forced into being a true commodity with perfect competition. The incentive rewards games are harmful to society.
    - Ntrails 2y ago
      > And the benefits accrue largely to the cardholders of premium cards, which are wealthy people. To have competition you do need a way to differentiate, and it's going to be funded by some combination of those fees, interest/charges, kickbacks etc. Some interchange fee is simply necessary, iirc the EU attempts to prevent the egregious regressive aspects of that by capping the interchange fees of all cards. Thereby eliminating the "Amex Premia" as it were. I reckon it's a pretty sensible step?
      - jncfhnb 2y ago
        You do not need differentiation for competition. It’s called perfect competition and it’s a race to the bottom for price, which is the ideal outcome here.
throw0101d 2y ago
> Credit cards are probably the most consumer friendly innovation ever Depends on the consumer. Vendors often have to raise their prices to keep their own margins, which is passed onto the consumer. If you're too poor or otherwise 'unwanted' to be given a credit card then you are paying higher prices without any benefit. * https://www.cnbc.com/2023/05/27/lower-income-americans-pay-for-wealthys-credit-card-rewards-some-economists-say.html https://www.cnbc.com/2023/05/27/lower-income-americans-pay-f... * https://www.vox.com/the-goods/22454885/who-pays-for-credit-card-rewards https://www.vox.com/the-goods/22454885/who-pays-for-credit-c... * http://archive.is/https://www.nytimes.com/2023/03/04/opinion/credit-card-rewards-points-poor-interchange-fees.html http://archive.is/https://www.nytimes.com/2023/03/04/opinion...
- worik 2y ago
  Here (Aotearoa) merchants add fees to credit cards they do not add to debit cards or cash Seems to work well

lxgr 2y ago

If they provide that much value to consumers intrinsically, then why are banks paying the same consumers to use them? I completely agree that credit (and just as much, if not more, debit) cards are an incredibly useful invention and great accelerator for online commerce. I don't know of any other way of paying a merchant I know next to nothing of that will allow me to get my money back if they do not deliver on their side of the contract. But at the same time, the price discovery mechanisms for what exact value they provide (and who, i.e. the networks or the issuing banks, and to whom!) are next to nonexistent. In an efficient market, credit card cashback would not be a thing, for example. You could argue that that doesn't matter, that the status quo is good enough, but that's what people used to say about incumbent phone companies as well. The EU just demonstrated that an alternative is very possible (at least on the interchange side, which is the bulk of what merchants pay).

dangus 2y ago
I think you're missing the point here a little bit. To break this down more simply: Credit cards: Merchants pay 3% and pass the cost on to the customer, IRS gets the vast majority of business taxes paid (no way to under-report taxable income), average person gets all the benefits of a fully funded government plus 1-2% of their purchase back in credit card rewards. Average person also gets a revolving credit line with okay-ish interest rates considering how no collateral is needed and approval is instant. Cash: Merchants broadly and easily commit tax fraud and under-report earnings, average person then has to pay a higher tax rate to overcome the tax fraud rates and get the same government services in return, merchant still pays something similar to or higher than 3% in transaction costs to handle cash (shrinkage (employees stealing, miscounting, lost cash), physical storage, movement, and processing, armored truck service, etc) and passes those costs on to the customer. Customers have no access to revolving credit which is totally fine but before credit cards people would resort to much more poorly regulated/higher interest/illegal sources of short term loans. I would also point out that debit card swipe fees are already regulated to under 1% and have many of the same benefits as credit cards.
- lxgr 2y ago
  With your last sentence, you supply your own counterexample demonstrating that "tax-evasion-enabling cash or credit cards costing the merchant 2-3%, pick one" is a false dichotomy. As I've mentioned, another counterexample is that Visa and Mastercard credit cards very much continue to exist in the EU, even after consumer credit card interchange rates have been capped to 0.3%.
  - bruce511 2y ago
    I'm shocked, shocked, to discover that in the land of the "free market" the market optimizes for corporate profit not low prices. This is not news. In the US people vote for politicians who promise low regulation, business friendly and "economy" priorities. Those politicians run with corporate money and favor corporations. Other places (like the EU) have people who vote differently and have more appetite for reigning in the "free market" while serving consumers as the priority. It's not impossible for people to change, just unlikely. We tend to assume the pond we live in has the best water.
    - AnthonyMouse 2y ago
      > In the US people vote for politicians who promise low regulation, business friendly and "economy" priorities. People vote for those politicians because that's what they want. But is the problem with what they want, or what they get? Regulatory capture that puts up barriers to anyone trying to compete with the incumbents is neither "low regulation" nor what people want, but it's the status quo in the US.
      - dangus 2y ago
        It’s lower friction and more palatable to influence what people believe they want than it is to refuse to give them what they want.
  - dangus 2y ago
    I never said "tax-evasion-enabling cash or credit cards costing the merchant 2-3%, pick one." I'm absolutely all for credit card merchant fees getting capped and treated more like a highly-regulated monopoly. In that scenario my argument in support of credit cards gets even stronger.
Spooky23 2y ago
In a market, participants woo customers with financial and other incentives to select their product. The price discovery stuff is pretty obvious. Do business with PayPal. It works great… until PayPal arbitrarily decides to freeze your account. Use Venmo or cash app… except sellers will pressure you to treat it like a gift vs. a purchase. You can use ACH, but now some random company has access to your checking account. Or… you can use a credit card, probably get a 2% kickback, and the merchant pays like 3% unless they’re in a high risk business. If there’s a problem like fraud, the bank eats it. The biggest whiners about fees are small businesses, especially restaurants. These are businesses where it’s super easy to launder cash and avoid tax reporting.
- hattmall 2y ago
  The bank doesn't eat the fraud. They charge it back to the merchant. That's why restaurants and bars don't like them, and if you fight the charge backs they raise the rates or drop you entirely.
  - lxgr 2y ago
    That’s only true for online payments (and even then only if 3DS is not used). Merchants are not liable for fraud at the POS (which includes almost all restaurants, except maybe those doing deliveries or taking down payments for reservations via the phone etc.)
    - hattmall 2y ago
      Is this new? My bar got quite a bit of charge backs when I worked there but that was ~15 years ago.
- AnthonyMouse 2y ago
  > Do business with PayPal. It works great… until PayPal arbitrarily decides to freeze your account. Use Venmo or cash app… except sellers will pressure you to treat it like a gift vs. a purchase. You can use ACH, but now some random company has access to your checking account. Pretty much everything except for credit cards and ACH are really using one of those two behind the scenes, whereas what you want is something that allows you to transfer money using ACH-level fees without the totally unnecessary ACH misfeature that you can't revoke merchants or predefine limits on how much they can charge. But that's where the "Visa has captured the regulators to prevent things like that from existing" problem comes in. > The biggest whiners about fees are small businesses The biggest whiners about fees are small businesses because a) they have very thin margins to begin with, so 3% often means that Visa is taking more of the sale price than they keep themselves and can be the difference between a sustainable business and bankruptcy, and b) larger companies can negotiate deals and pay less than 3%, which creates another competitive advantage for big business that small businesses can't achieve, which small businesses rightfully dislike. 3% sounds like a small number until you're talking to someone with a 5% profit margin before they lose 3% of revenue to the credit card companies. Then you're telling them that they shouldn't care about losing 60% of their personal income to corrupt banking laws.
bruce511 2y ago
>> If they provide that much value to consumers intrinsically, then why are banks paying the same consumers to use them? The clue to this is in the question. Banks offer cash-backs (and other rewards) not Visa or MC. They do so because credit cards are a commodity and they need to differentiate their product from all the other card providers. In effect some of the fee paid by suppliers is routed back to the customers. To suppliers the cost is part of doing business, and built into the price. As a supplier I much prefer customers to use cards over cash. Cash is very expensive to deal with in any volume. And is far more vulnerable to theft (by external people, but also staff.)
- jncfhnb 2y ago
  The rationale of the banks is clear. The problem is that these are perverse incentives. The costs hit all customers, not just the ones who use credit cards. And the benefits accrue largely to the cardholders of premium cards, which are wealthy people. It’s a tax on being poor to subsidize the wealthy and the middlemen. Cards should be forced into being a true commodity with perfect competition. The incentive rewards games are harmful to society.
  - Ntrails 2y ago
    > And the benefits accrue largely to the cardholders of premium cards, which are wealthy people. To have competition you do need a way to differentiate, and it's going to be funded by some combination of those fees, interest/charges, kickbacks etc. Some interchange fee is simply necessary, iirc the EU attempts to prevent the egregious regressive aspects of that by capping the interchange fees of all cards. Thereby eliminating the "Amex Premia" as it were. I reckon it's a pretty sensible step?
    - jncfhnb 2y ago
      You do not need differentiation for competition. It’s called perfect competition and it’s a race to the bottom for price, which is the ideal outcome here.

throw0101d 2y ago

> Credit cards are probably the most consumer friendly innovation ever Depends on the consumer. Vendors often have to raise their prices to keep their own margins, which is passed onto the consumer. If you're too poor or otherwise 'unwanted' to be given a credit card then you are paying higher prices without any benefit. * https://www.cnbc.com/2023/05/27/lower-income-americans-pay-for-wealthys-credit-card-rewards-some-economists-say.html https://www.cnbc.com/2023/05/27/lower-income-americans-pay-f... * https://www.vox.com/the-goods/22454885/who-pays-for-credit-card-rewards https://www.vox.com/the-goods/22454885/who-pays-for-credit-c... * http://archive.is/https://www.nytimes.com/2023/03/04/opinion/credit-card-rewards-points-poor-interchange-fees.html http://archive.is/https://www.nytimes.com/2023/03/04/opinion...

worik 2y ago
Here (Aotearoa) merchants add fees to credit cards they do not add to debit cards or cash Seems to work well