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Credit cards also transfer wealth from people who pay interest to people who don’t. It’s a silly system, where everyone has to invest their time (optimizing fo
by nsedlet 1mo ago
Credit cards also transfer wealth from people who pay interest to people who don’t.
It’s a silly system, where everyone has to invest their time (optimizing for rewards, avoiding interest) in an ultimately negative sum game. I hate it so much.
- vasco 1mo agoIt has no relation to paying interest, only to making transactions with the credit card.
- turkey99 1mo agoIf you use a credit card, but can’t pay it immediately then you pay interest. It’s a trap the less wealthy fall into.
- vasco 1mo agoYes that is true, and what I said is also true.
- deleted 1mo ago[deleted]
- iso1631 1mo agoOr you could simply not pay on the credit card, and avoid the trap?
- koolba 1mo agoSpending money on don’t have with no financial repercussions is known as the elusive “infinity money hack”. Which clearly does not exist. Of course there’s going to be a a cost to spending beyond your means.
- nutjob2 1mo agoThis isn't correct, rewards and benefits are not 100% funded by interchange fees. They wouldn't be possible without many customers paying interest.
- kybernetikos 1mo agoThe relationship is that the service and rewards you get are subsidised by generally poorer people who mess up their financial planning.
- vasco 1mo agoRewards are paid out for transactions, not interest paid, that's all. Otherwise poor people failing payments would get more rewards than the rich which don't. The dynamics would be completely different.
- motbus3 1mo agocountries ditching those companies are making themselves a favour.
- cpburns2009 1mo agoThere is literally no time involved in avoiding interest. You pay your complete balance when it's due. As far as rewards go, I can't be bothered with them so I always just opt for cash back which I do maybe twice a year. Time involved: 5 minutes / 6 mo.
- LoganDark 1mo agoThere's plenty of time: the time you waste by not spending money you don't have. You have to wait longer until you make more money in order to spend more without interest.
- cpburns2009 1mo agoDon't spend money you don't have. Especially don't do it with 20% interest short-term loans. It's not that hard. If you're not financially responsible enough to handle a credit card, do not get one. I didn't have one until my late 20s.
- LoganDark 1mo agoI'm not arguing for myself, I agree you shouldn't spend money you don't have.
- twoodfin 1mo agoWhy do you think it’s a negative sum game? I don’t have any data, but my intuition is that overall high-fee, high-reward cards increase propensity for consumer spending by at least a few % beyond the fees/rewards. The merchants think so, too, or they wouldn’t accept the processors that let their banks hand out these cards.
- vitus 1mo ago> The merchants think so, too, or they wouldn’t accept the processors that let their banks hand out these cards. Visa / Mastercard / American Express all have lines of premium credit cards (Visa Infinite, World Elite Mastercard, Amex Platinum), and they're very much too big to ban. You'd just be left with one processor in the US (Discover, now owned by Capital One).
- twoodfin 1mo agoSo why don’t the Visa and Mastercard banks up fees across their entire card lineup? If they’re truly too big to give up no matter the fees they charge, they’re leaving money on the table. Of course, they can’t. If Chase started handing college students a 3% card, the merchants would riot.
- ValentineC 1mo agoFrom what I understand, the card-issuing banks get a cut of the merchant fees, but they're required to provide premium benefits like lounge access.
- lotsofpulp 1mo agoThis is wrong. Merchants can elect to only accept debit cards. In recent years, all of my utilities have added 3%+ credit card surcharges, so I pay most of my household expenses with debit cards/ACH now. Tmobile, Comcast, Verizon, ATT, Target, grocery store, electric utility and water utility (government), annual vehicle tax (government), auto body shop, daycare, and any home repair contractors all charge 3%+ (or give a discount, same thing), so I basically only use credit cards for other retail stores and travel and restaurants.
- nutjob2 1mo agoI don't have to invest any time at all. I just use the (US) card that gives me the greatest benefits, be it cash back or services. Usually I just look at the reward rate, which is a base 2% for me right now going up to 5% for some things. I love it. As someone who never carries a balance I get paid by banks for doing pretty much nothing at all. And I don't worry about US retailers, I don't live there. I should add that rewards are not the best benefits. Sign up bonuses are much more lucrative, running to hundreds of dollars per card, and can often be repeated. Same applies to bank accounts.
- croon 1mo agoImagine a world where the pipeline from extra fees back to hoop-hopping cashback didn't exist and your services were just cheaper by the same percentage points instead. It's designed to make money off people slipping up instead of serving customers.
- nutjob2 1mo agoYes, but there are so many financial injustices and inefficiencies in the world. And it may not work the way you expect. Retailers may favor credit card users if they tend to spend more. There are substantial costs associated with handling cash, so cash users may end up paying more.
- croon 1mo agoSure, but I'm not comparing credit cards to cash, but credit card incumbents to hypothetical lower rate ones that don't offer rewards in exchange for risk and busywork.
- gsb 1mo agoYou're not paid by the banks you're paid by other, usually poorer, customers
- nutjob2 1mo agoIncorrect. I am paid by the banks, I have no financial relationship with other customers. But of course banks make huge amounts of money from poor customers via various fees and interest payments. It warms my heart that I get some of those ill gotten gains insead of the evil banks.
- mc32 1mo agoAlternatively CC companies could cut off people over certain credit risk and then be able to charge interest in line with the lower overall credit risk… Borrowers can also keep from overextending their credit and go on debit cards instead… Obviously these things can have an impact on people but before the 80s credit cards were not widely available to people with high credit risk and the world still functioned.
- tiffanyh 1mo ago[dead]
- roenxi 1mo agoCredit isn't negative sum, it is a positive sum game. "Negative sum" has a specific meaning here and just because wealth is being transferred isn't that significant; positive sum games also have wealth transfers. It is risky and it is very easy to lose great amounts of money on a bad decision when credit is involved. Arguably that makes it bad. But still not negative sum.
- delish 1mo agoPatrick McKenzie rebuts this here: (podcast) https://open.spotify.com/episode/2E2KRPcDvh1LcRw5bIsBms https://open.spotify.com/episode/2E2KRPcDvh1LcRw5bIsBms or here (article): https://www.bitsaboutmoney.com/archive/anatomy-of-credit-card-rewards-programs/ https://www.bitsaboutmoney.com/archive/anatomy-of-credit-car... The intuition being: people who carry balances and pay interest don't actually spend very much; they are not wealthy.
- caminante 1mo agoThat "intuition" is agreeing with the parent.
- swed420 1mo agoDiscussion of Patrick's article: https://news.ycombinator.com/item?id=39928604 https://news.ycombinator.com/item?id=39928604
- djoldman 1mo agoCredit card companies make 3/4 of their revenue from interest. From Capital One's 10k, Net Interest Income vs. Total Net Revenue: 2023: 79.5% 2024: 79.8% 2025: 80.2% https://www.sec.gov/ix?doc=/Archives/edgar/data/0000927628/000092762826000024/cof-20251231.htm https://www.sec.gov/ix?doc=/Archives/edgar/data/0000927628/0...
- Brendinooo 1mo agoI don't really know my way around corporate filings, but...is that just for credit cards? Capital One also is supposedly huge on car loans; I'd imagine the interest from those would comprise a big chunk of that revenue.
- buran77 1mo agoWhat does that graph tell you? Because I think patio11 wanted to send one message and people accidentally misunderstand the graph. That's the interchange income corresponding to wealthy people. Interchange is paid by the card-accepting business, not by the buyer. The buyer pays interest and other fees and that graph looks very different. From that original study the full picture table says in % of ADB that the "poorest" (below 620 FICO) pay ~45% interest and fees but bring only 2% additionally in interchange income. The wealthy (at 800+) pay ~10% interest and fees but bring another almost 10% interchange income, on 4 times higher spending, and 3 times higher rewards (so the wealthy get ~12 times higher rewards in $ value than the "poor"). Just the percentages paid by each group more than offset the difference in spending. There are also way more "poor" accounts than wealthy accounts. Intuitively you can tell that the banks are effectively subsidizing the fees and interest for the wealthy with the income from the poor, for the sake of the interchange income which is mostly generated by the wealthy but doesn't come from their pocket. Those poorest of people (<620 FICO) pay more interest and fees (percentage and absolute terms) than any other group. There's a range in the middle on the wealth scale where the customers are actually a net loss for the banks (the 660-760 FICO range).
- quickthrowman 1mo agoAssuming you have sufficient income, paying your balance off in full every month and instantly redeeming the rewards each month doesn’t take a whole lot of time. I just use a card that gives 1.5% cash back.
- fhdkweig 1mo agoAgreed. I have my rewards configured to automatically convert to cash to reduce my bill. The button was buried deep in the website, but once I found it, I've never had to go back to the rewards site again.
- ramijames 1mo agoI'm 46. I've never had a credit card. I have a bank account and a debit card. If I can't afford something, I don't buy it. You can just opt out of using credit cards.
- tomaskafka 1mo agoWhole Europe does this. I never understood why whole nation wants to live in debt just to have one extra month of cash flow (which they’ll probably squander soon).
- nemomarx 1mo agoPay your credit card balance off every week, and it's an overly complicated debit card but you technically build up a score for future loans. Also maybe you get cash back on that? Rational if you want a mortgage in the US at least.
- ramijames 1mo agoI'm in Boston. I'll never earn enough to buy property here. I'll never have a mortgage.
- frantathefranta 1mo agoI'm in <other US city>. It's possible to earn enough to buy property here. I already have a mortgage (as an immigrant, building a credit score from credit cards which in turn qualifies you easily for a mortgage is pretty nice).
- croon 1mo agoWhile I hate that it's like this, you're leaving money on the table. Currently you're keeping money in the bank accruing the bank interest to occasionally pay for stuff. With a credit card you would get various bonuses/cashback/gameified returns by owing them money, and it costs you nothing as long as you pay them back once a month interest free. If you however slip up/miss a payment it will cost you a lot. Both cases suck, but the latter saves you money if you play that game. That's from a EU perspective. From a US perspective you also require it from a credit score perspective, which EU thankfully hasn't adopted... yet.
- tyrabound 1mo agoThat is a spurious argument. You have a choice in whether you pay interest, you do not have a choice about a purchase including the cost of paying payment processor fees since the price is the same if you use paper money. One of the most corrupting yet hidden forces in America today are the payment networks MC/Visa etc. due to their bribing and corruption of the government in order to prevent things like making payment processor fees separate/independent of the cost, i.e., similar to how taxes are added after the fact, not included in the price; and also preventing merchants from having two different prices, cash vs card. I’m a bit surprised that HBR does not seem to even really have an accurate mental model if the matter, unless they’re making an editorial choice to speak in vernacular turns to relate it to the audience. The problem is not really the cards, it even credit cards, it’s actually the payment processing networks that are the corrupting force. If America has a legitimate government, there would have been a federal alternative payment processor that charges nothing as an accompaniment and based on the authority to mint the currency, which is what a payment processor today is, a digital currency mint. To put it into perspective, when you purchase something by credit card, a merchant may have to l pay a little under 3% on a $100 purchase. When you purchase something cheaper let’s say $5, a merchant may pay 6.5%. And no, they don’t just say “awe shucks, I guess I’ll lose that money”, They increase the prices by some averaged amount. Some may say that they can’t do that because competition, well, because there is no real competition and because the payment processor de facto monopoly/cartel has basically every single company in lockdown and you have no real alternatives, especially in places like Europe where they’ve foolishly and enthusiastically started forcing everyone into digital payment, all the merchants simply roll what is effectively a kind of organized crime/mob extortion into the prices of the goods and services the common person pays and never knows is paying.
- _aavaa_ 1mo ago> similar to how taxes are added after the fact That is not a positive. I'm fine with splitting up a price if you want to show how much tax gets added, but having to continuously do the mental math of "no this item is 10.99 it's 10.99 + tax" is very frustrating. When I pick up a $11 item, I want to spend $11.
- 1mo ago
- pathikrit 1mo agoWhy is it so hard lol? I have the Bank of America Rewards card for 25+ years. 2.62% cashback on everything, 3.5% on dining/travel. Maybe there are better ones out there but this is good. I have auto-pay setup so I don't have to worry. I have not spent a second of my time optimizing anything in last 15 years
- jazdw 1mo agoLol because in order to get 2.625% cashback at BoA you need to have $1,000,000 in your BoA accounts, maybe that's why it's hard?
- lotsofpulp 1mo agoIt was $100k for a couple decades. The $1M threshold started just now.
- pants2 1mo agoJust be rich. What's so hard about that?
- nerdjon 1mo agoI gave up long ago trying to optimize any rewards, it just ended up being stressful and not really worth it ultimately. Now I just use my apple card everywhere, pay it off every month and get whatever rewards I get. It feels like a weird situation, those that stand to gain the most from credit cards are also the ones that should feel a difference of under $100 in rewards the least. The one exception I see is bonus sign up rewards since those can be fairly significant, or making sure you use an airline card at the airline since those bonuses can be fairly significant (with sometimes other benefits). But outside of those exceptions, just choose a card with good rewards and stick with that and pay it off every month.
- soco 1mo agoI don't bother with rewards either, be it cards or memberships or whatnot - too much hassle if you're also working full time. BUT: one thing I use the credit card for and that is for the pay and travel insurance attached to it. Could I get it otherwise? Maybe, no idea. But if you don't carry debt (and I never do) there's no downside.
- losvedir 1mo agoThe rewards differences can be significant. Eg 4% vs 1% cash back is $3k difference on an annual spend of $100k. On the one hand, relative to our income it's not so important, but on the other it feels bad leaving $3k on the table.
- ant6n 1mo agoHow do you spend 100K on a credit card per year? Do you pay housing with the card?
- Brendinooo 1mo agoI've generally tried to stay with cash back rewards in categories that don't change, that's been the best way to balance complexity with rewards for me while not nudging me to buy stuff I don't actually need. I don't like messing with points or rotating categories or included subscriptions. With one exception I avoid annual fees as well. So like, I have a card that's 6% on groceries, another that's 3% on gas and restaurants, Apple Card does 2% on Apple Pay transactions, and I have a 1.5% card for everything else.
- deleted 1mo ago[deleted]