4 ms·

You've go to to love the hackernews spin on this. No more free miles, blah, blah. Do you really think the miles were actually free? Of course they are not.

You've go to to love the hackernews spin on this. No more free miles, blah, blah. Do you really think the miles were actually free? Of course they are not. Essentially this ruling allows retailers to pass on bank card payment fees to customers. Previously these fees were hidden, and the retailer had to swallow the fees, and of course ultimately pass them on to ALL customers equally as a cost. Now, customers themselves get to pay the fees directly, and thus have a choice, and consequences, in which payment methods to use. And of course this will likely have downward pricing pressure on the payment service providers, so in a reverse of the usual story, consumers in general will benefit at the expense of the banks. This is the way free markets are supposed to work, as opposed to the current cosy backroom agreements that only benefit the banks.

darkxanthos 13y ago
Was there some law saying that the retailers had to allow payment with these cards? It seems like a "free market" as you put it should allow retailers to no longer accept payment via certain cards if it doesn't make business sense to do so.
- jacknews 13y ago
  Of course, but then they are turning away custom. Why shouldn't they be allowed to charge customers different prices depending on which payment method they use, given different methods have different costs to them. Now they can.
- dminor 13y ago
  It was part of the merchant services agreement - e.g. if you want to accept Visa, you have to accept all Visa.
- mgkimsal 13y ago
  As dminor said, it was part of the agreement, but more to the point, you don't always necessarily know when you're taking the card. You'd only see the fee after running the purchase. IIRC, there was some way to decipher some 'types' of cards (airmiles reward card vs free gas vs cash back cards, etc) by some of the prefix numbers, but I don't think that was reliable, nor feasible. It's been a couple years since I discussed this with my bank's merchant account person, but in a nutshell it was "you don't now until after you take the card how much it'll cost you". There was a base fee, and most cards would fall in to that - 2.1% in my case, IIRC. But, if someone used some 'get 2% cash back on all purchases!' card, I'd be charged 4.1% (again, IIRC, might have been a bit more or less). When you don't know what the price is going to be, you end up needing to err on the high side, and factor in higher overall fees to every price, raising the price for everyone along the way. And the banks make more money because the whole 'free air miles!!!!' mentality gets people to use their card more. The banks get their fees on a per transaction cost (and interest on balances that carry on month to month) - the merchants effectively paid for all your 'free air miles'.
- tikhonj 13y ago
  The payment processors have a disproportionate amount of power over merchants because they form an oligopoly. The barrier to entry is extremely high, which significantly distorts the markets. The payment processors used this asymmetry to force merchants to hide their costs from the market at large. The market can't affect something when it isn't allowed to set different prices for using the service or not! Yes, merchants could stop using the payment processors. But, crucially, consumers can't: if a merchant used a payment processor under the old scheme, even customers paying in cash had to pay a higher price to subsidize this! Couple this with the fact that the payment processor market is entirely dominated by a bare handful of large companies, and you get something really far from a "free" market.
amputect 13y ago
Yeah the difference between the headline's implication and the content of the actual article is really jarring. This is objectively a good decision.
rschmitty 13y ago
> You've go to to love the hackernews spin on this. No more free miles, blah, blah. Do you really think the miles were actually free? Of course they are not. While they may not have been "free" in the strictest sense in the laws of economy, miles and cash back are a big part of savvy shoppers. I'm still shocked when I find out someone using a traditional credit card with no rewards, or worse, their debit card. When we got to this point I don't know, perhaps I wasn't young enough, but you would be fiscally foolish not to take "advantage" of them while you can.
- mgkimsal 13y ago
  The entirety of these 'reward' programs was to get you to use your cards more, and secondarily spend more. Spending extra hundreds per year to get a free flight now and then generally isn't 'savvy'. You think you're getting something back, but you're contributing to the problem, and giving cover to the whole 'increased consumerism' lifestyle. Thinking to yourself "sure, I'll spend a few extra bucks - I'll be getting 2% cash back next month/year!" or "hey - I almost have a free flight - sure, buy a bit more!"... encourages spending more than you need. I know there are people that do extreme gaming of the system, paying utilities and such with every rewards card out there, transferring balances and such to get a free flight. These are the outliers, much like extreme couponers spending days per week figuring out how to get $200 in groceries for -$18. It's not reality for most people. It's far easier to not spend on frivolous stuff, save up, and buy a plane ticket when you want it vs buying extra crap then trying to figure out which 10% of the days you can use your 'free miles' on. My wife's got 150,000 miles with an airline, and they have no 'air mile' seats available on any flight she needs for the next 12 months - it'll be 2015 at least before she can use all these 'free flight' miles (earned from travel, not from rewards cards).
  - gaadd33 13y ago
    Why do you think that everyone spends extra hundreds per year to get a free flight? Most people I know that use rewards cards use them because they put most of their expenses on credit cards anyway so getting an extra 2% back is just a nice perk.

darkxanthos 13y ago

Was there some law saying that the retailers had to allow payment with these cards? It seems like a "free market" as you put it should allow retailers to no longer accept payment via certain cards if it doesn't make business sense to do so.

jacknews 13y ago
Of course, but then they are turning away custom. Why shouldn't they be allowed to charge customers different prices depending on which payment method they use, given different methods have different costs to them. Now they can.
dminor 13y ago
It was part of the merchant services agreement - e.g. if you want to accept Visa, you have to accept all Visa.
mgkimsal 13y ago
As dminor said, it was part of the agreement, but more to the point, you don't always necessarily know when you're taking the card. You'd only see the fee after running the purchase. IIRC, there was some way to decipher some 'types' of cards (airmiles reward card vs free gas vs cash back cards, etc) by some of the prefix numbers, but I don't think that was reliable, nor feasible. It's been a couple years since I discussed this with my bank's merchant account person, but in a nutshell it was "you don't now until after you take the card how much it'll cost you". There was a base fee, and most cards would fall in to that - 2.1% in my case, IIRC. But, if someone used some 'get 2% cash back on all purchases!' card, I'd be charged 4.1% (again, IIRC, might have been a bit more or less). When you don't know what the price is going to be, you end up needing to err on the high side, and factor in higher overall fees to every price, raising the price for everyone along the way. And the banks make more money because the whole 'free air miles!!!!' mentality gets people to use their card more. The banks get their fees on a per transaction cost (and interest on balances that carry on month to month) - the merchants effectively paid for all your 'free air miles'.
tikhonj 13y ago
The payment processors have a disproportionate amount of power over merchants because they form an oligopoly. The barrier to entry is extremely high, which significantly distorts the markets. The payment processors used this asymmetry to force merchants to hide their costs from the market at large. The market can't affect something when it isn't allowed to set different prices for using the service or not! Yes, merchants could stop using the payment processors. But, crucially, consumers can't: if a merchant used a payment processor under the old scheme, even customers paying in cash had to pay a higher price to subsidize this! Couple this with the fact that the payment processor market is entirely dominated by a bare handful of large companies, and you get something really far from a "free" market.

amputect 13y ago

Yeah the difference between the headline's implication and the content of the actual article is really jarring. This is objectively a good decision.

rschmitty 13y ago

> You've go to to love the hackernews spin on this. No more free miles, blah, blah. Do you really think the miles were actually free? Of course they are not. While they may not have been "free" in the strictest sense in the laws of economy, miles and cash back are a big part of savvy shoppers. I'm still shocked when I find out someone using a traditional credit card with no rewards, or worse, their debit card. When we got to this point I don't know, perhaps I wasn't young enough, but you would be fiscally foolish not to take "advantage" of them while you can.

mgkimsal 13y ago
The entirety of these 'reward' programs was to get you to use your cards more, and secondarily spend more. Spending extra hundreds per year to get a free flight now and then generally isn't 'savvy'. You think you're getting something back, but you're contributing to the problem, and giving cover to the whole 'increased consumerism' lifestyle. Thinking to yourself "sure, I'll spend a few extra bucks - I'll be getting 2% cash back next month/year!" or "hey - I almost have a free flight - sure, buy a bit more!"... encourages spending more than you need. I know there are people that do extreme gaming of the system, paying utilities and such with every rewards card out there, transferring balances and such to get a free flight. These are the outliers, much like extreme couponers spending days per week figuring out how to get $200 in groceries for -$18. It's not reality for most people. It's far easier to not spend on frivolous stuff, save up, and buy a plane ticket when you want it vs buying extra crap then trying to figure out which 10% of the days you can use your 'free miles' on. My wife's got 150,000 miles with an airline, and they have no 'air mile' seats available on any flight she needs for the next 12 months - it'll be 2015 at least before she can use all these 'free flight' miles (earned from travel, not from rewards cards).
- gaadd33 13y ago
  Why do you think that everyone spends extra hundreds per year to get a free flight? Most people I know that use rewards cards use them because they put most of their expenses on credit cards anyway so getting an extra 2% back is just a nice perk.