> Because merchants charge everyone the same price regardless of how they pay, those fee costs are factored into prices for all shoppers. However, credit card users get that money back and then some through rewards, while cash and debit users get little or nothing.
>The result: People paying cash face the equivalent of a 26% higher sales tax than premium credit card users shopping at the same store.
I am surprised this never occurred to me or has come up at all in discussions with people (in the context of rising costs/inflation specifically). I’ve literally never considered this compounding effect until now. It’s so obvious of course, it just never even crossed my mind.
Many restaurants I’ve eaten at lately surcharge credit cards with a 3% fee, offering a discount if you pay cash. This is the way to nullify this regressive policy until the US commercial banking system offers instant payments for merchants, internalizing the externality of the interchange fee. If you pay with card, you
US FedNow instant payments went live three years ago, and can move $10M per transaction for a few pennies per transaction.
(A gap in legislation was not mandating offering FedNow capabilities to your customers as a condition of your banking license as a bank; I expect this to be patched eventually)
The problem is the way the US credit/debit card systems are setup, there's not much of a discount/surcharge that would make me switch usage to debit.
If my credit card number gets stolen, zero money ever leaves my account. It simply gets contested before the monthly bill is even due, and cancelled. I have probably had number stolen 5 times in 20 years, and its never cost me a cent. Zero dollars every left my accounts even temporarily.
If my debit card number gets stolen, the money is out of my checking account immediately. Mortgage payments and other bill payments might fail, and the onus is on my to chase up the bank to get charges reversed and money returned to my account.
n=1 of course. All US mobile carriers provide a substantial discount if you establish autopay with ACH over debit or credit. I've seen the same with Xfinity. It will take time, but we'll get there.
> You can get a $10 discount on your monthly bill if you: Have Xfinity Internet and sign up for automatic payments and paperless billing with a stored bank account
Walmart was one of the larger supporters of FedNow during public comment period, as they experience billions in interchange costs per year, and are building instant payment support into the Walmart Pay component of their app to avoid these costs.
> “It surprised me,” Henry said of adoption of Walmart’s first iteration of pay-by-bank, which is available online but hasn’t been marketed to customers. “It’s certainly surpassed our expectations of the amount of customers that have registered and actually use the payment type.”
> Walmart’s upgraded pay-by-bank offering will be rolled out in 2025. The transactions will occur over bank technology provider Fiserv’s NOW Network, which integrates with The Clearing House’s Real Time Payments network and the Federal Reserve’s FedNow. Until now, large retailers hesitated to launch real time payment options because many banks were not connected to an instant settlement system, meaning their customers would not be able to use the product. NOW Network aims to connect to as many banks as possible to reach 100% of deposit accounts by combining its own network with RTP and FedNow.
My understanding is that Meta is also pushing ad buyers to invoicing vs credit card payment.
Like the slow decline of check volume, I see the same here. Credit card rails will exist for some time, perhaps another 10-15 years, but they have likely peaked from a volume perspective. If you're a merchant, surcharge when you can, and work towards on boarding and offering customers cheaper payment rails (imho). If folks want to pay the ~3-4% surcharge, enable them to, that is a choice if they want the benefits of using a credit card. But we should not all have to eat the cost for their benefit when less expensive options are available.
(I work in financial services adjacent to payment systems, thoughts and opinions always my own, this is behavioral economics at scale, as always think in systems)
Not only would the 3% fee not make me blink, as my cards have 3% cash back for dining, I doubt I'd change my behavior even at a 5% discount. If anything it'd dissuade me slightly from patronizing the restaurant.
Credit cards are convenient and cash isn't. The genie is out of the bottle, no way to make people move back to cash.
You're not the avg person though. Most people are being squeezed by inflation and watching prices on everything and trying to claw an extra 2-3% back wherever they can.
If interchange fees were capped, people would go back to cash, imo. A lot of research shows you spend less when you pay with cash. And the lack of credit card rewards as a draw might lead people to carry it again
Car mechanics, dealerships, house fixing contractors, city (property taxes), these are the ones that I can think of in the past year I've come across charging a fee for credit card payments. What's most irritating is that most of them do not setup for and drop the fee if you pay by debit card.
Always ask if they’ll give you the discount paying with Zelle if they won’t for debit. Almost every major bank supports Zelle currently in your native banking app.
In small restaurants, that’s just a tax grift for the owner. The “smarter” ones underreport income, the dumb ones steal the sales tax and the hammer eventually drops. Over time, they’re probably paying a lot more than 3% for shrink, Due to screw ups and employees skimming the till.
Credit cards have a really high ROI. The 3% drives 10-20% more spend, sometimes even more. When I was on the board of a small private school, we bought a square terminal and used QRs for flyers. That drove 30% increases in fundraiser expenses and helped us reduce mailings and nags. We would cross-sell stuff - could buy your youth soccer registration at the fall fest or whatever.
The things where ach, check, cash make sense are where there’s no discretionary spend at point of sale or recurring payments. If you pay 75 bucks a week that have your apartment cleaned dog groomed or whatever. You’re not getting value beyond taking the payment in advance with a credit card. Those are the areas where Venmo and Cash app have really dominated.
The only way I can interpret the percentage is that they are stating the increased cost as a percentage of sales tax rather than a percentage of the sale, such that "26% higher sales tax" in a state changing 10% sales tax would mean paying 2.4% more in total. That choice seems misleading, but does make the percentage make sense.
It's just such a bizarre choice that one might hope there would be another interpretation. Why measure a percentage change on sales tax, which varies heavily from location to location, and is not what the associated fees are based on, rather than simple choice of total cost?
Because sales tax is something you pay that's more than the sticker price, and people tend to have an intuition for sales tax in their area. Personally, I find "a 3% credit card fee is like paying 21% more in sales tax" to be intuitive.
You’re right but that’s actually not the part I’m talking about. Specifically the fact that even though we are all “being charged the same price,” as prices increase, the amount I am saving increases as well due to cashback or other benefits on a credit card. And because I am spending less money, I ostensibly have more money to make my credit better, which means the benefits only increase on top of that.
It’s a variation on a theme we are all very familiar with. It’s expensive to be poor. But this is another angle I hadn’t really considered. It’s a little more complicated than just “I can have better cards with better benefits.”
TL;DR: The actual cost per item for me is, in very literal and quantifiable terms, lower as a result - and the more expensive things get, the steeper my discount gets while the person next to me paying cash is paying a little more than I am every transaction for the same items.
Put another way: As price/inflation increases, the real number I am saving increases as well. So we aren’t just paying different prices, but their increase is also higher the higher prices get.
I was surprised by this number too - and I’m pretty sure it’s a clever wording trick to inflate the percentage:
> equivalent of a 26% higher sales tax than premium credit card users shopping at the same store.
I do not think the sale price is increased by 26% - which doesn’t square with a 1% to 3% fee - I think they pay approximately 26% more in “sales tax” so you’re paying 26% more than the 7% tax.
I believe a similar thing happened with fast food and food delivery fees. It costs money to be listed on the food delivery app so fast food chains started charging everyone the same price to offset the cost of being listed on the apps.
Delivery apps don’t mandate that the price on their apps be the same as on the actual menu. If you walk in and order you’ll pretty much always get a lower price.
It also means stratifying card users, even if you actually make all the card users pay more than those with cash. The people who can just barely qualify for a card are paying to fund the "rewards" for the wealthy who pick the best options.
"It's expensive to be poor" is a more or less universal experience under capitalism and it's amazing how many novel ways we've come up with to make it more expensive for poor people.
"Means testing" is one of the fun ones. The wealthy will often justify this as "People like me shouldn't get this help" which sounds even generous, and then you realise, oh, because we're testing if you're worthy to receive help now to get help you need to expend some time and effort to pass the test. When this "I shouldn't get benefits" is offered to you as a reason to means test, ask them why they're taking a benefit they don't think they should have and why they can't pay society back in other ways rather than inflict more misery on the poor...
Then they get angry when the other side of the coin is discussed - they can’t get certain benefits because they’re above the threshold too, but they’re different of course.
I always wondered why people in America would ever pay by cash or credit card - unless they are laundering that cash.
Otherwise, you're giving up 1-3% discount.
Set auto-pay on your credit card to pay in full every month. I've never once paid for credit card interest. I think there's a term inside credit card companies for people like me: leeches or something like that.
I would be curious what percentage of people actually qualifies for a card with over 2% cashback especially without a monthly fee. My guess is that that percentage is very low.
High earner/spender, sure but that's not most people
I know that Discover has a card with a 5% discount category that changes once a quarter. Everything not in the category gets 1%. It's not hard to get the card (or at least wasn't) and was frequently advertised to college students.
If you combine that with a card that gives 2% on everything than it wouldn't be hard to average over 2% cashback as long as you were mindful about using the discover card for qualifying purchases and the 2% card for everything else.
There is one other rub - because I use my bank's card I get better interest rates. How does a .25-.5 % on my various loans and checking account compare to 2% on groceries - this is a complex question that it not easy to answer.
My first US credit card was a 4-3-2-1% rewards program and I had literally zero income at the time. I was told by the banker, "oh you can't do that right away, you must first get a secured card to build your credit score, after a year you can try applying for real", but I told them I don't care and to send the application anyway, and I've got it.
Ever since then, I wondered how much of the "not qualifying" is due to misinformation like this.
The question is what percentage of overall population are 1, 2 and 3 combined, and is it big enough to warrant the perception that high reward cards are only for high earners/spenders.
I have a 2% cash back credit card from my bank, with no monthly fee. It started as a 1% cash back card around a decade ago, and slowly crept up to 2%. It's a nation wide credit union that has certain requirements to join though.
If the alternative was paying cash, cash has an even more demanding level of confidence of sufficient funds required and it applies earlier with no flexibility.
Based on the downvote and your reaction, I assume I misread something. We're talking about why Americans sometimes prefer paying with cash over credit card, no?
I paid a lot of credit card interest, as a yute, but, since getting married, I have paid in full. Been over 30 years. Leeches rule!
At one time, credit card companies forced vendors to charge the same, whether cash or credit, but that seems to have fallen by the wayside.
The problem is, is that cash is becoming less and less acceptable.
In a nearby town, you can't pay for parking, with cash. I have seen credit-card-only vending machines. A lot of restaurants have iPads at the table, and you never see anyone but the bus[boy|girl|whatever], bringing you your food.
Credit cards are cheaper than cash for most merchants. Most people forget about all the costs of cash because they are hidden, but they add up to more than the couple % credit cards cost.
> Credit cards are cheaper than cash for most merchants.
Huh. I always thought it was the opposite. I know several restaurants that refuse to accept credit cards. They are great places to eat, but I won't go there. I don't think they miss my custom, though. Refusing to accept credit seems to be a signal of excellence, around here.
If you don't do the accounting, it appears that the fees on a credit card are greater than the cost of cash and so restaurants that haven't done their accounting closely often think they're getting themselves something by not accepting credit cards.
The cost of a credit card is very obvious. The cost of cash is many small things that are very hard to see and thus very hard to account for correctly.
Long term average? Sure, it goes up, that's inflation. But do you know what causes inflationary pressure? Visa and MasterCard adding unjustified fees because they're a duopoly and control most of the payments market, and your government won't regulate them and cap fees.
The UK and the EU both cap debit card fees at 0.2% and credit card fees at 0.3%. When the UK left the EU, Visa and Mastercard jacked up their fees over 5x for UK-EEA payments. Not because they had to, but because they could, and they love sucking money out of other peoples' businesses. https://www.psr.org.uk/our-work/market-reviews/market-review...
Retailers in competitive industries absolutely do use a reduction in card fees to lower their prices. Maybe not all the way, but they definitely don't give it all to themselves as margin; their competitors don't.
Once in a while. However the truth is the large people who collect the 1% and pay off their card every month are the people who don't. These people are customers year after year, and often spend more on their cards (they tend to be higher income), and the bank gets their 2-3% from them (2-3% after rewards)
People who don't pay their card off also are on the look out for lower interest rate cards and switch all the time. they in reality are not paying the very high rates on cards, they are paying the lower introductory rates (which is still a lot of money). These people are also more likely to default and stop paying leaving the bank to write everything off. Combine that with the fact that they typically don't spend as much over several years (they hit their credit limit and their income won't allow an increase so they have to stop spending), and they are not as profitable as it seems.
When I and my (still fairly young) family needed to move cross-country, my wife and I accepted a credit card offer with 0% APR for the first year and put all our moving expenses on it. Then once we settled, we paid it down a bit at a time each month, and then right before it would have started charging interest we paid the rest as a lump sum.
Really helped us float the moving company and also some DIY renovations on our house that we didn't have all the cash on hand to pay for outright. And we didn't pay a thin dime for the privilege.
Credit card companies are still charging merchants a transaction fee for your purchases though. The fact they're only charging one side of the transaction is probably annoying for them, but you still make them plenty of money.
I prefer my debit card because I'm more aware of how much I'm spending. Money taken out of my account is immediate and feels real. Ultimately, I spend less.
One isn’t more real than the other. They are both numbers in an online database. In one case your assets are going down, in the other your liabilities are going up. The net result is the same.
I agree with dougdude. I like debit cards better because you see the balance change immediately. The thing I dislike about credit cards is payment is deferred by a month.
Problem with a debit card is that if something goes wrong (product broken, or worse, debit card skimmed) it's my debit card, and thus my money.
Credit card? I file a charge-back which is a forcing mechanism for the vendor. Credit card skimmed? I get a new one, and I don't need to wait for my $ to be re-imbursed.
Well, one reason is the one described in TFA —- credit card rewards amount to a regressive wealth transfer, and if you think that is bad, you may not want to participate in it.
Another reason is that credit card companies sell your purchase data to aggregators and advertisers, and cash affords more privacy.
I always ask for a discount but for some reason I almost never get it.
The rational move then is to pay in as many installments as I can get without any additional interest. Then time itself gives me the discount. My actual money stays invested and I only pay later. My credit card gives me 1.1% cashback on all purchases. Inflation too does some of the work.
You shouldn't get a cash discount - cash costs the merchant MORE than credit card fees. You have to count all the costs of cash that credit cards don't have: counting, and recounting the cash and change. Then the manager counts and recounts everything in the back room at the end of the shift. Then the manager counts everything twice again to write up the deposit forms. Plus you need a cash register with the extra cash drawer that acts like a safe. Plus other security systems just to prevent robbery (this can get elaborate in areas where robbery is common). Those all add up.
It's worth to think about it a bit, especially in larger purchases. Significant discounts on the order of 5% to 10% can easily beat all credit card benefits, and not taking advantage of it leaves lots of money on the table.
I have a little lookup table for this. Interest free installments mapped to cash discount necessary to beat the credit card. I just look it up.
These numbers are actually conservative. There's a lot of credit card benefits that weren't priced in. I add a couple percent to the required discount numbers and round it up to compensate.
Mathematically you are right. However those interest free payments are generally setup in such a way as to make it highly likely you won't pay it off by the end of the interest free period. The bills they send contain the minimum payment - designed to get you past that time. I don't trust my ability to get the fine print right - it only takes messing this up once to destroy all the gains from several times getting it right. So I use the credit card anyway and pay it off every month - that payoff is the one number I can get right every month.
None of this is your problem: you are not a merchant. What is wrong is the analysis of various people who think cash is cheaper and thus get mad at not getting a cash discount. It is also wrong that a number of merchants are bad at accounting: they think that cash is cheaper by enough to be worth a discount - but this is not your problem either.
> I think there's a term inside credit card companies for people like me: leeches or something like that.
that's some odd classism there.
credit card companies love your data. they can package it, sell it, analyze it.
this is real data of actual behavior, not whatever people say or click -- money where the mouth is.
even if they never make a cent off of you from an interest perspective they 1) still get fees from the merchants, and 2) get all of that juicy juicy transaction info -- and that info alone might be worth the costs.
My understanding is that they are much less generous on average compared to U.S.
E.g. for now I have the most premium card offered by my bank (50€/mo), and it gets me extra product insurance, rental car insurance, travel insurance, free lounge access, and some other things like that, but no cashback or similar.
I think some premium cards do offer cashback nowadays, but they are in the minority. Some cards also offer airline reward points. My experience is limited to Finland, though.
US are not generous either. Merchant increase prices by 5% to cover costs, you get 2.5% cashback and visa/your bank pockets the other 2.5% you're paying.
In the UK (which broadly follows the same rules), I get 0.25% with a Visa and 1.25% with Amex. Sometimes there are introductory offers for a few months.
With sumup I get 0.5% cashback up to a whopping 10€/ month lol. There are other cards giving cashback, I think Amex blu has a 1% with no upper bound of monetary cashback
And often the credit card companies try to enforce this by writing wording into their contracts that try to stop merchants offering different prices for different payment methods.
This is true. In fact, if you come across a merchant that accepts credit with a minimum purchase amount or tacks an extra fee, you can take the receipt and call the terminal owner (visa/MasterCard) and report it. The receipt has a terminal ID, and it turns out the likes of Visa get really pissed if merchants do that.
I know this because I used to work on a US military base. There was a sole merchant on a particular installation that was doing this, but it was extreme. They'd force you to buy over 10 USD if you wanted to use a card, and it was the only place to grab a snack. One day there terminal was shut down, and for a period they only went to cash payments. Once they took credit again they removed the minimum purchase. Turns out somebody got pissed, and reported them.
Regarding the article, the ~390 USR sounds about right to me. I only use a credit card, pay it completely off at the end of the month. I've never once paid interest since in the 8 years I have used this card. Every few years I buy a plan ticket with the rewards.
Card network rules in the US prohibit merchants from adding a surcharge for payment with a debit card. Most merchants are either unaware, or prefer not to care. If you are using a debit card at a business that assesses a card surcharge, point out that your card is a debit card when paying and refuse to pay the surcharge. If that does not help, there are online forms available from both Mastercard and Visa where you can submit a merchant complaint.
And it wasn’t out of the goodness of their hearts that they changed - they finally lost enough big court cases over it, it was to avoid heavy handed legislation.
Places around me have been starting to itemize the credit card fee. Only car dealerships so far have waived the fee for debit over credit in my experience.
Even if the FX is notionally "free" they pick the rates. So they can set those rates to generate exactly the same profit for them as with fees.
You will probably not see rates that are even competitive with a dodgy FX cash place at an airport, let alone with the numbers you've seen on financial networks for what FX transactions by banks cost, but you feel happy because there was "no fee".
Huh. I wonder how long that's been true. I guess I haven't been to America since last century, but I could have sworn I had zero fee but unreasonable FX rates when I was in Poland which can't have been more than 25 years ago.
This is flat out incorrect. It's actually quite difficult to get a cash FX rate that's even close to as good as the standard credit card FX rate, which is also set by Visa/MC and not the banks.
Where the banks do get their pound of flesh, though, is the foreign transaction surcharge, which is often around 3%. No-fee cards exist but you need to look for them. And a whole new set of charges applies to doing a foreign cash advance on a credit card.
This is misleading. Banks put a fee on foreign transactions, many do this even if the transaction is in the card's native currency.
The card companies always add a margin to FX conversions, usually in the 0.5% range. This is fairly benign since the market rate can move between the transaction and the settlement, so sometimes you save money.
That really explains only small parts. Even the horrible suburbs have little real reason to be that expensive. In the end it is really about lacking actual free market and enabling corporate capture as voted by the voters.
I’m in Stockholm, and our condo HOA (BRF) includes 1Gbps per unit in the fee for all units because billing individually would cost more in admin than the service itself. We have FTTP and then cat6 to each unit.
That sounds really convenient! Is it a new building? I know the odd American or Canadian build will have that, but only the newer and more expensive ones.
But this is a pretty common setup for condos in Swedish cities. Rentals usually have access to the same infrastructure but at higher prices due to kickbacks demanded by the landlords from the ISPs.
The backbone of it all is a state owned fiber connecting the cities together with municipal fiber.
But even outside of the cities FTTP is quite common. There are companies which specialize in finding rural areas where there’s enough interest to justify the cost of connecting them and then coordinating getting an economic association setup to own and manage the local infrastructure.
That’s not the reason. The required build out has actually already been been paid for: https://www.huffpost.com/entry/the-book-of-broken-promis_b_5.... But the US is so politically broken that corporations could just pocket the money without actually providing the infrastructure.
Internet access isn't particularly expensive in the US.
Healthcare, education, and housing are expensive in the US for the same primary reason: political interventions that simultaneously subsidize demand and restrict supply.
Bit for bit, internet access is cheaper in America than it is in Canada or Australia.
Canadians like myself have ~40% of our provincial taxes spent on healthcare, so in my case about ~8% of my gross income. Somewhere in the tune of $20k/yr. While I was living in Seattle and filing American, quite a bit less of my gross income went to healthcare. Just food for thought.
But that is not because it's less efficient. With the Canadian system being socialzed and 20k$ being just 8% of your income it is to be expected that you would pay moch more than the median person into the system.
"I make $250k CAD a year, my experiences must be representative of, and relevant to, the masses," is a wild thought to have.
Well, maybe I spoke too soon, because my private American healthcare turns out to also be about 8% of my gross income (of $60k)(before copays and my deductible)(and also it's crap). Twinsies!
But yes I agree that it would be awful to have my health needs taken care of and a mere ~160k USD left to spend on everything else.
Oh I certainly don’t think it’s representative to that of the masses, I was sharing an anecdote.
I think either way both of us are in really good shape. In my experience the quality of American care is better in nearly every regard (having experienced both pretty intimately), but the simplicity and the peace of mind of the Canadian system has its benefits too. In either case you end up paying.
> But yes I agree that it would be awful to have my health needs taken care of and a mere ~160k USD left to spend on everything else.
It's partly true: this only applies to consumer cards. That's why many EU banks still offer corporate credit cards with huge cashback etc. For example, revolut offers no cashback in France on their metal cards if you have a consumer account, but up to 1% cashback on the same card if you have a "freelance" account. https://www.revolut.com/fr-FR/metal/
Second thing: interchange fees are not the only fees that your typical store has to pay, the total fees are much higher. I think the EU essentially capped Visa/Mastercard profit in the EU, more than they capped small business fees for card payment.
Patrick McKenzie (patio11 fame) had a great blog post in credit card rewards
There is a lot that goes into it, and it is interesting how customers like me who literally never have carried interest and have to made thousands of $ in rewards over the years still make the banks money....
Credit card points/miles are an interesting topic, and I have found them to be kind of useful cyclically myself over last 20 years.
They are a way for airlines to create value out of thin air with their own fiat currency. For the average consumer the miles create less of a pure economic efficient benefit and more of a psychic benefit - funny money bucket that accumulates to defray some trip expenses. Economically they'd be best off with an outright 2% back card.
For the minority of customers who are flexible on dates/locations and willing to plan in advance - most airline/hotel programs have sweet spots at the more premium level.
I use them to fly overseas business class refundable fares at discount. It's not free, but the taxes paid + foregone $ I could have gotten with a cash-back card ends up being 2-3x economy non-refundable fare instead of the 5-7x listed cash price if I bought the business class ticket outright.
It's generally a time-vs-money thing though in that to maximize airline/hotel programs you need to pay attention to various limited time offers for signup bonuses, spending bonuses, conversion bonuses, redemption bonuses, etc. Without those it's a very uphill battle.
> It's generally a time-vs-money thing though in that to maximize airline/hotel programs
Credit card hotel booking portals are often much worse than what's available too.
For example, you might end up paying 30-100% more for a hotel booked through Chase Travel. At the very least you'll have way less selection. Even if price matching exists, you could still end up paying more.
I am traveling to Mexico next month and I do have a Chase Sapphire Preferred card (the one with the $95 annual fee). You get $100 in hotel credits per year if you book through Chase Travel.
In one of the spots I'll be at, there was (1) selection. It was $92 for 2 nights in a pretty low populated town that I'll be passing through. That hotel was rated 3.2 stars on Google.
If I use Google search or any hotel aggregator site, there were over 10 hotels available for half the price with much better ratings.
In this case it cost me about $50 extra to use the card's benefits.
Many people don't understand how rewards work when it's marketed towards your annual fee. The $100 credit doesn't offset the $95 annual fee. You pay $95 out of pocket for the fee. As soon as you book that hotel for $100 you've now paid $195 total out of pocket of which $100 gets credited back, so you're still out $95. If you instead didn't have the card and got the hotel at the cheaper rate, you'd only be out $45 or whatever you paid.
I mainly got the card because it had a really good sign up bonus, 0% international exchange fees and reasonable rental car coverage. Other cards can cover these benefits without an annual fee.
> For the minority of customers who are flexible on dates/locations and willing to plan in advance - most airline/hotel programs have sweet spots at the more premium level.
What does this mean? I'm not clear what the sweet spot is - are you talking about buying points/miles/etc outright with cash rather than earning them as credit card rewards? Everything I've read is that these are almost always bad deals.
It means that the vast majority of redemptions are a bad deal, but every program has gaps in their earn/burn charts that lead to good values.
There is no one-size-fits-all answer.
If you do not have time to look into it, plan trips 6-12 months in advance, or have flexibility (will go anywhere thats a deal), then they aren't worth it.
> They are a way for airlines to create value out of thin air with their own fiat currency. For the average consumer the miles create less of a pure economic efficient benefit and more of a psychic benefit - funny money bucket that accumulates to defray some trip expenses. Economically they'd be best off with an outright 2% back card.
“Saving” airline miles is definitely suboptimal, like you said, getting 2% cash back and redeeming it immediately is the optimal strategy. Money is fungible and cash depreciates.
Plus, the “deals” you have access to with airline miles are not slanted in your favor.
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.
The point is they make a lot of their money from people who don't, paying 20% APR -- the 'whales' in this consumer industry aren't the richest people, unlike retail, gaming, travel, etc.
Rewards 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.
There 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.
There'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.
Don'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.
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.
> 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).
This 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.
I 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.
Imagine 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.
Yes, 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.
Sure, 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.
Incorrect. 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.
In order for the banks to retain the market power required to keep such high interchange fees in place the need to incentivise those who don't NEED to pay with a credit card to do so anyway, and the biggest way they do this is by splitting the loot with you. You share in the loot, and you share in the responsibility for how it was accumulated.
Alternatively 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.
Credit 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.
What 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).
Businesses raise prices to account for interchange fees. So they are essentially is paid by the consumer. If we outlawed rewards credit cards (by capping interchange fees), everything would likely be slightly cheaper.
> Businesses raise prices to account for interchange fees
Agreed, which makes the picture even worse for those low income people. Even poor people are guaranteed to occasionally pay the "rich person tax" included in the prices of some of the products and services. At least until some AI pricing starts changing the price real-time based on the buyer's estimated wealth (sort of already real).
> So they are essentially is paid by the consumer.
Not from a bank's perspective. Only in the sense that prices are higher between the seller and buyer.
> If we outlawed rewards credit cards (by capping interchange fees), everything would likely be slightly cheaper.
I don't agree on the second point as a blanket statement. When Epic game store lowered its fee not a single game got cheaper for the buyers.
> Agreed, which makes the picture even worse for those low income people. Even poor people are guaranteed to occasionally pay the "rich person tax" included in the prices of some of the products and services.
Credit card fees are baked into the price of everything that can be purchased with credit card, excluding merchants that offer a cash price and a credit price.
Any time someone pays the (credit card) price with cash or a debit card is paying more than someone that earns CC rewards, it’s virtually every transaction.
Outlaw rewards credit cards? Or make it compulsory that the true cost of a specific credit card is revealed to the merchant who has the right to absorb or pass on, in a line item, that cost to that specific consumer?
If I know I'm paying for my own rewards, I'd choose a card that keeps more money in my pocket. I'd go as low as the PITA factor of cash.
It's not clear to me what the net benefit is of a credit card over a debit card.
But for sure the confusion ensuing from allowing debit cards to be charged as credit cards should be illegal. The merchant account providers are probably the ones reaping the free money on the racket.
Credit is the POS default, for whatever reason. Not all POS are the same. e.g. US Post Office consistently knows if I am using a debit card, and it prompts for a PIN when I do. Every restaurant, bar, service does not ask for PIN, and the handful of merchants I've inquired with say their debit card fees changed by the merchant account providers are the same as credit. Scammy.
At least in Colorado it's legal for businesses regardless of the TOS contract with a merchant account supplier to pass on the transaction and processing fees of credit cards. It's not legal to pass on cost/fees for debit cards, ACH, or cash.
I think that's out of date. He links to a study showing interchange revenue net of rewards showing up to 3% by high FICO scores. (Just at a gut check that seems crazy to me, since interchange revenue doesn't really go much above 3%!). But that's from 2013. I remember when Fidelity launched its 2% flat cashback AmEx back in 2003. People didn't really know if it would be sustainable. Now 2% is a dime a dozen.
The most recent I've seen otherwise is this Federal Reserve study[0] from 2022. It finds that the marginal return on swipes is actually slightly negative because of how juicy rewards have gotten, and 80% of their profitability comes from interest (with most of the rest fees):
> we find that, on average, the credit function makes up approximately 80 percent of the credit card profitability, whereas the contribution of the transaction function is slightly negative, as rewards and other expenses on credit card transactions outpace banks' interchange revenues.5 In addition, fees—in particular late fees—comprise approximately 15 percent of credit card profitability.
Assuming 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.
Agreed. 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.
Pay 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.
I'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).
While 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.
Cashback is definitely capped, I'm less sure on other forms of rewards, but by my napkin comparisons, I do get out more "value" from my credit cards than the fees and cashback caps. YMMV of course.
Ex-European here. It is very common to overdraft your bank account in Europe. The overdraft interest fees are very similar to the credit cards here in the US. It is basically the same service but with a different execution.
Yet many European countries have high household debt. Switzerland, Sweden, Netherlands, Denmark, some of the highest in the world. I guess it has to be mortgages, since it's true they are not that "big" on credit cards. Although Klarna is a Swedish company.
Speaking for NL, yes it's mortgages. And those come with monthly payments towards the principal in pretty much all cases. Also, those being mortgages the rates are like 5% or so, not over 20%. Soll
After 30 years, people generally speaking own their home and that's their biggest chunk of wealth. So basically, yes a high debt to income ratio, but it's building towards wealth and its not high interest debt either.
This is arguably partly because the EU caps card interchange (at 0.3%, generally). So these reward schemes don’t exist, because there’s no money for them, so why would anyone use a credit card over a debit card or bank transfer unless they need the credit? Most people in the US presumably don’t start using credit cards thinking “I’ll get in debt, that’ll be great”; it’s the reward schemes.
On a macro level, that's true. On an individual level, your avacados cost 3% more whether you use credit or debit, it's just your choice to recover 2.5% from that back in rewards or not.
I'm American, and I don't use the extra cash flow (in fact, I make sure to keep more money in my checking account than I spend on the credit card, so I can always auto-pay my bill and therefore never pay any interest).
If I could get a debit card that gave me 2% cash back on all transactions, I'd use that instead!
I’ll never understand this credit card debt thing... and why should businesses eat the credit card commission cost? Is it 5%? You pay for it, why should I?
The reason for a business to want to accept cards is that some fraction of your customers would choose not to buy whatever it is you sell if not for the convenience. Whether that's a guy who decides not to buy donuts because then he won't have even to buy more scratch-offs or the woman who doesn't get those bald tires replaced because if she did the family will be leaving on cheese sandwiches until payday.
For the consumer the reason is that this is revolving credit. If you pay next month you can have stuff today. That's a small relief, unless it turns into a carried balance and then it's an ongoing burden, but you don't think about that burden at first because you're naturally optimistic.
There is value in this even if you always pay your full statement balance every month.
If you have a stable source of income knowing your credit card payment is due on the 7th of every month means you don't have to monitor your checking account's balance for every purchase. You only have to think "make sure you can cover $X by the 7th".
Vampire Squid. But this is only in one country. Go other places (e.g. New Zealand) and reality is different. There every single transaction has the credit card fee added explicitly.
I’ve literally never bought anything with a debit card. I’ve definitely spent over a million dollars on credit cards in the last 3 decades and maybe over 2 million if you include personal and business card transactions.
Businesses accept less money when someone pays with BNPL. They also accept less money when someone pays with a credit card.
The reason is rather obvious, people spend more money with credit than they would’ve with cash. Accepting 95 cents on the dollar to get a sale with credit that you wouldn’t have got with cash still earns the seller money, money they wouldn’t have earned without accepting credit.
Sorry, but I don't care what other people think. It's my money and I'm careful with it.
The entire credit card industry is set up to squeeze out as much profit from people as possible. They offer discounts as an incentive, but it is a huge trap that many, many people fall into. I'm not interested in risk. I'm interested in simplicity.
It's participating in the credit card industry that is foolish.
For people who only spend what they have, what is the risk? I don't accrue credit card debt, never have, so I've enjoyed a 2-3% discount on my entire spending history. Over lifetime that will probably amount to a couple of vacations.
I completely get where you're coming from, but credit cards are a tool, and you can came out way ahead using them properly. For starters, they are key to having a good credit rating, which opens a lot of doors - maintain 3 open cards, pay off the full balance every month, and keep those accounts open for 10+ years. Big lift.
Second, never use a card with an annual fee.
Third, which I already said, but bears repeating: pay off the full balance every month.
Fourth, look out for one good rewards card and funnel expenses through it, so you can get the rewards.
My parents taught me all of this 40 years ago, and it was exceptional advice, and has served me (and my family) very well.
Credit cards are not about carrying debt. They are the worst tool for that.
This is overselling it. You can come out 2% ahead or so. 4-5% if you are an extremely high spender who enjoys mentally managing 5 or 6 credit cards to max out category bonuses and other benefits and all that.
You come out marginally ahead at the expense of mental overhead. Good tradeoff for some, not for others.
I use a credit card, I dropped from 3-4 different cards trying to max out those 4-5% spending categories and just have a straight 2% cashback on everything card now. Plus one backup on a different payment network in case one goes down. It got to be exhausting trying to remember to manage so many cards plus remember to use the points, make sure to use the right card for the right thing, and all the other BS.
For some of my friends it's a hobby which is great for you if you enjoy such things! For me, it's just adding another chore to my life. Not worth the 1-2% or so marginal gain against my spending.
The super easy stuff is long gone these days too. You get far larger discounts paying via ACH for utility bills/cell phone bills/etc. vs. what credit card rewards give you so all the "autopilot" stuff is largely gone.
I do remember the days where we paid our Equinix bill via the company Amex. That was pretty fun while the party lasted!
If you shop at places where many customers user credit cards, and those places don't change an extra credit card processing fee to customers, then you are effectively paying for those credit card fees whether or not you use one.
I assume you've somehow gotten access to stable housing though via that bank account (possibly a home loan, or something else), or accessed a large line of credit before 'modern' credit scoring came into play (FICO scores and the Big Three).
I see many commercials for local banking up here that pulls out 30-40+ year members of the banks boasting about the prosperity the bank provided them, but at the same time, when they'd walked into the bank back in the day A Guy just said "yeah he's good for it" and wrote out the loans they needed.
You can't opt out of the modern credit scoring system and if you fuck it up even once with a bad line item you're out of the running for quite a few things and become virtually poor.
Try to pay for SaaS online. Tons of them accept nothing but credit cards; and then some of them accept direct withdrawals from bank account but it takes days to verify. Services using Stripe seems to be the worst at this. (I’ve never carried a credit card balance my whole life.)
Debit cards charge as credit cards no problem. That said not having a credit card is tough on your credit history. You could just have one and pay the balance but then they still have all your data, it sucks
I’ve specifically had debit card with Visa mark declined online where credit card was expected. Don’t know how common that is because one stops doing that once it happens a couple times.
In the US you have several legal safeguards that are not provided by debit cards. Fraud liability limitations, chargebacks, and so on.
You can still implement “if I can’t afford something, I don’t buy it” with a cc. I pay mine off every month so it’s financially the same s a debit card but use a premium card for its purchase benefits.
I used to have this same mentality (no credit cards) when I was younger, until my debit card was stolen and someone took $1000. The bank basically shrugged their shoulders and said there was nothing they could do.
I always get my money back when this happens with a credit card purchase. I've also had to dispute things occasionally, and I almost always get refunded.
In an alternative universe, the government could require banks to refund victims of theft and fraud. It's entirely possible for banks to do this without requiring you use a credit card, they just don't want to.
> Industry body, UK Finance, estimates that criminals successfully stole £1.28 billion through banking fraud and scams in 2025. Of this, £703 million was unauthorised and £576 million was authorised.
> Unauthorised fraud is where the fraudulent transaction is carried out by a third party, not the victim. Authorised fraud involves the victim being tricked into paying money into another account that is controlled by a criminal. This is also known as Authorised Push Payment (APP) fraud.
> Frontier found that APP fraud losses have fallen by an estimated £73 million per year and the number of APP scams have fallen by nearly 35,000 due to the policy. Reimbursement rates for all claims have risen from 54% to 65%, and for claims in-scope of the policy, firms are now reimbursing 97%.
The origin of these protections in the US date back to the early decade of the general purpose credit cards. They started out for business expenses (the first one was branded “Diner’s Club”), but they were so profitable that the issuers wanted to branch out to consumers, but those were wary: many already had credit with their local merchants and didn’t see the point. (The local merchants offered credit bc women couldn’t have bank accounts).
Anyway, the credit card companies (Diner’s Club and Bank Americard, now Visa but still retaining the original color scheme and logo) lobbied Congress in the late 60s to get these protections enshrined in law so that consumers would get a benefit over using cash as a positive incentive to switch.
Yea, we never, ever use debit cards. Credit cards only, for the heightened consumer protections. It sucks that most banks and credit unions give you one by default that doubles as an ATM card. I always push back and ask if they offer an ATM card that does NOT have debit capability.
That 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.
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.
Why 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
I 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.
I 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.
I'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.
I gave up on optimizing and just use the Robinhood Gold 3% cashback card everywhere (except Amazon/WF, where I use their 5% Chase card). I can probably get more than 3% cashback in some categories on other cards, or more ROI by switch to points, high-tier cards like Chase Sapphire, and churning, but I just don't care.
The gain of a few thousand per annum is not worth the mental distraction.
> 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.
It’s expensive to be poor. Higher interest rates, no credit card rewards, higher unit prices at places like Dollar General, etc.
More actually. Generally those rewards happen by using your credit (there are exceptions). Meaning you are more likely to pay for something that you'd probably otherwise not have spent money on.
So if anyone is trying to picture what 9.2 would buy. The new bridge between US and Canada (Gordie Howe) was 4.6 billion. So that is 2 giant bridges + related infrastructure ... worth of wealth transfer. That bridge had some corruption / payoffs, so we should discount that by 10% wealth transfer as well.
It's clearly more complex than the story these authors are telling, in particular the highest income consumers get the worst returns on their interchange payments. So stores and services catering to wealthy consumers are actually subsidizing an opportunity for savvy customers, many of whom are not wealthy
One note on patio11’s opinion on this is that he really overweights the ongoing work and innovation required for electronic payment processing. It WAS a great novelty and deserves to have made a lot of money for 30 years. But the reason they make so much money today is monopolistic low behaviors to lock in their advantages. It’s not a free marlet because of deals over time, some of the most famous of which are their prohibition on charging different rates for cards or even disclosing the rates on cards.
I think the most simple piece of legislation to solve a lot of problems is to allow merchants to pass along the interchange rate to their customers. If they could do this legally and operationally, this would solve most issues here. If a credit card wants to be expensive, fine the consumer should pay for it. Because of contractual and operational limitations, credit card companies have gotten themselves into the current arms race.
If stripe implemented this, it would make me appreciate them as a force for good instead of being a part of the problem.
>in particular the highest income consumers get the worst returns on their interchange payments
That's not what the article says:
>High-income consumers with high FICO scores benefit the most from reward credit cards compared to mid- and low-income consumers with high FICO scores. At the lower end of the FICO distribution, however, this pattern is reversed. On average, net rewards are far more negative for high-income consumers with low FICO scores than for middle- and low-income consumers with low FICO scores.
>Or, to put that another way: if there is redistribution happening, it necessarily includes redistribution from unsophisticated high income customers to sophisticated low income customers.
While it's true that wealth customers with low FICO scores are getting hosed, it's not clear whether that is enough to cancel out the effect that richer people (presumably) have higher FICO scores on average
To be clear though, the higher FICO scores get hosed the most, see the graph earlier on. Your quotes are conditional on FICO so they don't take that into account.
The only way I can put these things together is that at the high FICO end, both wealthier and poorer consumers get hosed a lot but wealthier consumers not quite as much. On the other hand, lower FICO band doesn't get as bad of a deal overall but it is worse for wealther people (plausibly because they have high interchange fees and don't use their rewards).
It's complicated, but... this is not a wealth transfer right? It is a transfer mostly just from consumers to credit card companies that provide them a service.
>To be clear though, the higher FICO scores get hosed the most, see the graph earlier on. Your quotes are conditional on FICO so they don't take that into account.
Are you talking about "Consumption by income decile" graph? That doesn't show them being hosed, unless you think everyone should pay a flat rate to access the credit card system.
It becomes a scorecard. Success in life is strictly about making the number go up. It doesn't matter if they could spend $100K a day for life and never go broke. They must have a bigger number and be higher on the Forbes (e.g.) list. Some people are so obsessed with it they lie and make up things to claim their number is much higher than it actually is.
> everyone else around at every possible opportunity?
How exactly to become wealthy then?..
--
> What happened to noblesse oblige?
Some things made noblesse oblige way harder to manifest.
Meritocracy. "I deserve what I have", versus "I got lucky have what I have" made harder to share back.
Globalization. When you use one community to produce and another to consume, and third to register a company, and owner lives in fourth it's hard to associate yourself with the community. Where exactly to give back? You won't even see those people.
Secularizarion. Though USA is still significantly religious place comparing to europe.
Easiness to move. Today you're here, tomorrow you're there in new zealand bunker.
Culture. Somehow the rich are in the people who are heavily interconnected, spend time together at the khe khe pedoisland.
Natural selection. The ones who care less about others mathematically have more advantage than those who care enough to spend resources on non-resource-aggregation activities.
--
So. There is no intristic motivation to do so (with majority), there is no external motivation, and there is no repercussions of not giving back.
Merchants pay the transaction cost. In my parents business in the early 2000s customers would ask in advance if they could use a CC. Some places installed ATMs in the corner (still a thing in some places), but quite unpopular. Rather than lose a customer the merchant will accept payment with credit card and pay the fee.
One consequence of this system is the large merchants have more bargaining power and can negotiate lower fees. So large retailers, gas station chains, etc. are able to reduce the overhead of accepting CC payment. While smaller merchants have the same higher cost.
From a capitalism perspective, this is the most egregious example of "you have capital, so you can make more capital". Banks holding the capital in this case.
Fun fact: when credit cards were first introduced only to people with good credit, which paid the balance in full. this was not profitable. Only after opening the pool to other credit levels did CC start printing money for banks.
This applies to cash as well. It takes a lot of time to count change for everyone. Plus all the ways there are to steal cash.
Your fun fact is wrong. Credit cards were always profitable. They were not in the beginning because scale is what makes them profitable. Anyone who uses their cards for a couple meals a month (which is what it was first started for) is going to cost money because of all the overhead to have you as a customer. In those days that was a stamp to send the bill, someone to open the payment and cash the check - now that everybody works electronically the overhead is lower, plus people are using it for more and so there is enough left over to pay for it.
Credit card systems are a Ponzi scheme that favors those who already hold a lot of capital, at the expense of those who weren't lucky enough to be born heirs.
This is even more true of the American brands that are getting Trump to attack modern, open, cost-free systems from other countries—like Brazil's PIX, maintained by the Central Bank of Brazil.
As others have mentioned this is particularly prevalent in the US. I always liked that Australia's vision for a peer-to-peer payment system (note cards are mainly for merchants, hence the rewards) has inclusivity [1] as one of its core tenets "continue to transact ... without disproportionate burden or risk ... those experiencing financial hardship". They also just stopped surcharging [2] and have capped interchange fees since a long time.
Because merchants charge everyone the same price regardless of how they pay
Not at many gas stations. Cash gets a discount usually $.10 per gallon. I’ve also started to see restaurants either give a discount for cash, or charge extra for credit card purchases. Business suppliers from tiny shops to large national companies tack on 3% for people paying with credit cards, or like T-Mobile, a $5/line monthly fee in order to get people to pay by direct debit.
It goes a step further... previously, card agreements (between merchants and the networks), required the prices to be the same between cash and credit (with the well known gas carve-out), but Durbin made that tying illegal, so now retailers are free to charge different prices for cash, credit, and debit.
The article has one thing mistaken, because it says that Durbin lowered costs for transactions, but credit owners got to keep their perks... That's not technically true (I worked at a supermarket when debit rails first went into effect, and I worked in payments when Durbin went into effect).
There are no benefits to credit users who use the debit rails, and the merchants would really rather you use the debit rails, because it is much cheaper for them. Durbin was mostly a win for the merchants, not a win for the customers.
However, if you take that to believe that the merchants lowered prices overall because they were paying less for transactions, than you might try to read into it that credit users kept their perks, while cash and debit users paid.
The true story, however, is that it's an equilibrium... When the costs go down, the saved money goes somewhere in between the two (supply and demand), and as long as there is competition, the savings are shared.
However, the real problem is that credit companies are allowed to invest interchange fees in perks at all. Credit card companies decided to take their low-risk pool, and offer them incentives, splitting the money they saved between themselves and their users, and using it as a way to pull more low-risk users. The more that happens, the more expensive it becomes for credit companies that serve mid-to-high-risk users... and since we can't stop offering credit to those users as well, those companies push for and get increases to interchange fees to cover the additional cost... which creates more room for benefits for the low-risk users, and the cycle begins anew. It's a vicious cycle that can't be fixed by changing amounts on the existing fee schedule... The only possible fixes would be in either disallowing these kinds of perks, or splitting the rail charges, and specifically charging less interchange for low-risk users (which dries out the benefit pool)
Credit card rewards are not a mechanism to shift wealth towards premium card holders (this is a negligible distraction), they exist purely to increase revenue/conversion rate, by decreasing customer price sensitivity (compared to cash payments) and encouraging financially irresponsible spending. If this did not actually work in practice, every merchant would just insist on cash and pocket the difference.
"Poor people" are hurt much more from the changes in spending behavior induced by credit card use than by paying for card rewards.
No. I do embedded software engineering for a living.
I use (in my view) HN appropriate levels of jargon (because lots of people here are involved with getting people to pay for some newfangled cloud thing or other, so I use their terminology).
In simple words:
People pay more for the same (and spend more recklessly) when you let them pay by credit card, and this causes much more economical "damage" to poor peolpe than any "wealth transfer from card rewards".
What a silly article. Don’t buy things you cannot afford. Wealth transfer is a ridiculous framing. Is any heterogeneous situation involving money a wealth transfer?
One factor that never seems to come up in these discussions is that while businesses might not like credit card fees, they also don’t like all the issues with cash: managing it, transporting it, losing it to employee theft, etc. The cost of cash transactions isn’t 0.
Same argument for people: managing cash is a pain, swiping a card is easy. Contesting a transaction or fraud is way easier (infinitely easier?) with a card than cash. Having day to day liquidity even without ever carrying a balance is nice.
Is all this worth $9.2B across the economy? Maybe not, but again, certainly worth more than 0.
>Is all this worth $9.2B across the economy? Maybe not, but again, certainly worth more than 0.
Nobody's arguing that credit card companies are proving zero value, only that they're charging more than what can be "justified" (whatever that means). That's why in europe the interchange rates are capped at some amount to reflect that.
Europe is artificially capping the interchange rates - that doesn’t mean that’s the market price for that service.
As for America, there’s 4 card networks, and no explicit regulation preventing you from starting another (just the huge regulatory burdens involved with any money-processing business, PCI, etc).
If they were charging so much more than is “justified”, couldn’t one of the dozens of well-funded players in the fintech space swoop in? Couldn’t Walmart fall back to cash and a “Walmart card”?
Instead, we see even goliaths like Walmart spending money and time to support newer features like tap to pay because it reduces fraud losses and customers just prefer it.
The “justified” thing is silly - is Apple charging more than is justified because they make a profit?
I don’t really care what businesses want at this point: my default position is that they are trying to scam me in some way and must be handled appropriately. Credit cards are a must-have in this situation, since they provide a mechanism other than hope to deal with recalcitrant merchants without wasting my time.
The most defensible framing that I came across (maybe from patio11?) in favor of credit card rewards is that they're a "bulk discount" on interchange fees. People who spend more on their cards also pay more fees (passed through the stuff they buy), so it kinda makes sense to give them a discount[1]. That's what credit cards do. Cards with the highest rewards are geared towards high spenders, with corresponding credit score and/or minimum income requirements. It's not unlike how the 2 quart (1.89L) bottle of mayo at costco is cheaper than the 8oz (0.24L) bottle from dollar general, but nobody would frame that as a "wealth transfer".
[1] of course, this doesn't need to rely on some principle that people are entitled to discounts if they buy more, because in reality discounts arise from complex market dynamics such as competition and price discrimination.
While they’re probably right from a consumer perspective, the article skips over the fact that accepting and handling cash is a significant cost for businesses, way more than the credit card fees. Delays in checkout, making change, counterfeit bills, employee theft, external theft, safe transport, added accounting burden…all add up to an estimated 5-15% (https://plainscapital.com/blog/the-cost-of-accepting-cash/). In fact merchants can now legally pass through credit card surcharges to customers but very few choose to do so, because they’d prefer you pay by card.
They mention "premium credit cards" in the article, is there a general understanding of which cards are premium? I clicked through to the study and the only example they cited in there was Chase Sapphire Reserve but I didn't see, like, a list or something.
The study methods are closer to advocacy than science or policy.
Sure, take any slice of a vast number, and you get a big number.
It's not a "wealth transfer" when everyone gets what they bargained for and can opt in or out.
Most importantly, the transaction value of using credit cards or rewards systems - what the user actually gets - is not enumerated.
Beyond what others have noted (mainly deferred payment), credit cards offer legal transaction protections: my legal liability for fraud is limited (unlike debit or Zelle transfers), and I can challenge any transaction even later, which gives the vendor an incentive to ensure I'm happy even after they have my money. While reputation provides some incentive for repeat customers, the ability to retract a transaction governs even non-repeats. I would submit this alone has improves quality of service for everyone anywhere credit cards are accepted.
Rewards vary by type. Cash-back rewards reflect the fact that interchange fees were set to recapture initial investments, but servicing costs have plummeting (thanks to computing); governance-wise, it's almost impossible for a "representative" political system to extract a large cost from a small number of powerful agents with vested interests to provide a tiny amount of benefit to a very large numbers of other people. But that's a much more extensive governance issue.
So where does the benefit go? To competition between credit providers, initially as cash-back, and then to tying rebates to future purchases within controlled channels. For airline point systems that give free flights or upgrades, it improves retention, but other forms of rewards would seem to verge on tying, where power in one market is extended into another.
Politically-mediated wealth transfers are a political issue. Economically-mediated wealth transfers should raise market-regulation policy issues, in particular whether the law is inducing or protecting them, and then whether they are good or bad. Tallying that requires not just seeing the money flow, but seeing all the value received or cost exported.
I have several credit cards and pay them off at the end of the month. I get mostly free hotel stays when I take my family on vacation and have had many free airline tickets.
I also used a credit card to bootstrap my business 15 years ago. At it's height, I was brining in $1 million/year. The bank would have never given me a loan for the amount I was able to use on a credit card. I ended up shutting the business down a few years ago, with no debt.
Most people can't handle spending and rack up tons of debt. Credit cards can also be used to make money, instead of buying stupid things you can't afford.
>When merchants raise prices for all consumers in response to these costs, users of low-cost payment methods (e.g., cash and debit) cross-subsidize high-reward credit card users who shop at the same merchant"
Cash handling is not a low-cost payment method, Cash handling can cost businesses between 4% and 15% of each transaction, when factoring in labor, security, bank fees, and risks like theft and counterfeit bills.
One could argue that credit card users have been lowering prices for cash payers as business avoid cash handling pitfalls and get their funds safer and faster.
Im really surprised the number of comments here who think the rewards are free money they're getting. The stores are paying 3-5% transaction fees for you to use credit cards then they give you 2-3% back and force you to spend it on things they deem can be redeemed. You're paying for that 2-3% back in higher prices for everything. The whole thing is a giant scam and should be shut down.
Forgeties79 | 17 hours ago
>The result: People paying cash face the equivalent of a 26% higher sales tax than premium credit card users shopping at the same store.
I am surprised this never occurred to me or has come up at all in discussions with people (in the context of rising costs/inflation specifically). I’ve literally never considered this compounding effect until now. It’s so obvious of course, it just never even crossed my mind.
toomuchtodo | 17 hours ago
US FedNow instant payments went live three years ago, and can move $10M per transaction for a few pennies per transaction.
FedNow Is Live - https://news.ycombinator.com/item?id=36801491 - July 2023 (1022 comments)
(A gap in legislation was not mandating offering FedNow capabilities to your customers as a condition of your banking license as a bank; I expect this to be patched eventually)
steveBK123 | 17 hours ago
If my credit card number gets stolen, zero money ever leaves my account. It simply gets contested before the monthly bill is even due, and cancelled. I have probably had number stolen 5 times in 20 years, and its never cost me a cent. Zero dollars every left my accounts even temporarily.
If my debit card number gets stolen, the money is out of my checking account immediately. Mortgage payments and other bill payments might fail, and the onus is on my to chase up the bank to get charges reversed and money returned to my account.
toomuchtodo | 16 hours ago
T-Mobile, AT&T follow Verizon on discouraging credit cards for bill-pay - https://www.paymentsdive.com/news/tmobile-att-verizon-incent... - August 10th, 2023
Xfinity Automatic payments and paperless billing discount (APPD) - https://www.xfinity.com/support/articles/automatic-payment-p...
> You can get a $10 discount on your monthly bill if you: Have Xfinity Internet and sign up for automatic payments and paperless billing with a stored bank account
Walmart was one of the larger supporters of FedNow during public comment period, as they experience billions in interchange costs per year, and are building instant payment support into the Walmart Pay component of their app to avoid these costs.
Walmart Plans Instant Bank Payments, Cutting Out Card Networks - https://news.ycombinator.com/item?id=41593450 - September 2024
Walmart FedNow instant payment public comments: https://www.federalreserve.gov/SECRS/2019/December/20191227/... [pdf; 2019]
> “It surprised me,” Henry said of adoption of Walmart’s first iteration of pay-by-bank, which is available online but hasn’t been marketed to customers. “It’s certainly surpassed our expectations of the amount of customers that have registered and actually use the payment type.”
> Walmart’s upgraded pay-by-bank offering will be rolled out in 2025. The transactions will occur over bank technology provider Fiserv’s NOW Network, which integrates with The Clearing House’s Real Time Payments network and the Federal Reserve’s FedNow. Until now, large retailers hesitated to launch real time payment options because many banks were not connected to an instant settlement system, meaning their customers would not be able to use the product. NOW Network aims to connect to as many banks as possible to reach 100% of deposit accounts by combining its own network with RTP and FedNow.
My understanding is that Meta is also pushing ad buyers to invoicing vs credit card payment.
Meta Ends Credit Card Payments for High-Spend Ad Accounts: Mandatory Monthly Invoicing Starts April 1, 2026 - https://www.auditsocials.com/blog/meta-ends-credit-card-paym... - March 31st, 2026
Like the slow decline of check volume, I see the same here. Credit card rails will exist for some time, perhaps another 10-15 years, but they have likely peaked from a volume perspective. If you're a merchant, surcharge when you can, and work towards on boarding and offering customers cheaper payment rails (imho). If folks want to pay the ~3-4% surcharge, enable them to, that is a choice if they want the benefits of using a credit card. But we should not all have to eat the cost for their benefit when less expensive options are available.
https://www.visualcapitalist.com/sp/cb03-charted-the-end-of-...
https://www.federalreserve.gov/paymentsystems/check_commchec...
(I work in financial services adjacent to payment systems, thoughts and opinions always my own, this is behavioral economics at scale, as always think in systems)
internet2000 | 17 hours ago
Credit cards are convenient and cash isn't. The genie is out of the bottle, no way to make people move back to cash.
aprilthird2021 | 16 hours ago
If interchange fees were capped, people would go back to cash, imo. A lot of research shows you spend less when you pay with cash. And the lack of credit card rewards as a draw might lead people to carry it again
iso1631 | 16 hours ago
And this is based off evidence from countries where interchange fees are capped?
zf00002 | 16 hours ago
toomuchtodo | 16 hours ago
https://www.zelle.com/get-started
Spooky23 | 16 hours ago
Credit cards have a really high ROI. The 3% drives 10-20% more spend, sometimes even more. When I was on the board of a small private school, we bought a square terminal and used QRs for flyers. That drove 30% increases in fundraiser expenses and helped us reduce mailings and nags. We would cross-sell stuff - could buy your youth soccer registration at the fall fest or whatever.
The things where ach, check, cash make sense are where there’s no discretionary spend at point of sale or recurring payments. If you pay 75 bucks a week that have your apartment cleaned dog groomed or whatever. You’re not getting value beyond taking the payment in advance with a credit card. Those are the areas where Venmo and Cash app have really dominated.
pistoriusp | 17 hours ago
cge | 17 hours ago
post-it | 17 hours ago
cge | 16 hours ago
post-it | 9 hours ago
nilamo | 17 hours ago
Forgeties79 | 14 hours ago
It’s a variation on a theme we are all very familiar with. It’s expensive to be poor. But this is another angle I hadn’t really considered. It’s a little more complicated than just “I can have better cards with better benefits.”
TL;DR: The actual cost per item for me is, in very literal and quantifiable terms, lower as a result - and the more expensive things get, the steeper my discount gets while the person next to me paying cash is paying a little more than I am every transaction for the same items.
Put another way: As price/inflation increases, the real number I am saving increases as well. So we aren’t just paying different prices, but their increase is also higher the higher prices get.
r3trohack3r | 17 hours ago
> equivalent of a 26% higher sales tax than premium credit card users shopping at the same store.
I do not think the sale price is increased by 26% - which doesn’t square with a 1% to 3% fee - I think they pay approximately 26% more in “sales tax” so you’re paying 26% more than the 7% tax.
slicktux | 16 hours ago
paxys | 16 hours ago
tialaramex | 16 hours ago
"It's expensive to be poor" is a more or less universal experience under capitalism and it's amazing how many novel ways we've come up with to make it more expensive for poor people.
"Means testing" is one of the fun ones. The wealthy will often justify this as "People like me shouldn't get this help" which sounds even generous, and then you realise, oh, because we're testing if you're worthy to receive help now to get help you need to expend some time and effort to pass the test. When this "I shouldn't get benefits" is offered to you as a reason to means test, ask them why they're taking a benefit they don't think they should have and why they can't pay society back in other ways rather than inflict more misery on the poor...
Forgeties79 | 14 hours ago
aurareturn | 17 hours ago
Otherwise, you're giving up 1-3% discount.
Set auto-pay on your credit card to pay in full every month. I've never once paid for credit card interest. I think there's a term inside credit card companies for people like me: leeches or something like that.
MattGaiser | 17 hours ago
Even as someone who is a credit card optimizer, I also ignore numerous 1-3% choices a day.
Many people also spend more than they can cover on it.
hvb2 | 17 hours ago
I would be curious what percentage of people actually qualifies for a card with over 2% cashback especially without a monthly fee. My guess is that that percentage is very low.
High earner/spender, sure but that's not most people
svpk | 17 hours ago
If you combine that with a card that gives 2% on everything than it wouldn't be hard to average over 2% cashback as long as you were mindful about using the discover card for qualifying purchases and the 2% card for everything else.
greenavocado | 16 hours ago
And that's the rub. Credit card companies know most people won't be too mindful most of the time about their spending habits.
bluGill | 16 hours ago
Xirdus | 17 hours ago
Ever since then, I wondered how much of the "not qualifying" is due to misinformation like this.
bitmasher9 | 16 hours ago
1. People with proven bad credit.
2. People asking for a lot of money without proven good credit.
3. People asking for more specialized credit, such as lines for businesses or lines for high earners.
Xirdus | 15 hours ago
My instinct says hell no, not even close.
ixwt | 17 hours ago
sokoloff | 16 hours ago
No affiliation; just a happy user.
strix_varius | 17 hours ago
sokoloff | 17 hours ago
strix_varius | 5 hours ago
aurareturn | 5 hours ago
strix_varius | 5 hours ago
Frankly these questions astound me, do y'all really know no low income folks?
Xirdus | 17 hours ago
esseph | 16 hours ago
Xirdus | 15 hours ago
IAmBroom | 12 hours ago
To me, it's like claiming "black people like chocolate!". They do. So do most people. Why single out black people?
esseph | 7 hours ago
Can you explain the process or idea?
IAmBroom | 12 hours ago
My lawn mower asks me to write "gift" on checks when I can't pay in cash.
ChrisMarshallNY | 17 hours ago
At one time, credit card companies forced vendors to charge the same, whether cash or credit, but that seems to have fallen by the wayside.
The problem is, is that cash is becoming less and less acceptable.
In a nearby town, you can't pay for parking, with cash. I have seen credit-card-only vending machines. A lot of restaurants have iPads at the table, and you never see anyone but the bus[boy|girl|whatever], bringing you your food.
bluGill | 16 hours ago
ChrisMarshallNY | 13 hours ago
Huh. I always thought it was the opposite. I know several restaurants that refuse to accept credit cards. They are great places to eat, but I won't go there. I don't think they miss my custom, though. Refusing to accept credit seems to be a signal of excellence, around here.
bluGill | 6 hours ago
The cost of a credit card is very obvious. The cost of cash is many small things that are very hard to see and thus very hard to account for correctly.
OptionOfT | 5 hours ago
For the same reason those food establishments had to get a government approved White Cash Register, because there was so much money disappearing.
OptionOfT | 5 hours ago
I miss that. I really dislike that it is allowed to charge extra for a credit card. It shows that the company doesn't understand the cost of cash.
internet2000 | 17 hours ago
There is no situation in which interchange fees get slashed and prices go down across the board by 3% to make it worth it for card users.
throw0101a | 16 hours ago
Well, there was that time in the 1930s.
amiga386 | 16 hours ago
Long term average? Sure, it goes up, that's inflation. But do you know what causes inflationary pressure? Visa and MasterCard adding unjustified fees because they're a duopoly and control most of the payments market, and your government won't regulate them and cap fees.
The UK and the EU both cap debit card fees at 0.2% and credit card fees at 0.3%. When the UK left the EU, Visa and Mastercard jacked up their fees over 5x for UK-EEA payments. Not because they had to, but because they could, and they love sucking money out of other peoples' businesses. https://www.psr.org.uk/our-work/market-reviews/market-review...
Retailers in competitive industries absolutely do use a reduction in card fees to lower their prices. Maybe not all the way, but they definitely don't give it all to themselves as margin; their competitors don't.
internet2000 | 4 hours ago
An economy that relies on growth, yep.
EliRivers | 17 hours ago
bluGill | 16 hours ago
People who don't pay their card off also are on the look out for lower interest rate cards and switch all the time. they in reality are not paying the very high rates on cards, they are paying the lower introductory rates (which is still a lot of money). These people are also more likely to default and stop paying leaving the bank to write everything off. Combine that with the fact that they typically don't spend as much over several years (they hit their credit limit and their income won't allow an increase so they have to stop spending), and they are not as profitable as it seems.
cfiggers | 16 hours ago
Really helped us float the moving company and also some DIY renovations on our house that we didn't have all the cash on hand to pay for outright. And we didn't pay a thin dime for the privilege.
onion2k | 16 hours ago
dougdude3339 | 16 hours ago
paxys | 16 hours ago
cpburns2009 | 16 hours ago
skinfaxi | 16 hours ago
paxys | 16 hours ago
skinfaxi | 15 hours ago
caminante | 16 hours ago
I think of it like alcoholics who can't be near alcohol. It's some deep seated degeneracy or fear.
red-iron-pine | 13 hours ago
and once debt is spent you cannot get it back. you get scammed you can dispute the credit card, and if the CC gets stolen you can fight any charges.
debit means the money is gone and that's it.
OptionOfT | 5 hours ago
Credit card? I file a charge-back which is a forcing mechanism for the vendor. Credit card skimmed? I get a new one, and I don't need to wait for my $ to be re-imbursed.
dml2135 | 16 hours ago
Another reason is that credit card companies sell your purchase data to aggregators and advertisers, and cash affords more privacy.
matheusmoreira | 16 hours ago
I always ask for a discount but for some reason I almost never get it.
The rational move then is to pay in as many installments as I can get without any additional interest. Then time itself gives me the discount. My actual money stays invested and I only pay later. My credit card gives me 1.1% cashback on all purchases. Inflation too does some of the work.
bluGill | 16 hours ago
matheusmoreira | 16 hours ago
Maybe, but "should" has nothing to do with it. Either I get one or I use my credit card.
> cash costs the merchant MORE than credit card fees
That's not my problem.
greyw | 15 hours ago
matheusmoreira | 14 hours ago
I have a little lookup table for this. Interest free installments mapped to cash discount necessary to beat the credit card. I just look it up.
These numbers are actually conservative. There's a lot of credit card benefits that weren't priced in. I add a couple percent to the required discount numbers and round it up to compensate.bluGill | 14 hours ago
bluGill | 15 hours ago
red-iron-pine | 13 hours ago
that's some odd classism there.
credit card companies love your data. they can package it, sell it, analyze it.
this is real data of actual behavior, not whatever people say or click -- money where the mouth is.
even if they never make a cent off of you from an interest perspective they 1) still get fees from the merchants, and 2) get all of that juicy juicy transaction info -- and that info alone might be worth the costs.
aurareturn | 5 hours ago
SXX | 17 hours ago
So in US card processing is x5-x10 more expensive.
criddell | 17 hours ago
bluebarbet | 17 hours ago
SXX | 17 hours ago
SXX | 17 hours ago
Some weird crypto stuff can give more cashback, but it mostly for scheming nerds.
AnssiH | 16 hours ago
E.g. for now I have the most premium card offered by my bank (50€/mo), and it gets me extra product insurance, rental car insurance, travel insurance, free lounge access, and some other things like that, but no cashback or similar.
I think some premium cards do offer cashback nowadays, but they are in the minority. Some cards also offer airline reward points. My experience is limited to Finland, though.
Hikikomori | 4 hours ago
throwaway_20357 | 16 hours ago
graemep | 16 hours ago
There are some specific discounts and benefits but not cash rewards.
It is illegal (not banks will not let you, actual legislation) here to charge more for card payments or discount for cash or bank transfer.
edent | 16 hours ago
Symbiote | 16 hours ago
rsynnott | 15 hours ago
SXX | 16 hours ago
amarcheschi | 16 hours ago
LeonidasXIV | 16 hours ago
tiffanyh | 17 hours ago
Debit card fees are capped in the US, yet I’ve never received a discount from a merchant for paying with debit instead of credit.
As such, I just pay with credit and have never understood this argument.
post-it | 17 hours ago
iso1631 | 16 hours ago
tiffanyh | 16 hours ago
Managing cash for a merchant also brings real costs as well.
You have to take it to the bank or pay a service to pick up cash. You’re way more likely to have “leakage” when any cashier can pocket cash. Etc
KolmogorovComp | 17 hours ago
Because the merchant pass the higher processing cost to all customers.
rcxdude | 16 hours ago
hunter-gatherer | 16 hours ago
I know this because I used to work on a US military base. There was a sole merchant on a particular installation that was doing this, but it was extreme. They'd force you to buy over 10 USD if you wanted to use a card, and it was the only place to grab a snack. One day there terminal was shut down, and for a period they only went to cash payments. Once they took credit again they removed the minimum purchase. Turns out somebody got pissed, and reported them.
Regarding the article, the ~390 USR sounds about right to me. I only use a credit card, pay it completely off at the end of the month. I've never once paid interest since in the 8 years I have used this card. Every few years I buy a plan ticket with the rewards.
rcxdude | 16 hours ago
gcr | 17 hours ago
rowls66 | 16 hours ago
StrauXX | 15 hours ago
greenavocado | 17 hours ago
fHr | 17 hours ago
ipython | 16 hours ago
lazide | 16 hours ago
cpburns2009 | 16 hours ago
account42 | 17 hours ago
dtech | 16 hours ago
Torkel | 16 hours ago
This feels like a potential arbitrage opportunity... I live in Sweden, but if I can use a US credit card I can get high rewards?
tiffanyh | 16 hours ago
tialaramex | 16 hours ago
You will probably not see rates that are even competitive with a dodgy FX cash place at an airport, let alone with the numbers you've seen on financial networks for what FX transactions by banks cost, but you feel happy because there was "no fee".
gruez | 16 hours ago
No, the rate is set by the card network, eg https://usa.visa.com/support/consumer/travel-support/exchang...
tialaramex | 15 hours ago
decimalenough | 16 hours ago
Where the banks do get their pound of flesh, though, is the foreign transaction surcharge, which is often around 3%. No-fee cards exist but you need to look for them. And a whole new set of charges applies to doing a foreign cash advance on a credit card.
nutjob2 | 16 hours ago
The card companies always add a margin to FX conversions, usually in the 0.5% range. This is fairly benign since the market rate can move between the transaction and the settlement, so sometimes you save money.
LastTrain | 16 hours ago
Symbiote | 16 hours ago
You see at the bottom of restaurant menus a note stating this.
It also applies to Danish business credit cards, as those aren't covered by the consumer credit card fee limits.
evandijk70 | 16 hours ago
AnssiH | 16 hours ago
decimalenough | 16 hours ago
59percentmore | 16 hours ago
At least we have cheap gas? farts
api | 16 hours ago
Ekaros | 16 hours ago
alistairSH | 16 hours ago
joenot443 | 16 hours ago
alistairSH | 15 hours ago
But, a quick search indicates you can get similar broadband in Glasgow, Scotland for ~15 GBP/month. And Rome, Italy looks like ~25EUR/month.
stefanfisk | 15 hours ago
joenot443 | 11 hours ago
stefanfisk | 9 hours ago
But this is a pretty common setup for condos in Swedish cities. Rentals usually have access to the same infrastructure but at higher prices due to kickbacks demanded by the landlords from the ISPs.
The backbone of it all is a state owned fiber connecting the cities together with municipal fiber.
But even outside of the cities FTTP is quite common. There are companies which specialize in finding rural areas where there’s enough interest to justify the cost of connecting them and then coordinating getting an economic association setup to own and manage the local infrastructure.
Hikikomori | 4 hours ago
stefanfisk | 15 hours ago
That does even begin to touch on crazy laws banning people from setting up their own ISP to compete: https://www.techdirt.com/2024/11/07/16-u-s-states-still-ban-....
Gormo | 16 hours ago
Healthcare, education, and housing are expensive in the US for the same primary reason: political interventions that simultaneously subsidize demand and restrict supply.
red-iron-pine | 15 hours ago
e.g. https://documentscontractuels.orange.fr/les-offres-orange-mo...
joenot443 | 16 hours ago
Canadians like myself have ~40% of our provincial taxes spent on healthcare, so in my case about ~8% of my gross income. Somewhere in the tune of $20k/yr. While I was living in Seattle and filing American, quite a bit less of my gross income went to healthcare. Just food for thought.
StrauXX | 15 hours ago
59percentmore | 15 hours ago
Well, maybe I spoke too soon, because my private American healthcare turns out to also be about 8% of my gross income (of $60k)(before copays and my deductible)(and also it's crap). Twinsies!
But yes I agree that it would be awful to have my health needs taken care of and a mere ~160k USD left to spend on everything else.
joenot443 | 11 hours ago
I think either way both of us are in really good shape. In my experience the quality of American care is better in nearly every regard (having experienced both pretty intimately), but the simplicity and the peace of mind of the Canadian system has its benefits too. In either case you end up paying.
> But yes I agree that it would be awful to have my health needs taken care of and a mere ~160k USD left to spend on everything else.
I’m confused - do you actually think it’s awful?
gorgmah | 16 hours ago
Second thing: interchange fees are not the only fees that your typical store has to pay, the total fees are much higher. I think the EU essentially capped Visa/Mastercard profit in the EU, more than they capped small business fees for card payment.
JKCalhoun | 13 hours ago
wookmaster | 11 hours ago
puelocesar | 17 hours ago
Mamut3 | 16 hours ago
gustavus | 17 hours ago
criddell | 16 hours ago
aprilthird2021 | 16 hours ago
roland35 | 17 hours ago
There is a lot that goes into it, and it is interesting how customers like me who literally never have carried interest and have to made thousands of $ in rewards over the years still make the banks money....
https://www.bitsaboutmoney.com/archive/anatomy-of-credit-car...
steveBK123 | 16 hours ago
They are a way for airlines to create value out of thin air with their own fiat currency. For the average consumer the miles create less of a pure economic efficient benefit and more of a psychic benefit - funny money bucket that accumulates to defray some trip expenses. Economically they'd be best off with an outright 2% back card.
For the minority of customers who are flexible on dates/locations and willing to plan in advance - most airline/hotel programs have sweet spots at the more premium level.
I use them to fly overseas business class refundable fares at discount. It's not free, but the taxes paid + foregone $ I could have gotten with a cash-back card ends up being 2-3x economy non-refundable fare instead of the 5-7x listed cash price if I bought the business class ticket outright.
It's generally a time-vs-money thing though in that to maximize airline/hotel programs you need to pay attention to various limited time offers for signup bonuses, spending bonuses, conversion bonuses, redemption bonuses, etc. Without those it's a very uphill battle.
nickjj | 16 hours ago
Credit card hotel booking portals are often much worse than what's available too.
For example, you might end up paying 30-100% more for a hotel booked through Chase Travel. At the very least you'll have way less selection. Even if price matching exists, you could still end up paying more.
I am traveling to Mexico next month and I do have a Chase Sapphire Preferred card (the one with the $95 annual fee). You get $100 in hotel credits per year if you book through Chase Travel.
In one of the spots I'll be at, there was (1) selection. It was $92 for 2 nights in a pretty low populated town that I'll be passing through. That hotel was rated 3.2 stars on Google.
If I use Google search or any hotel aggregator site, there were over 10 hotels available for half the price with much better ratings.
In this case it cost me about $50 extra to use the card's benefits.
Many people don't understand how rewards work when it's marketed towards your annual fee. The $100 credit doesn't offset the $95 annual fee. You pay $95 out of pocket for the fee. As soon as you book that hotel for $100 you've now paid $195 total out of pocket of which $100 gets credited back, so you're still out $95. If you instead didn't have the card and got the hotel at the cheaper rate, you'd only be out $45 or whatever you paid.
I mainly got the card because it had a really good sign up bonus, 0% international exchange fees and reasonable rental car coverage. Other cards can cover these benefits without an annual fee.
ethersteeds | 16 hours ago
What does this mean? I'm not clear what the sweet spot is - are you talking about buying points/miles/etc outright with cash rather than earning them as credit card rewards? Everything I've read is that these are almost always bad deals.
steveBK123 | 15 hours ago
There is no one-size-fits-all answer.
If you do not have time to look into it, plan trips 6-12 months in advance, or have flexibility (will go anywhere thats a deal), then they aren't worth it.
quickthrowman | 16 hours ago
“Saving” airline miles is definitely suboptimal, like you said, getting 2% cash back and redeeming it immediately is the optimal strategy. Money is fungible and cash depreciates.
Plus, the “deals” you have access to with airline miles are not slanted in your favor.
swed420 | 15 hours ago
https://news.ycombinator.com/item?id=39928604
nsedlet | 17 hours ago
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 | 16 hours ago
turkey99 | 16 hours ago
vasco | 16 hours ago
iso1631 | 16 hours ago
snarf21 | 16 hours ago
jubilanti | 16 hours ago
koolba | 16 hours ago
Of course there’s going to be a a cost to spending beyond your means.
nutjob2 | 16 hours ago
kybernetikos | 16 hours ago
vasco | 16 hours ago
motbus3 | 16 hours ago
cpburns2009 | 16 hours ago
LoganDark | 16 hours ago
cpburns2009 | 16 hours ago
LoganDark | 15 hours ago
twoodfin | 16 hours ago
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 | 16 hours ago
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 | 16 hours ago
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.
lotsofpulp | 15 hours ago
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 | 16 hours ago
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 | 16 hours ago
nutjob2 | 16 hours ago
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 | 15 hours ago
gsb | 16 hours ago
nutjob2 | 16 hours ago
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.
gsb | 15 hours ago
mc32 | 16 hours ago
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.
roenxi | 16 hours ago
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 | 16 hours ago
The intuition being: people who carry balances and pay interest don't actually spend very much; they are not wealthy.
caminante | 16 hours ago
swed420 | 16 hours ago
https://news.ycombinator.com/item?id=39928604
djoldman | 16 hours ago
Brendinooo | 15 hours ago
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 | 15 hours ago
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).
tylerhou | 15 hours ago
buran77 | 15 hours ago
Agreed, which makes the picture even worse for those low income people. Even poor people are guaranteed to occasionally pay the "rich person tax" included in the prices of some of the products and services. At least until some AI pricing starts changing the price real-time based on the buyer's estimated wealth (sort of already real).
> So they are essentially is paid by the consumer.
Not from a bank's perspective. Only in the sense that prices are higher between the seller and buyer.
> If we outlawed rewards credit cards (by capping interchange fees), everything would likely be slightly cheaper.
I don't agree on the second point as a blanket statement. When Epic game store lowered its fee not a single game got cheaper for the buyers.
quickthrowman | 7 hours ago
Credit card fees are baked into the price of everything that can be purchased with credit card, excluding merchants that offer a cash price and a credit price.
Any time someone pays the (credit card) price with cash or a debit card is paying more than someone that earns CC rewards, it’s virtually every transaction.
cmurf | 13 hours ago
If I know I'm paying for my own rewards, I'd choose a card that keeps more money in my pocket. I'd go as low as the PITA factor of cash.
It's not clear to me what the net benefit is of a credit card over a debit card.
But for sure the confusion ensuing from allowing debit cards to be charged as credit cards should be illegal. The merchant account providers are probably the ones reaping the free money on the racket.
Credit is the POS default, for whatever reason. Not all POS are the same. e.g. US Post Office consistently knows if I am using a debit card, and it prompts for a PIN when I do. Every restaurant, bar, service does not ask for PIN, and the handful of merchants I've inquired with say their debit card fees changed by the merchant account providers are the same as credit. Scammy.
At least in Colorado it's legal for businesses regardless of the TOS contract with a merchant account supplier to pass on the transaction and processing fees of credit cards. It's not legal to pass on cost/fees for debit cards, ACH, or cash.
losvedir | 15 hours ago
The most recent I've seen otherwise is this Federal Reserve study[0] from 2022. It finds that the marginal return on swipes is actually slightly negative because of how juicy rewards have gotten, and 80% of their profitability comes from interest (with most of the rest fees):
> we find that, on average, the credit function makes up approximately 80 percent of the credit card profitability, whereas the contribution of the transaction function is slightly negative, as rewards and other expenses on credit card transactions outpace banks' interchange revenues.5 In addition, fees—in particular late fees—comprise approximately 15 percent of credit card profitability.
[0] https://www.federalreserve.gov/econres/notes/feds-notes/cred...
quickthrowman | 16 hours ago
fhdkweig | 16 hours ago
ramijames | 16 hours ago
You can just opt out of using credit cards.
tomaskafka | 16 hours ago
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 | 16 hours ago
Rational if you want a mortgage in the US at least.
ramijames | 16 hours ago
frantathefranta | 16 hours ago
croon | 16 hours ago
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.
Aefiam | 16 hours ago
croon | 15 hours ago
rdschouw | 16 hours ago
ricardobayes | 16 hours ago
https://en.wikipedia.org/wiki/List_of_countries_by_household...
hvb2 | 15 hours ago
After 30 years, people generally speaking own their home and that's their biggest chunk of wealth. So basically, yes a high debt to income ratio, but it's building towards wealth and its not high interest debt either.
rsynnott | 15 hours ago
freeone3000 | 15 hours ago
ThePowerOfFuet | 15 hours ago
It is not, thus, free money, at all.
recursivecaveat | 10 hours ago
amiga386 | 6 hours ago
It can be done. The UK and the EU capped fees at 0.3% for credit cards and 0.2% for debit cards
wookmaster | 11 hours ago
AnnikaL | 11 hours ago
If I could get a debit card that gave me 2% cash back on all transactions, I'd use that instead!
Lucasoato | 16 hours ago
tialaramex | 16 hours ago
For the consumer the reason is that this is revolving credit. If you pay next month you can have stuff today. That's a small relief, unless it turns into a carried balance and then it's an ongoing burden, but you don't think about that burden at first because you're naturally optimistic.
nickjj | 16 hours ago
There is value in this even if you always pay your full statement balance every month.
If you have a stable source of income knowing your credit card payment is due on the 7th of every month means you don't have to monitor your checking account's balance for every purchase. You only have to think "make sure you can cover $X by the 7th".
dboreham | 16 hours ago
sokoloff | 16 hours ago
That’s why businesses eat the credit card fees.
whaleofatw2022 | 16 hours ago
KellyCriterion | 15 hours ago
quickthrowman | 7 hours ago
The reason is rather obvious, people spend more money with credit than they would’ve with cash. Accepting 95 cents on the dollar to get a sale with credit that you wouldn’t have got with cash still earns the seller money, money they wouldn’t have earned without accepting credit.
amazingamazing | 16 hours ago
ramijames | 16 hours ago
The entire credit card industry is set up to squeeze out as much profit from people as possible. They offer discounts as an incentive, but it is a huge trap that many, many people fall into. I'm not interested in risk. I'm interested in simplicity.
It's participating in the credit card industry that is foolish.
wildrhythms | 16 hours ago
john_strinlai | 15 hours ago
there is none. some people are just ideologically opposed to credit cards, like the parent appears to be.
their loss, really. they end up paying a portion of the cost but reap none of the benefits (rewards, additional legal protections)
rpdillon | 14 hours ago
Second, never use a card with an annual fee.
Third, which I already said, but bears repeating: pay off the full balance every month.
Fourth, look out for one good rewards card and funnel expenses through it, so you can get the rewards.
My parents taught me all of this 40 years ago, and it was exceptional advice, and has served me (and my family) very well.
Credit cards are not about carrying debt. They are the worst tool for that.
phil21 | 10 hours ago
This is overselling it. You can come out 2% ahead or so. 4-5% if you are an extremely high spender who enjoys mentally managing 5 or 6 credit cards to max out category bonuses and other benefits and all that.
You come out marginally ahead at the expense of mental overhead. Good tradeoff for some, not for others.
I use a credit card, I dropped from 3-4 different cards trying to max out those 4-5% spending categories and just have a straight 2% cashback on everything card now. Plus one backup on a different payment network in case one goes down. It got to be exhausting trying to remember to manage so many cards plus remember to use the points, make sure to use the right card for the right thing, and all the other BS.
For some of my friends it's a hobby which is great for you if you enjoy such things! For me, it's just adding another chore to my life. Not worth the 1-2% or so marginal gain against my spending.
The super easy stuff is long gone these days too. You get far larger discounts paying via ACH for utility bills/cell phone bills/etc. vs. what credit card rewards give you so all the "autopilot" stuff is largely gone.
I do remember the days where we paid our Equinix bill via the company Amex. That was pretty fun while the party lasted!
stetrain | 16 hours ago
Opting out doesn't save you from those costs.
kotaKat | 16 hours ago
I see many commercials for local banking up here that pulls out 30-40+ year members of the banks boasting about the prosperity the bank provided them, but at the same time, when they'd walked into the bank back in the day A Guy just said "yeah he's good for it" and wrote out the loans they needed.
You can't opt out of the modern credit scoring system and if you fuck it up even once with a bad line item you're out of the running for quite a few things and become virtually poor.
oefrha | 16 hours ago
timcobb | 16 hours ago
oefrha | 15 hours ago
gumby | 15 hours ago
You can still implement “if I can’t afford something, I don’t buy it” with a cc. I pay mine off every month so it’s financially the same s a debit card but use a premium card for its purchase benefits.
elmer2 | 15 hours ago
I always get my money back when this happens with a credit card purchase. I've also had to dispute things occasionally, and I almost always get refunded.
amiga386 | 13 hours ago
https://commonslibrary.parliament.uk/research-briefings/cbp-...
> Industry body, UK Finance, estimates that criminals successfully stole £1.28 billion through banking fraud and scams in 2025. Of this, £703 million was unauthorised and £576 million was authorised.
> Unauthorised fraud is where the fraudulent transaction is carried out by a third party, not the victim. Authorised fraud involves the victim being tricked into paying money into another account that is controlled by a criminal. This is also known as Authorised Push Payment (APP) fraud.
https://www.psr.org.uk/news-and-updates/latest-news/news/pay...
> Frontier found that APP fraud losses have fallen by an estimated £73 million per year and the number of APP scams have fallen by nearly 35,000 due to the policy. Reimbursement rates for all claims have risen from 54% to 65%, and for claims in-scope of the policy, firms are now reimbursing 97%.
gumby | 11 hours ago
Anyway, the credit card companies (Diner’s Club and Bank Americard, now Visa but still retaining the original color scheme and logo) lobbied Congress in the late 60s to get these protections enshrined in law so that consumers would get a benefit over using cash as a positive incentive to switch.
ryandrake | 12 hours ago
tyrabound | 16 hours ago
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_ | 16 hours ago
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.
rsynnott | 15 hours ago
In Europe (or at least the EEA, but the UK and I think Switzerland have their own capping) card interchange is capped at, generally, 0.3%.
pathikrit | 16 hours ago
jazdw | 16 hours ago
lotsofpulp | 15 hours ago
pants2 | 9 hours ago
nerdjon | 16 hours ago
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 | 16 hours ago
losvedir | 16 hours ago
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.
Brendinooo | 15 hours ago
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.
j_bum | 11 hours ago
roncesvalles | 11 hours ago
The gain of a few thousand per annum is not worth the mental distraction.
quickthrowman | 7 hours ago
It’s expensive to be poor. Higher interest rates, no credit card rewards, higher unit prices at places like Dollar General, etc.
Tepix | 16 hours ago
figmert | 16 hours ago
dukeofdoom | 16 hours ago
DrScientist | 16 hours ago
ngriffiths | 16 hours ago
It's clearly more complex than the story these authors are telling, in particular the highest income consumers get the worst returns on their interchange payments. So stores and services catering to wealthy consumers are actually subsidizing an opportunity for savvy customers, many of whom are not wealthy
mchusma | 16 hours ago
I think the most simple piece of legislation to solve a lot of problems is to allow merchants to pass along the interchange rate to their customers. If they could do this legally and operationally, this would solve most issues here. If a credit card wants to be expensive, fine the consumer should pay for it. Because of contractual and operational limitations, credit card companies have gotten themselves into the current arms race.
If stripe implemented this, it would make me appreciate them as a force for good instead of being a part of the problem.
gruez | 16 hours ago
That's not what the article says:
>High-income consumers with high FICO scores benefit the most from reward credit cards compared to mid- and low-income consumers with high FICO scores. At the lower end of the FICO distribution, however, this pattern is reversed. On average, net rewards are far more negative for high-income consumers with low FICO scores than for middle- and low-income consumers with low FICO scores.
>Or, to put that another way: if there is redistribution happening, it necessarily includes redistribution from unsophisticated high income customers to sophisticated low income customers.
While it's true that wealth customers with low FICO scores are getting hosed, it's not clear whether that is enough to cancel out the effect that richer people (presumably) have higher FICO scores on average
ngriffiths | 15 hours ago
The only way I can put these things together is that at the high FICO end, both wealthier and poorer consumers get hosed a lot but wealthier consumers not quite as much. On the other hand, lower FICO band doesn't get as bad of a deal overall but it is worse for wealther people (plausibly because they have high interchange fees and don't use their rewards).
It's complicated, but... this is not a wealth transfer right? It is a transfer mostly just from consumers to credit card companies that provide them a service.
gruez | 5 hours ago
Are you talking about "Consumption by income decile" graph? That doesn't show them being hosed, unless you think everyone should pay a flat rate to access the credit card system.
swed420 | 15 hours ago
https://news.ycombinator.com/item?id=39928604
59percentmore | 16 hours ago
(This is not a rhetorical question, I would love to hear others' take on the psychology and history of the subject. Really, how hard is it?)
snarf21 | 16 hours ago
podgorniy | 16 hours ago
How exactly to become wealthy then?..
--
> What happened to noblesse oblige?
Some things made noblesse oblige way harder to manifest.
Meritocracy. "I deserve what I have", versus "I got lucky have what I have" made harder to share back.
Globalization. When you use one community to produce and another to consume, and third to register a company, and owner lives in fourth it's hard to associate yourself with the community. Where exactly to give back? You won't even see those people.
Secularizarion. Though USA is still significantly religious place comparing to europe.
Easiness to move. Today you're here, tomorrow you're there in new zealand bunker.
Culture. Somehow the rich are in the people who are heavily interconnected, spend time together at the khe khe pedoisland.
Natural selection. The ones who care less about others mathematically have more advantage than those who care enough to spend resources on non-resource-aggregation activities.
--
So. There is no intristic motivation to do so (with majority), there is no external motivation, and there is no repercussions of not giving back.
oldsklgdfth | 16 hours ago
One consequence of this system is the large merchants have more bargaining power and can negotiate lower fees. So large retailers, gas station chains, etc. are able to reduce the overhead of accepting CC payment. While smaller merchants have the same higher cost.
From a capitalism perspective, this is the most egregious example of "you have capital, so you can make more capital". Banks holding the capital in this case.
Fun fact: when credit cards were first introduced only to people with good credit, which paid the balance in full. this was not profitable. Only after opening the pool to other credit levels did CC start printing money for banks.
bluGill | 16 hours ago
This applies to cash as well. It takes a lot of time to count change for everyone. Plus all the ways there are to steal cash.
Your fun fact is wrong. Credit cards were always profitable. They were not in the beginning because scale is what makes them profitable. Anyone who uses their cards for a couple meals a month (which is what it was first started for) is going to cost money because of all the overhead to have you as a customer. In those days that was a stamp to send the bill, someone to open the payment and cash the check - now that everybody works electronically the overhead is lower, plus people are using it for more and so there is enough left over to pay for it.
Mamut3 | 16 hours ago
This is even more true of the American brands that are getting Trump to attack modern, open, cost-free systems from other countries—like Brazil's PIX, maintained by the Central Bank of Brazil.
I call it 21st-century American usury.
janpeuker | 16 hours ago
1) https://a2apaymentsaustralia.com.au/wp-content/uploads/2026/...
2) https://www.rba.gov.au/payments-and-infrastructure/review-of...
ilamont | 16 hours ago
Not at many gas stations. Cash gets a discount usually $.10 per gallon. I’ve also started to see restaurants either give a discount for cash, or charge extra for credit card purchases. Business suppliers from tiny shops to large national companies tack on 3% for people paying with credit cards, or like T-Mobile, a $5/line monthly fee in order to get people to pay by direct debit.
dmayle | 16 hours ago
The article has one thing mistaken, because it says that Durbin lowered costs for transactions, but credit owners got to keep their perks... That's not technically true (I worked at a supermarket when debit rails first went into effect, and I worked in payments when Durbin went into effect).
There are no benefits to credit users who use the debit rails, and the merchants would really rather you use the debit rails, because it is much cheaper for them. Durbin was mostly a win for the merchants, not a win for the customers.
However, if you take that to believe that the merchants lowered prices overall because they were paying less for transactions, than you might try to read into it that credit users kept their perks, while cash and debit users paid.
The true story, however, is that it's an equilibrium... When the costs go down, the saved money goes somewhere in between the two (supply and demand), and as long as there is competition, the savings are shared.
However, the real problem is that credit companies are allowed to invest interchange fees in perks at all. Credit card companies decided to take their low-risk pool, and offer them incentives, splitting the money they saved between themselves and their users, and using it as a way to pull more low-risk users. The more that happens, the more expensive it becomes for credit companies that serve mid-to-high-risk users... and since we can't stop offering credit to those users as well, those companies push for and get increases to interchange fees to cover the additional cost... which creates more room for benefits for the low-risk users, and the cycle begins anew. It's a vicious cycle that can't be fixed by changing amounts on the existing fee schedule... The only possible fixes would be in either disallowing these kinds of perks, or splitting the rail charges, and specifically charging less interchange for low-risk users (which dries out the benefit pool)
myrmidon | 16 hours ago
Credit card rewards are not a mechanism to shift wealth towards premium card holders (this is a negligible distraction), they exist purely to increase revenue/conversion rate, by decreasing customer price sensitivity (compared to cash payments) and encouraging financially irresponsible spending. If this did not actually work in practice, every merchant would just insist on cash and pocket the difference.
"Poor people" are hurt much more from the changes in spending behavior induced by credit card use than by paying for card rewards.
diego_moita | 16 hours ago
I suspect that because I didn't understand what you wrote.
You used a lot of passive voice and complex jargon. That is economists favorite writing style: they write to confuse, not to explain.
myrmidon | 15 hours ago
No. I do embedded software engineering for a living.
I use (in my view) HN appropriate levels of jargon (because lots of people here are involved with getting people to pay for some newfangled cloud thing or other, so I use their terminology).
In simple words: People pay more for the same (and spend more recklessly) when you let them pay by credit card, and this causes much more economical "damage" to poor peolpe than any "wealth transfer from card rewards".
diego_moita | 15 hours ago
nyeah | 16 hours ago
diego_moita | 16 hours ago
For merchants, it just doesn't make sense to pay high fees to cater to a dwindling minority of consumers.
drewfax | 15 hours ago
Source: https://bfsi.economictimes.indiatimes.com/articles/credit-ca...
Besides, NPCI has introduced merchant transaction fee for UPI now causing decline in UPI transactions.
amazingamazing | 16 hours ago
alex43578 | 16 hours ago
Same argument for people: managing cash is a pain, swiping a card is easy. Contesting a transaction or fraud is way easier (infinitely easier?) with a card than cash. Having day to day liquidity even without ever carrying a balance is nice.
Is all this worth $9.2B across the economy? Maybe not, but again, certainly worth more than 0.
gruez | 16 hours ago
Nobody's arguing that credit card companies are proving zero value, only that they're charging more than what can be "justified" (whatever that means). That's why in europe the interchange rates are capped at some amount to reflect that.
alex43578 | 8 hours ago
As for America, there’s 4 card networks, and no explicit regulation preventing you from starting another (just the huge regulatory burdens involved with any money-processing business, PCI, etc).
If they were charging so much more than is “justified”, couldn’t one of the dozens of well-funded players in the fintech space swoop in? Couldn’t Walmart fall back to cash and a “Walmart card”?
Instead, we see even goliaths like Walmart spending money and time to support newer features like tap to pay because it reduces fraud losses and customers just prefer it.
The “justified” thing is silly - is Apple charging more than is justified because they make a profit?
jen20 | 16 hours ago
gruez | 16 hours ago
[1] of course, this doesn't need to rely on some principle that people are entitled to discounts if they buy more, because in reality discounts arise from complex market dynamics such as competition and price discrimination.
swed420 | 15 hours ago
https://news.ycombinator.com/item?id=39928604
paxys | 15 hours ago
Brendinooo | 15 hours ago
w10-1 | 15 hours ago
Sure, take any slice of a vast number, and you get a big number.
It's not a "wealth transfer" when everyone gets what they bargained for and can opt in or out.
Most importantly, the transaction value of using credit cards or rewards systems - what the user actually gets - is not enumerated.
Beyond what others have noted (mainly deferred payment), credit cards offer legal transaction protections: my legal liability for fraud is limited (unlike debit or Zelle transfers), and I can challenge any transaction even later, which gives the vendor an incentive to ensure I'm happy even after they have my money. While reputation provides some incentive for repeat customers, the ability to retract a transaction governs even non-repeats. I would submit this alone has improves quality of service for everyone anywhere credit cards are accepted.
Rewards vary by type. Cash-back rewards reflect the fact that interchange fees were set to recapture initial investments, but servicing costs have plummeting (thanks to computing); governance-wise, it's almost impossible for a "representative" political system to extract a large cost from a small number of powerful agents with vested interests to provide a tiny amount of benefit to a very large numbers of other people. But that's a much more extensive governance issue.
So where does the benefit go? To competition between credit providers, initially as cash-back, and then to tying rebates to future purchases within controlled channels. For airline point systems that give free flights or upgrades, it improves retention, but other forms of rewards would seem to verge on tying, where power in one market is extended into another.
Politically-mediated wealth transfers are a political issue. Economically-mediated wealth transfers should raise market-regulation policy issues, in particular whether the law is inducing or protecting them, and then whether they are good or bad. Tallying that requires not just seeing the money flow, but seeing all the value received or cost exported.
elmer2 | 15 hours ago
I also used a credit card to bootstrap my business 15 years ago. At it's height, I was brining in $1 million/year. The bank would have never given me a loan for the amount I was able to use on a credit card. I ended up shutting the business down a few years ago, with no debt.
Most people can't handle spending and rack up tons of debt. Credit cards can also be used to make money, instead of buying stupid things you can't afford.
hnburnsy | 13 hours ago
>When merchants raise prices for all consumers in response to these costs, users of low-cost payment methods (e.g., cash and debit) cross-subsidize high-reward credit card users who shop at the same merchant"
Cash handling is not a low-cost payment method, Cash handling can cost businesses between 4% and 15% of each transaction, when factoring in labor, security, bank fees, and risks like theft and counterfeit bills.
One could argue that credit card users have been lowering prices for cash payers as business avoid cash handling pitfalls and get their funds safer and faster.
wookmaster | 11 hours ago