Debit cards are hidden financial infrastructure • Hacker News Board

Re: Debit cards are hidden financial infrastructure

#91

Post by smabie » Sat, Nov 13, 2021, 3:19 AM UTC

Beaver117 wrote: post #18

vmception wrote: post #3

> An interesting wrinkle about net interest is that most customers don’t contribute much. In much of the U.S., median checking account balances at account creation are only around $3,000 Thats a lot of money not in crypto or stocks. Surprising.

I have exactly $3000 buffer, curious how you eliminate that? Basically for rent, venmo payments to people and credit card payments.

I suppose you could liquid some of your return generating assets every month right before you pay off your cc. However since 3k is a neglible amount of money to most people here, I wouldn't really worry about not having earning yield on your 3k. Also it's often useful to have some literal cash in your bank account.

Re: Debit cards are hidden financial infrastructure

#92

Post by AdamJacobMuller » Sat, Nov 13, 2021, 3:19 AM UTC

rjzzleep wrote: post #81

mherdeg wrote: post #56

Earlier quoted context omitted.

It's not just overdraft fees right? It's overdraft fees plus transaction reordering which makes the magic happen. I'm still kind of mesmerized on this one, it felt like regulatory action almost happened, the most lucrative of the overdraft practices got limited circa 2009/2010, and then banks voluntarily toned it down and the regulators mostly looked the other way on things like reordering?

What's transaction reordering? 1. have $10 in your checking 2. pay $9 for steak 3. fill account with $500 4. buy sausage for $2 bank reorders it as 1. have $10 in your checking 2. pay $9 for steak 3. buy sausage for $2 4. charge overdraft 5. count $500 deposit Is that what banks would do? I faintly remember that really old accounts I had in Germany had overdraft capability, but for all newer(last decade or so) accoun…

The specifics of it are dependent on the bank, but it can be more insidious than even your example.

Given a balance of $100 and 4 transactions of $20, $20, $20, $90 you can either be charged one, or three overdraft fees depending on the order in which your bank deducts those from your account. Basically, ordering from largest to smallest will cause the most number of overdraft fees.

Re: Debit cards are hidden financial infrastructure

#93

Post by numair » Sat, Nov 13, 2021, 3:19 AM UTC

ffggvv wrote: post #85

numair wrote: post #68

Earlier quoted context omitted.

That seems like yet another PR piece that revolves around a, “look, finance didn’t need regulatory action to fix itself, it just needed ‘innovation!’” narrative. No, sorry, these markets were created by regulatory action, and they still need regulatory action to fix the flaws in their design. I found patio11 to be more informative before all of his writing suffered from a Stripe bias. And I found Stripe more interest…

j.p. morgan existed before regulatory bodies did

The system that maintains the banking oligarchy is a regulatory creation. We replaced the wildcat [bank] with the fat-cat [banker].

https://en.wikipedia.org/wiki/Wildcat_banking

Re: Debit cards are hidden financial infrastructure

#94

Post by ryandrake » Sat, Nov 13, 2021, 3:20 AM UTC

rjzzleep wrote: post #81

mherdeg wrote: post #56

Earlier quoted context omitted.

It's not just overdraft fees right? It's overdraft fees plus transaction reordering which makes the magic happen. I'm still kind of mesmerized on this one, it felt like regulatory action almost happened, the most lucrative of the overdraft practices got limited circa 2009/2010, and then banks voluntarily toned it down and the regulators mostly looked the other way on things like reordering?

What's transaction reordering? 1. have $10 in your checking 2. pay $9 for steak 3. fill account with $500 4. buy sausage for $2 bank reorders it as 1. have $10 in your checking 2. pay $9 for steak 3. buy sausage for $2 4. charge overdraft 5. count $500 deposit Is that what banks would do? I faintly remember that really old accounts I had in Germany had overdraft capability, but for all newer(last decade or so) accoun…

Yes, that's exactly what they would do. Even better (for the bank's profits) is if you had lots of other smaller transactions that day too. They would re-order everything from largest-to-smallest, so it's:

1. have $10 in your checking

2. pay $9 for steak

3. buy sausage for $5

4. charge overdraft

5. buy milk for $3

6. charge another overdraft

7. pay $2 for parking

8. charge another overdraft

9. buy a pack of gum for $1

10. charge another overdraft

11. count $500 deposit

It was truly despicable behavior that benefited nobody but the banks.

Re: Debit cards are hidden financial infrastructure

#95

Post by raegis » Sat, Nov 13, 2021, 3:21 AM UTC

tasogare wrote: post #23

aynyc wrote: post #4

Use credit card, it’s the card issuers that are on the hook for fraud. It’ll help you build credit. Use debit when you don’t have the means or credit history.

What? That seems totally backwards. Don't spend money you don't have, which mean using debit. Credit is useful for the single use case of buying a house.

> Credit is useful for the single use case of buying a house.

If you can exercise self-control with spending, you can use a credit card for almost everything. I think Dave Ramsey advises you're less likely to spend money if you use real cash, but for some people, this is not an issue at all.

Re: Debit cards are hidden financial infrastructure

#96

Post by hahajk » Sat, Nov 13, 2021, 3:22 AM UTC

p2t2p wrote: post #48

aynyc wrote: post #4

Use credit card, it’s the card issuers that are on the hook for fraud. It’ll help you build credit. Use debit when you don’t have the means or credit history.

Australian here. Don’t use credit card, setup a separate account for bills, direct debit everything from there, don’t keep anything big on your debit card and use it with Apple Pay everywhere. No fraud, no fees, no complex things and rules to remember.

Amex pays me over a thousand dollars a year to use my credit card (which it takes from the merchants as fees.) I kinda feel bad about that, but I know those fees are built into the price and if I used cash or debit I’d still be paying the same price, just not get the reward.

But if they accepted lightning payments, I would pay them in BTC.

Re: Debit cards are hidden financial infrastructure

#97

Post by eyelidlessness » Sat, Nov 13, 2021, 3:22 AM UTC

mherdeg wrote: post #56

numair wrote: post #43

The beginning of this article is a fairy tale that ignores what used to be one of the biggest drivers of revenue for banks: overdraft fees. Maybe the HN crowd has never been in a situation where they were auto-billed into a negative balance, which then caused an overdraft fee that then further drove their balance into negative territory, but this was a weekly/monthly fiasco for millions of Americans. I was once in a…

It's not just overdraft fees right? It's overdraft fees plus transaction reordering which makes the magic happen. I'm still kind of mesmerized on this one, it felt like regulatory action almost happened, the most lucrative of the overdraft practices got limited circa 2009/2010, and then banks voluntarily toned it down and the regulators mostly looked the other way on things like reordering?

My last bank (US Bank, don’t bank with them) did this in a way where in one day where I had only one transaction which could overdraft they charged 6 overdrafts even though my net would have been positive. If I wasn’t (at the time) skilled at ~~kicking and screaming~~ advocating for myself I would have been out $180 plus whatever 30 cents they had calculated I went negative. Which (again at the time) was the difference between whether I was gonna be homeless.

Re: Debit cards are hidden financial infrastructure

#98

Post by [deleted] » Sat, Nov 13, 2021, 3:23 AM UTC

rjzzleep wrote: post #81

mherdeg wrote: post #56

Earlier quoted context omitted.

It's not just overdraft fees right? It's overdraft fees plus transaction reordering which makes the magic happen. I'm still kind of mesmerized on this one, it felt like regulatory action almost happened, the most lucrative of the overdraft practices got limited circa 2009/2010, and then banks voluntarily toned it down and the regulators mostly looked the other way on things like reordering?

What's transaction reordering? 1. have $10 in your checking 2. pay $9 for steak 3. fill account with $500 4. buy sausage for $2 bank reorders it as 1. have $10 in your checking 2. pay $9 for steak 3. buy sausage for $2 4. charge overdraft 5. count $500 deposit Is that what banks would do? I faintly remember that really old accounts I had in Germany had overdraft capability, but for all newer(last decade or so) accoun…

[deleted]

Re: Debit cards are hidden financial infrastructure

#99

Post by steveBK123 » Sat, Nov 13, 2021, 3:24 AM UTC

mherdeg wrote: post #56

numair wrote: post #43

The beginning of this article is a fairy tale that ignores what used to be one of the biggest drivers of revenue for banks: overdraft fees. Maybe the HN crowd has never been in a situation where they were auto-billed into a negative balance, which then caused an overdraft fee that then further drove their balance into negative territory, but this was a weekly/monthly fiasco for millions of Americans. I was once in a…

It's not just overdraft fees right? It's overdraft fees plus transaction reordering which makes the magic happen. I'm still kind of mesmerized on this one, it felt like regulatory action almost happened, the most lucrative of the overdraft practices got limited circa 2009/2010, and then banks voluntarily toned it down and the regulators mostly looked the other way on things like reordering?

The transaction re-ordering to maximize the amount of overdraft events should have put execs in prison. Out of all the obviously corrupt, mal-intent, direct consumer harming practices this was quite near the top.

Re: Debit cards are hidden financial infrastructure

#100

Post by singlow » Sat, Nov 13, 2021, 3:26 AM UTC

tata71 wrote: post #63

Spooky23 wrote: post #57

Earlier quoted context omitted.

No, that’s not how it works.

Using a very, very low, or no percentage of your available credit for ages makes you just as bad of an investment for these companies as customers who run off on the bill. In both cases, higher risk of default, less chance of profiting from interest, lower creditworthiness score!

I have never once carried a credit card balance or paid a cent in interest. My credit score is over 800 which is pretty much maxed out. The only things on my credit history are a few credit cards that I got to establish credit history, and my mortgage, which is why I needed a credit history.

So I got 3 credit cards and used them each during each month so that I would established on-time payments on all three and boom, I had perfect credit after a couple years and qualified for a mortgage. I didn't use any credit before I decided to buy a house in my 30s so I had a completely empty credit history prior to that, apart from a library that reported a lost book. So it just took a little while to get my average account age up and my number of on-time payments above some threshold.

Now if you don't use the card at all, it is less effective at establishing credit because you don't get the on-time payment history or balance. The credit bureaus just get reports of on-time or late payments, balances, and delinquencies/defaults, etc.

You will be given the best rating at a small non-zero percentage of your total available credit being used each month, but it doesn't have to be carried.

All you have to do is make sure you don't pay it off too early. Just wait until the due date, and pay off the statement balance, not the full balance. If you pay it off mid-month, before the end of the statement, or paid the full balance instead of what is due, you may get a zero balance reported which is a slight temporary hit to your score, but not that significant. I found that it was best to have a few cards with a total available credit at least 5 times my monthly spending. That way the reported balance ends up being <20% of my total available credit which is near the sweet spot. If I am going to do a refi on my house i might try to micromanage it to somewhere close to 5% for a few months ahead of time and get a few points added to my score, but once you get your score up around 800 it doesn't really matter if it is up or down 10pts or so. I found that as my average account age increased, the swings from slight differences in balance were smaller.