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Debit cards are hidden financial infrastructure

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Re: Debit cards are hidden financial infrastructure

#101

Post by eyelidlessness »

rp1 wrote: post #78
eyelidlessness wrote: post #76

Earlier quoted context omitted.

Overdrafts were the second thing that came to mind, a decade into clawing my way out of poverty and just plain being broke. The first was the scam of debit cards and secured credit cards being treated fundamentally differently. They both operate basically the same way for customers (you’re only spending your own money, it’s not credit in the lending sense), but debit cards are a profit center with no credit reporting…

What do you mean by secured credit cards can be recommended is any discriminatory way? I definitely think the nation should prioritize financial literacy in the education system, but I'm not sure you should be trusting any information you get from a bank regarding what to do with your money.

What I mean is that for customers, secured credit cards and debit cards have roughly the same risk, but banks have obligations to offer checking accounts fairly but offering the equivalent credit-building account is up to their own discretion. It’s considered lending even though they’re lending the customer their own money.

Re: Debit cards are hidden financial infrastructure

#102

Post by klipt »

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 they reordered transactions to maximize their money. E.g. you have $495 in the account, and you spend:

-$5: $490 left

-$5: $485 left

-$5: $480 left

-$500: -$20 left, overdraft fee of $40, $-60 left.

They will reorder it as:

-$500: -$5 left, overdraft fee of $40, $-45 left.

-$5: -$50 left, overdraft fee of $40, $-90 left.

-$5: -$95 left, overdraft fee of $40, $-135 left.

-$5: -$140 left, overdraft fee of $40, $-180 left.

Re: Debit cards are hidden financial infrastructure

#103

Post by Larrikin »

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…

I think it was more like

1. have $100 in your checking 2. pay $10 for steak 3. buy sausage for $5 4. Buy a ticket for $99

You think you get one over draft fee

bank reorders it as

1. have $100 in your checking

2. Buy ticket for $99

3. buy sausage for $5

4. Pay 10 for steak

Get 2 over draft fees. Add more transactions in between the ticket purchase to increase the fees.

Re: Debit cards are hidden financial infrastructure

#104

Post by cloudbonsai »

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.

To be fair, debit card offers a few advantages over credit card:

* Debit card allows to set granular spending limit (e.g. $100 per day). So you can protect the potential amount that a fraudster can spend with your card.

* You can set it up to send transaction details via email on every purchase. This is a lot more convenient than, say, checking the credit card statement at the end of every month.

I actually prefer using debit cards for daily expenses. For me, credit card is almost exclusively for online purchases.

Re: Debit cards are hidden financial infrastructure

#105

Post by ironmagma »

lotsofpulp wrote: post #86
kccqzy wrote: post #59

> Typically, the apps offer their users a choice: payouts at the speed of banking, for free, or payouts at the speed of the Internet, for a small convenience fee. Cash App charges 1.5% with a minimum of a quarter. This is just another way the financial system (including fintech startups) preys on the poor. If you are well off, you wouldn't want to pay any convenience fee for the privilege of receiving money from a bu…

> This is just another way the financial system (including fintech startups) prey on the poor. This is the way a government preys on the poor by not making electronic transfer of money a utility. The businesses are just doing business, no one sets out and says I want to screw the poor. The prices simply reflect the risks to the business. If society wants to subsidize those risks for the poor, then it should by creati…

There’s a certain point where neglect becomes malice. The bystander effect has a name for a reason; it’s not the obvious way humans should behave.

Re: Debit cards are hidden financial infrastructure

#106

Post by toomuchtodo »

dustintrex wrote: post #64
kccqzy wrote: post #59

> Typically, the apps offer their users a choice: payouts at the speed of banking, for free, or payouts at the speed of the Internet, for a small convenience fee. Cash App charges 1.5% with a minimum of a quarter. This is just another way the financial system (including fintech startups) preys on the poor. If you are well off, you wouldn't want to pay any convenience fee for the privilege of receiving money from a bu…

It's also another illustration of how backwards US payments infra is. In the EU, SEPA instant payments are just that: by law it can take a maximum of 10 seconds for the recipient to get paid, including across countries. And, of course, they're free. https://en.wikipedia.org/wiki/Single_Euro_Payments_Area

The US Federal Reserve is building an instant payment system (FedNow) that goes live in 2023 [1] [2]. Payment providers are moving upmarket and to features that stave off churn (my analysis here) due to expected revenue destruction caused by a free alternative being available (a US version of SEPA). This is alluded to in the second half of this blog post.

If payment revenue (interchange and the like) declines, and net interest is insufficient for providing large swaths of US deposit accounts, something is going to have to give (community and megabanks have a ton of pull in Congress, and neobanks are beholden to someone with a bank charter).

I’m not in payments (but in adjacent financial services), so I’m happy to be corrected if any of this is wrong.

[1] https://www.federalreserve.gov/paymentsystems/fednow_faq.htm

[2] https://www.frbservices.org/binaries/content/assets/crsocms/...

Re: Debit cards are hidden financial infrastructure

#107

Post by CrazyStat »

cloudbonsai wrote: post #104
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.

To be fair, debit card offers a few advantages over credit card: * Debit card allows to set granular spending limit (e.g. $100 per day). So you can protect the potential amount that a fraudster can spend with your card. * You can set it up to send transaction details via email on every purchase. This is a lot more convenient than, say, checking the credit card statement at the end of every month. I actually prefer us…

Neither my debit nor credit card allows the first, as far as I know, and both allow the second.

Perhaps these are advantages of the particular debit card you have over the particular credit card you have. I don't think they are general.

Re: Debit cards are hidden financial infrastructure

#108

Post by stelonix »

victor106 wrote: post #79

> The government’s current target is 40% of the payments mix, about double the current amount, which would put it on parity with the present state of play in the U.S. (and behind Asian peer nations, at around 50%) It’s shocking that still about 50% is cash based.(if I am reading that right)

I think it means 80% is cash-based, since the double of the current amount of e-money transactions is said to be 40%.
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