How credit card rewards became a $9.2B wealth transfer
library.hbs.edu
How credit card rewards became a $9.2B wealth transfer
1–10 of 473 posts
Re: How credit card rewards became a $9.2B wealth transfer
#2> 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.
Re: How credit card rewards became a $9.2B wealth transfer
#3> 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 th…
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.
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)
Re: How credit card rewards became a $9.2B wealth transfer
#4> 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 th…
Same, that percentage seems absurd though.
Re: How credit card rewards became a $9.2B wealth transfer
#5> 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 th…
And there I was thinking it was obvious that merchants wouldn't just eat cc fees, and would cushion all prices to account for their costs.
Re: How credit card rewards became a $9.2B wealth transfer
#6I 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.
Re: How credit card rewards became a $9.2B wealth transfer
#7Important context: this is US thing. EU capped interchange fees at 0.2% for debit and 0.3% for credit cards.
So in US card processing is x5-x10 more expensive.
Re: How credit card rewards became a $9.2B wealth transfer
#8And those same American companies want the US government to intervene in other countries to try to kill their local alternatives
Re: How credit card rewards became a $9.2B wealth transfer
#9So i may be an anomaly but I'd say 20-40% of all places I shop have a specific fee to cover CC transactions using a CC vs Cash.
Re: How credit card rewards became a $9.2B wealth transfer
#10I 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.
Most people can’t optimize for 1-3%. Life is flooded with 1-3% choices.
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.