Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

How credit card rewards became a $9.2B wealth transfer

library.hbs.edu

Post reply on HN
Print view View original

51–60 of 473 posts

Re: How credit card rewards became a $9.2B wealth transfer

#51

Post by graemep »

criddell wrote: post #14
SXX wrote: post #7

Important 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.

How generous are credit card rewards in the EU?

There are similar caps in the UK and most credit card rewards seem to be low after an initial offer period.

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.

Re: How credit card rewards became a $9.2B wealth transfer

#52

Post by onion2k »

aurareturn wrote: post #6

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.

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.

Re: How credit card rewards became a $9.2B wealth transfer

#53

Post by tiffanyh »

Torkel wrote: post #49
SXX wrote: post #7

Important 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.

How does it work if I have a US credit card and use it abroad? Do I still get the kickback even though the merchant fee is capped? 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?

Issuing banks typically add an FX fee to the cardholder for cross border transactions. Not always, but many times they do.

Re: How credit card rewards became a $9.2B wealth transfer

#54

Post by dougdude3339 »

aurareturn wrote: post #6

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 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.

Re: How credit card rewards became a $9.2B wealth transfer

#55

Post by [deleted] »

Torkel wrote: post #49
SXX wrote: post #7

Important 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.

How does it work if I have a US credit card and use it abroad? Do I still get the kickback even though the merchant fee is capped? 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?

[deleted]

Re: How credit card rewards became a $9.2B wealth transfer

#56

Post by Spooky23 »

toomuchtodo wrote: post #3
Forgeties79 wrote: post #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 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 p…

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.

Re: How credit card rewards became a $9.2B wealth transfer

#58

Post by vasco »

nsedlet wrote: post #31

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.

It has no relation to paying interest, only to making transactions with the credit card.

Re: How credit card rewards became a $9.2B wealth transfer

#59

Post by rcxdude »

KolmogorovComp wrote: post #25
tiffanyh wrote: post #19

Earlier quoted context omitted.

To be more specific, this is a US credit card topic. 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.

> As such, I just pay with credit and have never understood this argument. Because the merchant pass the higher processing cost to all customers.

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.

Re: How credit card rewards became a $9.2B wealth transfer

#60

Post by bitmasher9 »

Xirdus wrote: post #22
hvb2 wrote: post #11

Earlier quoted context omitted.

> Otherwise, you're giving up 1-3% discount. 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

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…

Most true not qualifying are either

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.

Post reply on HN