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How credit card rewards became a $9.2B wealth transfer

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

#111

Post by myrmidon »

I think this is disingenuous framing.

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.

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

#112

Post by Ekaros »

api wrote: post #93
59percentmore wrote: post #87

Earlier quoted context omitted.

Things that are more expensive in the US for no reason: Healthcare Internet access College sighs and adds "The very act of making a purchase" At least we have cheap gas? farts

Internet access sort of has a reason: the US is geographically huge and more sprawled out. But that's not enough to explain all of the difference.

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.

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

#113

Post by LoganDark »

cpburns2009 wrote: post #92
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.

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.

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

#114

Post by tiffanyh »

iso1631 wrote: post #79
post-it wrote: post #23

Earlier quoted context omitted.

That's what makes it a wealth transfer, from debit card users to you.

In my country card fees are less than cash fees, so I guess that's a wealth transfer from card payers to cash payers?

That’s a great point.

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

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

#115

Post by delish »

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.

Patrick McKenzie rebuts this here: (podcast) https://open.spotify.com/episode/2E2KRPcDvh1LcRw5bIsBms or here (article): https://www.bitsaboutmoney.com/archive/anatomy-of-credit-car...

The intuition being: people who carry balances and pay interest don't actually spend very much; they are not wealthy.

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

#116

Post by quickthrowman »

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.

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.

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

#118

Post by bluGill »

matheusmoreira wrote: post #82
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.

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

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

#120

Post by mchusma »

ngriffiths wrote: post #61

Patio11 covered this exact topic: https://www.complexsystemspodcast.com/episodes/credit-card-r... 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.

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