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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

#141

Post by nemomarx »

tomaskafka wrote: post #129
ramijames wrote: post #121

Earlier quoted context omitted.

I'm 46. I've never had a credit card. I have a bank account and a debit card. If I can't afford something, I don't buy it. You can just opt out of using credit cards.

Whole Europe does this. I never understood why whole nation wants to live in debt just to have one extra month of cash flow (which they’ll probably squander soon).

Pay your credit card balance off every week, and it's an overly complicated debit card but you technically build up a score for future loans. Also maybe you get cash back on that?

Rational if you want a mortgage in the US at least.

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

#143

Post by cpburns2009 »

tiffanyh wrote: post #19
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.

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.

Places around me have been starting to itemize the credit card fee. Only car dealerships so far have waived the fee for debit over credit in my experience.

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

#144

Post by croon »

tomaskafka wrote: post #129
ramijames wrote: post #121

Earlier quoted context omitted.

I'm 46. I've never had a credit card. I have a bank account and a debit card. If I can't afford something, I don't buy it. You can just opt out of using credit cards.

Whole Europe does this. I never understood why whole nation wants to live in debt just to have one extra month of cash flow (which they’ll probably squander soon).

While I hate that it's like this, you're leaving money on the table.

Currently you're keeping money in the bank accruing the bank interest to occasionally pay for stuff.

With a credit card you would get various bonuses/cashback/gameified returns by owing them money, and it costs you nothing as long as you pay them back once a month interest free.

If you however slip up/miss a payment it will cost you a lot.

Both cases suck, but the latter saves you money if you play that game.

That's from a EU perspective. From a US perspective you also require it from a credit score perspective, which EU thankfully hasn't adopted... yet.

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

#145

Post by pathikrit »

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.

Why is it so hard lol? I have the Bank of America Rewards card for 25+ years. 2.62% cashback on everything, 3.5% on dining/travel. Maybe there are better ones out there but this is good. I have auto-pay setup so I don't have to worry. I have not spent a second of my time optimizing anything in last 15 years

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

#146

Post by diego_moita »

myrmidon wrote: post #111

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 a…

You are an economist, aren't you?

I suspect that because I didn't understand what you wrote.

You used a lot of passive voice and complex jargon. That is economists favorite writing style: they write to confuse, not to explain.

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

#147

Post by gruez »

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

>in particular the highest income consumers get the worst returns on their interchange payments

That's not what the article says:

>High-income consumers with high FICO scores benefit the most from reward credit cards compared to mid- and low-income consumers with high FICO scores. At the lower end of the FICO distribution, however, this pattern is reversed. On average, net rewards are far more negative for high-income consumers with low FICO scores than for middle- and low-income consumers with low FICO scores.

>Or, to put that another way: if there is redistribution happening, it necessarily includes redistribution from unsophisticated high income customers to sophisticated low income customers.

While it's true that wealth customers with low FICO scores are getting hosed, it's not clear whether that is enough to cancel out the effect that richer people (presumably) have higher FICO scores on average

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

#148

Post by cge »

post-it wrote: post #32
cge wrote: post #18

Earlier quoted context omitted.

The only way I can interpret the percentage is that they are stating the increased cost as a percentage of sales tax rather than a percentage of the sale, such that "26% higher sales tax" in a state changing 10% sales tax would mean paying 2.4% more in total. That choice seems misleading, but does make the percentage make sense.

That is what it says after all, it's pretty explicit.

It's just such a bizarre choice that one might hope there would be another interpretation. Why measure a percentage change on sales tax, which varies heavily from location to location, and is not what the associated fees are based on, rather than simple choice of total cost?

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

#149

Post by decimalenough »

tialaramex wrote: post #95
tiffanyh wrote: post #53

Earlier quoted context omitted.

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

Even if the FX is notionally "free" they pick the rates. So they can set those rates to generate exactly the same profit for them as with fees. You will probably not see rates that are even competitive with a dodgy FX cash place at an airport, let alone with the numbers you've seen on financial networks for what FX transactions by banks cost, but you feel happy because there was "no fee".

This is flat out incorrect. It's actually quite difficult to get a cash FX rate that's even close to as good as the standard credit card FX rate, which is also set by Visa/MC and not the banks.

Where the banks do get their pound of flesh, though, is the foreign transaction surcharge, which is often around 3%. No-fee cards exist but you need to look for them. And a whole new set of charges applies to doing a foreign cash advance on a credit card.

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

#150

Post by Gormo »

59percentmore wrote: post #87
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.

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 isn't particularly expensive in the US.

Healthcare, education, and housing are expensive in the US for the same primary reason: political interventions that simultaneously subsidize demand and restrict supply.

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