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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

#161

Post by nutjob2 »

croon wrote: post #126
nutjob2 wrote: post #99

Earlier quoted context omitted.

I don't have to invest any time at all. I just use the (US) card that gives me the greatest benefits, be it cash back or services. Usually I just look at the reward rate, which is a base 2% for me right now going up to 5% for some things. I love it. As someone who never carries a balance I get paid by banks for doing pretty much nothing at all. And I don't worry about US retailers, I don't live there. I should add th…

Imagine a world where the pipeline from extra fees back to hoop-hopping cashback didn't exist and your services were just cheaper by the same percentage points instead. It's designed to make money off people slipping up instead of serving customers.

Yes, but there are so many financial injustices and inefficiencies in the world.

And it may not work the way you expect. Retailers may favor credit card users if they tend to spend more. There are substantial costs associated with handling cash, so cash users may end up paying more.

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

#162

Post by nickjj »

steveBK123 wrote: post #86
roland35 wrote: post #15

Patrick McKenzie (patio11 fame) had a great blog post in credit card rewards There is a lot that goes into it, and it is interesting how customers like me who literally never have carried interest and have to made thousands of $ in rewards over the years still make the banks money.... https://www.bitsaboutmoney.com/archive/anatomy-of-credit-car...

Credit card points/miles are an interesting topic, and I have found them to be kind of useful cyclically myself over last 20 years. They are a way for airlines to create value out of thin air with their own fiat currency. For the average consumer the miles create less of a pure economic efficient benefit and more of a psychic benefit - funny money bucket that accumulates to defray some trip expenses. Economically the…

> It's generally a time-vs-money thing though in that to maximize airline/hotel programs

Credit card hotel booking portals are often much worse than what's available too.

For example, you might end up paying 30-100% more for a hotel booked through Chase Travel. At the very least you'll have way less selection. Even if price matching exists, you could still end up paying more.

I am traveling to Mexico next month and I do have a Chase Sapphire Preferred card (the one with the $95 annual fee). You get $100 in hotel credits per year if you book through Chase Travel.

In one of the spots I'll be at, there was (1) selection. It was $92 for 2 nights in a pretty low populated town that I'll be passing through. That hotel was rated 3.2 stars on Google.

If I use Google search or any hotel aggregator site, there were over 10 hotels available for half the price with much better ratings.

In this case it cost me about $50 extra to use the card's benefits.

Many people don't understand how rewards work when it's marketed towards your annual fee. The $100 credit doesn't offset the $95 annual fee. You pay $95 out of pocket for the fee. As soon as you book that hotel for $100 you've now paid $195 total out of pocket of which $100 gets credited back, so you're still out $95. If you instead didn't have the card and got the hotel at the cheaper rate, you'd only be out $45 or whatever you paid.

I mainly got the card because it had a really good sign up bonus, 0% international exchange fees and reasonable rental car coverage. Other cards can cover these benefits without an annual fee.

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

#163

Post by dmayle »

ilamont wrote: post #106

Because merchants charge everyone the same price regardless of how they pay Not at many gas stations. Cash gets a discount usually $.10 per gallon. I’ve also started to see restaurants either give a discount for cash, or charge extra for credit card purchases. Business suppliers from tiny shops to large national companies tack on 3% for people paying with credit cards, or like T-Mobile, a $5/line monthly fee in order…

It goes a step further... previously, card agreements (between merchants and the networks), required the prices to be the same between cash and credit (with the well known gas carve-out), but Durbin made that tying illegal, so now retailers are free to charge different prices for cash, credit, and debit.

The article has one thing mistaken, because it says that Durbin lowered costs for transactions, but credit owners got to keep their perks... That's not technically true (I worked at a supermarket when debit rails first went into effect, and I worked in payments when Durbin went into effect).

There are no benefits to credit users who use the debit rails, and the merchants would really rather you use the debit rails, because it is much cheaper for them. Durbin was mostly a win for the merchants, not a win for the customers.

However, if you take that to believe that the merchants lowered prices overall because they were paying less for transactions, than you might try to read into it that credit users kept their perks, while cash and debit users paid.

The true story, however, is that it's an equilibrium... When the costs go down, the saved money goes somewhere in between the two (supply and demand), and as long as there is competition, the savings are shared.

However, the real problem is that credit companies are allowed to invest interchange fees in perks at all. Credit card companies decided to take their low-risk pool, and offer them incentives, splitting the money they saved between themselves and their users, and using it as a way to pull more low-risk users. The more that happens, the more expensive it becomes for credit companies that serve mid-to-high-risk users... and since we can't stop offering credit to those users as well, those companies push for and get increases to interchange fees to cover the additional cost... which creates more room for benefits for the low-risk users, and the cycle begins anew. It's a vicious cycle that can't be fixed by changing amounts on the existing fee schedule... The only possible fixes would be in either disallowing these kinds of perks, or splitting the rail charges, and specifically charging less interchange for low-risk users (which dries out the benefit pool)

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

#164

Post by ethersteeds »

steveBK123 wrote: post #86
roland35 wrote: post #15

Patrick McKenzie (patio11 fame) had a great blog post in credit card rewards There is a lot that goes into it, and it is interesting how customers like me who literally never have carried interest and have to made thousands of $ in rewards over the years still make the banks money.... https://www.bitsaboutmoney.com/archive/anatomy-of-credit-car...

Credit card points/miles are an interesting topic, and I have found them to be kind of useful cyclically myself over last 20 years. They are a way for airlines to create value out of thin air with their own fiat currency. For the average consumer the miles create less of a pure economic efficient benefit and more of a psychic benefit - funny money bucket that accumulates to defray some trip expenses. Economically the…

> For the minority of customers who are flexible on dates/locations and willing to plan in advance - most airline/hotel programs have sweet spots at the more premium level.

What does this mean? I'm not clear what the sweet spot is - are you talking about buying points/miles/etc outright with cash rather than earning them as credit card rewards? Everything I've read is that these are almost always bad deals.

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

#165

Post by LeonidasXIV »

amarcheschi wrote: post #81
criddell wrote: post #14

Earlier quoted context omitted.

How generous are credit card rewards in the EU?

With sumup I get 0.5% cashback up to a whopping 10€/ month lol. There are other cards giving cashback, I think Amex blu has a 1% with no upper bound of monetary cashback

Amex has very spotty acceptance rate in Europe.

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

#166

Post by nutjob2 »

gsb wrote: post #131
nutjob2 wrote: post #99

Earlier quoted context omitted.

I don't have to invest any time at all. I just use the (US) card that gives me the greatest benefits, be it cash back or services. Usually I just look at the reward rate, which is a base 2% for me right now going up to 5% for some things. I love it. As someone who never carries a balance I get paid by banks for doing pretty much nothing at all. And I don't worry about US retailers, I don't live there. I should add th…

You're not paid by the banks you're paid by other, usually poorer, customers

Incorrect. I am paid by the banks, I have no financial relationship with other customers.

But of course banks make huge amounts of money from poor customers via various fees and interest payments. It warms my heart that I get some of those ill gotten gains insead of the evil banks.

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

#167

Post by ricardobayes »

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).

Yet many European countries have high household debt. Switzerland, Sweden, Netherlands, Denmark, some of the highest in the world. I guess it has to be mortgages, since it's true they are not that "big" on credit cards. Although Klarna is a Swedish company.

https://en.wikipedia.org/wiki/List_of_countries_by_household...

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

#168

Post by quickthrowman »

steveBK123 wrote: post #86
roland35 wrote: post #15

Patrick McKenzie (patio11 fame) had a great blog post in credit card rewards There is a lot that goes into it, and it is interesting how customers like me who literally never have carried interest and have to made thousands of $ in rewards over the years still make the banks money.... https://www.bitsaboutmoney.com/archive/anatomy-of-credit-car...

Credit card points/miles are an interesting topic, and I have found them to be kind of useful cyclically myself over last 20 years. They are a way for airlines to create value out of thin air with their own fiat currency. For the average consumer the miles create less of a pure economic efficient benefit and more of a psychic benefit - funny money bucket that accumulates to defray some trip expenses. Economically the…

> They are a way for airlines to create value out of thin air with their own fiat currency. For the average consumer the miles create less of a pure economic efficient benefit and more of a psychic benefit - funny money bucket that accumulates to defray some trip expenses. Economically they'd be best off with an outright 2% back card.

“Saving” airline miles is definitely suboptimal, like you said, getting 2% cash back and redeeming it immediately is the optimal strategy. Money is fungible and cash depreciates.

Plus, the “deals” you have access to with airline miles are not slanted in your favor.

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

#169

Post by alistairSH »

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 might explain internet pricing in North Dakota, but it doesn't explain it in NYC or DC or LA.

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

#170

Post by toomuchtodo »

steveBK123 wrote: post #28
toomuchtodo wrote: post #3

Earlier quoted context omitted.

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…

The problem is the way the US credit/debit card systems are setup, there's not much of a discount/surcharge that would make me switch usage to debit. If my credit card number gets stolen, zero money ever leaves my account. It simply gets contested before the monthly bill is even due, and cancelled. I have probably had number stolen 5 times in 20 years, and its never cost me a cent. Zero dollars every left my accounts…

n=1 of course. All US mobile carriers provide a substantial discount if you establish autopay with ACH over debit or credit. I've seen the same with Xfinity. It will take time, but we'll get there.

T-Mobile, AT&T follow Verizon on discouraging credit cards for bill-pay - https://www.paymentsdive.com/news/tmobile-att-verizon-incent... - August 10th, 2023

Xfinity Automatic payments and paperless billing discount (APPD) - https://www.xfinity.com/support/articles/automatic-payment-p...

> You can get a $10 discount on your monthly bill if you: Have Xfinity Internet and sign up for automatic payments and paperless billing with a stored bank account

Walmart was one of the larger supporters of FedNow during public comment period, as they experience billions in interchange costs per year, and are building instant payment support into the Walmart Pay component of their app to avoid these costs.

Walmart Plans Instant Bank Payments, Cutting Out Card Networks - https://news.ycombinator.com/item?id=41593450 - September 2024

Walmart FedNow instant payment public comments: https://www.federalreserve.gov/SECRS/2019/December/20191227/... [pdf; 2019]

> “It surprised me,” Henry said of adoption of Walmart’s first iteration of pay-by-bank, which is available online but hasn’t been marketed to customers. “It’s certainly surpassed our expectations of the amount of customers that have registered and actually use the payment type.”

> Walmart’s upgraded pay-by-bank offering will be rolled out in 2025. The transactions will occur over bank technology provider Fiserv’s NOW Network, which integrates with The Clearing House’s Real Time Payments network and the Federal Reserve’s FedNow. Until now, large retailers hesitated to launch real time payment options because many banks were not connected to an instant settlement system, meaning their customers would not be able to use the product. NOW Network aims to connect to as many banks as possible to reach 100% of deposit accounts by combining its own network with RTP and FedNow.

My understanding is that Meta is also pushing ad buyers to invoicing vs credit card payment.

Meta Ends Credit Card Payments for High-Spend Ad Accounts: Mandatory Monthly Invoicing Starts April 1, 2026 - https://www.auditsocials.com/blog/meta-ends-credit-card-paym... - March 31st, 2026

Like the slow decline of check volume, I see the same here. Credit card rails will exist for some time, perhaps another 10-15 years, but they have likely peaked from a volume perspective. If you're a merchant, surcharge when you can, and work towards on boarding and offering customers cheaper payment rails (imho). If folks want to pay the ~3-4% surcharge, enable them to, that is a choice if they want the benefits of using a credit card. But we should not all have to eat the cost for their benefit when less expensive options are available.

https://www.visualcapitalist.com/sp/cb03-charted-the-end-of-...

https://www.federalreserve.gov/paymentsystems/check_commchec...

(I work in financial services adjacent to payment systems, thoughts and opinions always my own, this is behavioral economics at scale, as always think in systems)

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