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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

#381

Post by gblargg »

alex43578 wrote: post #158

One factor that never seems to come up in these discussions is that while businesses might not like credit card fees, they also don’t like all the issues with cash: managing it, transporting it, losing it to employee theft, etc. The cost of cash transactions isn’t 0. Same argument for people: managing cash is a pain, swiping a card is easy. Contesting a transaction or fraud is way easier (infinitely easier?) with a c…

A better comparison would be between debit cards (which have low fees) and credit cards.

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

#382

Post by Gormo »

xyzelement wrote: post #374
Gormo wrote: post #150

Earlier quoted context omitted.

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.

// subsidize demand and restrict supply I have never seen anyone articulate this so crisply. The government has created a situation with the student loans thing where basically anyone can borrow 500k to get an obviously useless degree. Are the colleges going to ensure they collect that money? Obviously yes.

> The government has created a situation with the student loans thing where basically anyone can borrow 500k to get an obviously useless degree.

The point applies even to the useful degrees, and more broadly to the universities irrespective of any particular degree program. Student loans and scholarships make demand almost completely inelastic -- totally insensitive to price increases. Universities compete to attract the best students, and a major mechanism for doing that is to invest in non-academic amenities, such that tuition prices are funding much more than literal tuition. Combine these two factors together, and you have a feedback loop of continuous price inflation.

Similar factors are at work in the healthcare and housing sectors, with the most important element being that external subsidies eliminate price elasticity on the demand side of the equation, and completely obliterate the dynamics that ensure downward price pressure in normal markets.

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

#383

Post by kzrdude »

wookmaster wrote: post #274

Im really surprised the number of comments here who think the rewards are free money they're getting. The stores are paying 3-5% transaction fees for you to use credit cards then they give you 2-3% back and force you to spend it on things they deem can be redeemed. You're paying for that 2-3% back in higher prices for everything. The whole thing is a giant scam and should be shut down.

Anyone who likes economics or money should see it for what it is, a tax on every transaction. Of course you don't want anyone to lodge themselves into your market and get 3% skimmed off on every transaction. This, for the good of the free market, the fees must be limited to sub 1%, preferably zero.

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

#384

Post by mekdoonggi »

roncesvalles wrote: post #278
nerdjon wrote: post #155

Earlier quoted context omitted.

I gave up long ago trying to optimize any rewards, it just ended up being stressful and not really worth it ultimately. Now I just use my apple card everywhere, pay it off every month and get whatever rewards I get. It feels like a weird situation, those that stand to gain the most from credit cards are also the ones that should feel a difference of under $100 in rewards the least. The one exception I see is bonus si…

I gave up on optimizing and just use the Robinhood Gold 3% cashback card everywhere (except Amazon/WF, where I use their 5% Chase card). I can probably get more than 3% cashback in some categories on other cards, or more ROI by switch to points, high-tier cards like Chase Sapphire, and churning, but I just don't care. The gain of a few thousand per annum is not worth the mental distraction.

I do the same. Just a single card for most spending, but has a bunch of handy features. I pay $50 a year for that, the convenience in case it gets stolen etc. I will say though that it's a little annoying to constantly transfer to the brokerage and then to the bank, but not too bad.

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

#385

Post by Steve44 »

gorgolo wrote: post #359
Steve44 wrote: post #330

Earlier quoted context omitted.

> That's why many EU banks still offer corporate credit cards with huge cashback et We're a business in the UK and the charges for accepting Business credit cards is much higher. I don't have current charges to hand, but in 2023 Personal Credit Cards were 1.97% whilst for Business Credit Cards we were charged 3.43%. That's probably how they afford such high cashback/loyalty schemes. I think we're paying about half th…

Never heard about this before but it sounds crazy. Are you able to control this somehow, like reject business cards?

I don't think we can selectively reject them, it's not anything I've looked into though so not certain about that.

Although we are a B2B business, most of our card transactions are from business owners personal cards so it's not really an issue. We occasionally monitor the split and if it became significant we'd need to look at addressing it, probably by increasing prices for those customers.

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

#386

Post by ValentineC »

hunter-gatherer wrote: post #122
rcxdude wrote: post #59

Earlier quoted context omitted.

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.

This is true. In fact, if you come across a merchant that accepts credit with a minimum purchase amount or tacks an extra fee, you can take the receipt and call the terminal owner (visa/MasterCard) and report it. The receipt has a terminal ID, and it turns out the likes of Visa get really pissed if merchants do that. I know this because I used to work on a US military base. There was a sole merchant on a particular i…

> In fact, if you come across a merchant that accepts credit with a minimum purchase amount or tacks an extra fee, you can take the receipt and call the terminal owner (visa/MasterCard) and report it. The receipt has a terminal ID, and it turns out the likes of Visa get really pissed if merchants do that.

This also varies by country, but I think Visa/Mastercard relented on it in many jurisdictions.

In Australia, for example, merchants have been allowed to add on credit card fees everywhere, and their card readers automatically tack on the fee when they detect a credit card.

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

#387

Post by ValentineC »

brainwad wrote: post #334
tialaramex wrote: post #237

Earlier quoted context omitted.

Huh. I wonder how long that's been true. I guess I haven't been to America since last century, but I could have sworn I had zero fee but unreasonable FX rates when I was in Poland which can't have been more than 25 years ago.

The issuer can opt out of the card network Forex and do it themselves. That's how Revolut and Wise work.

I think there are some regulations around this, because many card-issuing banks would love to use their crappy rates if they could.

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

#388

Post by ValentineC »

quickthrowman wrote: post #168
steveBK123 wrote: post #86

Earlier quoted context omitted.

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 bac…

> Money is fungible and cash depreciates.

At least cash has the option of earning interest in a bank account, or getting invested in other instruments.

Miles can always be devalued by the airline. Some airlines like Singapore, Qatar, and United, even practise stealth devaluation by controlling the number of cheap "saver" seats released.

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

#389

Post by ValentineC »

OptionOfT wrote: post #299
dougdude3339 wrote: post #54

Earlier quoted context omitted.

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.

Problem with a debit card is that if something goes wrong (product broken, or worse, debit card skimmed) it's my debit card, and thus my money. Credit card? I file a charge-back which is a forcing mechanism for the vendor. Credit card skimmed? I get a new one, and I don't need to wait for my $ to be re-imbursed.

Debit cards on Visa/Mastercard have chargeback protection too, but yes, the money leaves one's account until the chargeback is successful.

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

#390

Post by ndiddy »

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 think there's a term inside credit card companies for people like me: leeches or something like that.

They genuinely don't care because they offer different products for different groups of people.

Poorer people typically use credit cards to borrow money. The amount they spend in a month is typically much lower than the balance on the card. This means that the company makes most of their money from interest payments. Cards meant for this audience typically have few or no rewards, and instead use the interchange fees to allow for a lower APR.

Meanwhile, wealthier people typically use credit cards as a payment instrument. They pay off the balance in full each month like you do. This group of people is responsible for the majority of credit card spending, and the credit card company makes most of their money from interchange fees. Cards meant for this market have higher APRs, and use some of the interchange to pay for the rewards. The cards meant for the top end of the market with the best rewards (i.e. Chase Sapphire) even charge retailers more in interchange, with the argument being that it's worth it because you get to bring in wealthy people who will buy more stuff.

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