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How credit cards make money

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Re: How credit cards make money

#111

Post by [deleted] »

bluedevil2k wrote: post #76
morpheuskafka wrote: post #37

> Debit cards are a very similar product with enough under-the-hood differences that they deserve their own moment in the sun. In particular, due to a quirk of U.S. interchange regulation, they basically fund most of the fintech industry Basically, the Durbin Amendment caps interchange on debit cards at a far, far lower rate than credit cards; they also have different networks (not MC or Visa) that can be run at leas…

You missed the biggest advantage of credit cards - the limited liability of the card holder to fraudulent charges! From a financial website… “ CREDIT CARDS Credit cards offer consumers the widest fraud protection. By Federal law, a cardholder is only liable for the first $50 of an unauthorized transaction at most, with many issuers offering cards with zero liability. DEBIT CARDS Debit card holders are protected under…

[deleted]

Re: How credit cards make money

#112

Post by kelnos »

Nextgrid wrote: post #103
reaperducer wrote: post #93

Earlier quoted context omitted.

I'm in a renting situation where my landlord demands rent land in their account on the first of the month. Receiving rent on the 26th (i.e. 5 days early, not 26 days late) was deemed "too confusing" for them. I ran into this at my last place. I'm the sort of person who likes to pay things ahead so I don't have to think or worry about them. I was used to paying my rent ahead and quarterly. When I moved to the new plac…

A lot of landlords would absolutely prefer someone who pays long in advance. If I were you I would've given these guys the middle finger and found a better landlord.

Unfortunately you often don't find out about this policy until you've signed the lease and set up your payment account.

Re: How credit cards make money

#113

Post by zucked »

bluedevil2k wrote: post #76
morpheuskafka wrote: post #37

> Debit cards are a very similar product with enough under-the-hood differences that they deserve their own moment in the sun. In particular, due to a quirk of U.S. interchange regulation, they basically fund most of the fintech industry Basically, the Durbin Amendment caps interchange on debit cards at a far, far lower rate than credit cards; they also have different networks (not MC or Visa) that can be run at leas…

You missed the biggest advantage of credit cards - the limited liability of the card holder to fraudulent charges! From a financial website… “ CREDIT CARDS Credit cards offer consumers the widest fraud protection. By Federal law, a cardholder is only liable for the first $50 of an unauthorized transaction at most, with many issuers offering cards with zero liability. DEBIT CARDS Debit card holders are protected under…

I've taken this one step further and I now use a full-on burner credit card. It has no autopay or reoccurring payments associated with it so I could light it on fire and not be too upset about it.

I' have all my autopayments set up on a specific card that never leaves a drawer in my house.

End result is that when the burner card gets compromised, as it does several times a year at gas pumps and such, I toss it out, get a new one and it's not all that painful. The autopayment card has yet to be compromised.

I wish it were easier to get temporary card numbers without giving someone else access to my purchase data.

Re: How credit cards make money

#114

Post by polygotdomain »

patio11 wrote: post #14
flerchin wrote: post #11

I feel like folks like us, that never miss a payment, and max out our rewards, are net-losses for most credit card issuers. It's not clear why they don't just fire us as customers.

So credit card issuers are pretty sophisticated with regards to this, and many of them track different user personas and use them to dice up their portfolio by archetypes. The "folks like us" archetype is one which is definitely tracked and goes by different names at different places. I express no strong opinion on whether you personally are contribution margin negative for your issuer. On a portfolio level though, t…

Having sat in data presentations from credit card companies, the extent of the data that credit card companies have is incredibly detailed. For those customers who they don't make money on from interest and fees alone, I would imagine that data more than covers the difference. These customer are still VERY desirable from a data perspective.

While there are legitimate tracking concerns, the data the credit card companies capture and disseminate is incredibly fascinating. You've got spending data, layered with market segments, layered with location data (both on the cardholder and the business side), and even time of day. Overlay all that with very accessible data from the Census or ESRI, and they can really tell a significant story of how money flows through the modern economy. This is what's feeding the internal fraud detection engines (which have gotten a lot better), but there are also private institutions that are more than willing to pay the credit cards a hefty sum to get access to all this data.

Re: How credit cards make money

#115

Post by kelnos »

flerchin wrote: post #11

I feel like folks like us, that never miss a payment, and max out our rewards, are net-losses for most credit card issuers. It's not clear why they don't just fire us as customers.

I used to think that, but I'm not sure. If we're generating enough interchange/fees (or other forms of revenue that aren't so obvious) for them, it might be worth it.

I pay $550 annually for one card, but I easily pay for that (and then some) through statement credit and redeeming points. The net value I get out of the card is well over $1k per year. But it's not clear to me whether or not the issuer makes that back via other means. Just they aren't making that back from me. I expect card issuers are very very much aware of customers just like me, and are able to financially justify my existence.

Re: How credit cards make money

#116

Post by lotsofpulp »

jedberg wrote: post #92
pdpi wrote: post #86

Earlier quoted context omitted.

I just tried this, I opened my bank's app and it took me the whole of 2 minutes to set up a standing order to pay my friend £10 on the first of the month. It would be in his account on the 1st, or the next working day. I pay my cleaner via bank transfer when she leaves my place, and it's in her account by the time she's in the bus. My bank mailing cheques to my landlord is a concept that's just bizarre to me.

Given that you are sending pounds instead of dollars, I'm guessing you live in a civilized place with modern banking and not a backwoods like the USA. The problem is not technology, it's the USA banking system. We have no way to instantly send money to someone over a few thousand dollars without huge fees. Oftentimes rent exceeds that limit in urban areas.

You can send money via Zelle instantly, but I would stick to check or ACH purposes for legal dispute reasons in the case of conducting business, especially paying rent.

Re: How credit cards make money

#117

Post by bradj »

lotsofpulp wrote: post #94
jonas21 wrote: post #24

Earlier quoted context omitted.

> It is possible, given the design of individual products, that a user with close-to-optimal spending decisions is contribution margin negative on individual products and potentially on all accounts I feel like that user is typically the sort who enjoys telling anyone who will listen about how they managed to get great rewards from their card. With all that free marketing, the credit card issuer is probably happy to…

Even they have their limit. I remember banks going crazy with cash back for opening credit cards, and then 6 years ago, Chase released Sapphire Reserve which basically gave people $1,500 to $2,000 upfront, and then after that I feel the churning scene significantly died down since Chase ended up taking huge losses for that. My wife and I basically got $3k or $4k I think for taking a few minutes to fill out a credit c…

That is definitely still a thing. I get AMEX offers regularly equivalent to $1200 in rewards.

Re: How credit cards make money

#118

Post by conductr »

vel0city wrote: post #85
morpheuskafka wrote: post #37

> Debit cards are a very similar product with enough under-the-hood differences that they deserve their own moment in the sun. In particular, due to a quirk of U.S. interchange regulation, they basically fund most of the fintech industry Basically, the Durbin Amendment caps interchange on debit cards at a far, far lower rate than credit cards; they also have different networks (not MC or Visa) that can be run at leas…

Can you further explain that cash deposit to credit card payment process through an ATM? I've only ever used ATMs to withdraw funds, never to make deposits, so I don't know what that process would look like or which banks would let me do that.

I use Wells Fargo. Their ATM's take and scan in checks, etc and they will actually take in cash and count it inside the ATM. You get to confirm the amounts and it deposits into your account (subject to normal holds/availability timing). They have a slot that is like a conveyor belt that opens and I just insert the stack of paper you can hear what sounds like a bill counter sorting the stack and counting it. You get to see scans of the checks. It typically shows each one and asks you to confirm the amount the OCR thinks is correct. No envelopes, etc just feed it the stack of paper in any order so long as it's short side first. Occasionally it will reject a bill that is too wrinkled. I use it regularly instead of waiting to see a teller.

Re: How credit cards make money

#119

Post by kayodelycaon »

lotsofpulp wrote: post #90
jasode wrote: post #36

Earlier quoted context omitted.

>it seems every store has its own credit card. Fyi, vast majority of those are co-branded cards which means they are underwritten by a bank. Examples: - Amazon VISA card is underwritten by Chase Bank - Costco VISA card is underwritten by Citi Bank If you look closely on the Pep Boys card, you'll see who the bank issuer is. It's different from the old days of mom&pop grocery stores running their own ledger of customer…

Another popular one people do not expect is Apple credit card’s bank is Goldman Sachs.

Apple doesn’t hide they partnered with Goldman Sachs.

https://www.apple.com/newsroom/2021/08/apple-card-and-goldma...

Re: How credit cards make money

#120

Post by dsizzle »

zucked wrote: post #113
bluedevil2k wrote: post #76

Earlier quoted context omitted.

You missed the biggest advantage of credit cards - the limited liability of the card holder to fraudulent charges! From a financial website… “ CREDIT CARDS Credit cards offer consumers the widest fraud protection. By Federal law, a cardholder is only liable for the first $50 of an unauthorized transaction at most, with many issuers offering cards with zero liability. DEBIT CARDS Debit card holders are protected under…

I've taken this one step further and I now use a full-on burner credit card. It has no autopay or reoccurring payments associated with it so I could light it on fire and not be too upset about it. I' have all my autopayments set up on a specific card that never leaves a drawer in my house. End result is that when the burner card gets compromised, as it does several times a year at gas pumps and such, I toss it out, g…

I don't get it - you fully cancel the card? Or do you mean you just get the credit card to issue a new one? If that's the case, then I don't the "burner" aspect. That's just normal usage. If the former, what advantage does that provide? Is it not in your name? If there's some fraudulent charge but you just bail on the card rather than go through the normal process, it looks like non-payment and affects your credit.
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