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How credit cards make money

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Re: How credit cards make money

#121

Post by snarf21 »

edgyquant wrote: post #13
teej wrote: post #3

> It’s often forgotten, but prior to credit cards, many Main Street retailers like e.g. pharmacies maintained hundreds or thousands of credit accounts for customers individually, necessitating their own back offices, accounting, and collections headache. This article is a great history of how the modern credit card came into being https://www.washingtonpost.com/archive/lifestyle/magazine/19...

I find this ironic since now days it seems every store has its own credit card. I even have a card from pep boys (and was given a free oil change just to sign up.)

Yeah, the have someone else run it and get some of the profit. At the end, Sears and JCPenney didn't make any money selling goods. They only made money on the store credit card.

Re: How credit cards make money

#122

Post by mattfrommars »

The knowledge which the author has been sharing has been my interest for a long time. I gave up because lack of material on it. Any idea how did OP gain all these knowledge?

For example, I want to implement a QR payment application, think like transferring money through Venmo using QR code, now Paypal does it, very popular in China -- basically a payment processing application but my local country - think Mexico or Peru. How does one understand all the requirements to make it work?

It makes me wonder how did Stripe founder obtains this crucial knowledge to build what they have. Payment processor or integrating with banks. Same thing what Plaid is doing. If I wanted to create an API to interact with a bank for my local city here in the U.S., do I call up a bank teller and ask me to connect me to someone who is interested in integrating their bank with the world?

I am certain doing a CFA or master degree in finance will get you no where if your goal is build what Plaid and Stripe have done. Instead, you need to know big shot and have ties with them to achieve success. It kind of make sense this to be true otherwise an developer in India or Ukraine can build APIs ...

Re: How credit cards make money

#123

Post by kristjansson »

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.

It’s pretty prominently branded on the physical card.

Re: How credit cards make money

#124

Post by conductr »

teej wrote: post #3

> It’s often forgotten, but prior to credit cards, many Main Street retailers like e.g. pharmacies maintained hundreds or thousands of credit accounts for customers individually, necessitating their own back offices, accounting, and collections headache. This article is a great history of how the modern credit card came into being https://www.washingtonpost.com/archive/lifestyle/magazine/19...

My great grandfather owned a grocery store in our town somewhere around 1940s-1970s (the only one at the time). Town was much smaller then but about 200,000 people now (edit: I looked it up, it went from about 10K people to 200K since 1940). My last name is somewhat unique in spelling and it was called "$LASTNAME Grocery" so I still occasionally* get a random old timer that asks me if I'm related to him. When I say yes, they always respond similar "Great man. A lot of people would have starved if he didn't offer credit."

There's a particularly interesting twist to the story that I really always enjoyed. When the person I'm talking to is a POC, typically black, they always also mention that he was the only person in town that gave their family credit for anything. This is small town Texas, still very conservative and still above 75% white as is/was my family.

Sorry for the tangent but the discussion made me think of this mildly interesting story.

* Has dwindled quite a lot in last decade or so. Because of the time, those folks that remember the store are losing numbers (but also I haven't lived there in a while either)

Re: How credit cards make money

#125

Post by lotsofpulp »

fragmede wrote: post #66
avn2109 wrote: post #45

Earlier quoted context omitted.

Semi-related: What happens with interchange and related fees, when an American credit card is used in Europe?

Ooh that's a good one. It includes a detour into some really weird forex stuff. If you're used to it it's not that weird but as a American, with US credit card, and a US bank account who then banks exclusively in USD, I found it complicated and fascinating. Basically, other countries can bank in USD sometimes , so there's a weird corner case that you can send USD to a merchant but can land in their account as $conver…

As an aside, if you are using no forex fee US credit card, and a foreign merchant asks if you want to pay with USD or the local currency, always choose local currency.

If you choose USD, then the merchant gets to choose whatever exchange rate they want to convert at, and will be far from the spot price (hence some merchants go out of their way to ask you if you want to pay with USD). If you choose the local currency, then your American bank will give you an exchange rate extremely close to the spot rate and the transaction ends up being much cheaper for you.

Re: How credit cards make money

#126

Post by toast0 »

dsizzle wrote: post #120
zucked wrote: post #113

Earlier quoted context omitted.

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.

Paraphrasing a lot, I think the advice is to have one credit card for scheduled payments and things, and not take that out of the house. That way if your out and about card gets replaced, you won't need to go through and update all your scheduled payments.

Re: How credit cards make money

#127

Post by lotsofpulp »

bradj wrote: post #117
lotsofpulp wrote: post #94

Earlier quoted context omitted.

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.

It is not the same as sapphire reserve and before times. Even the churning subreddit kind of died not long after. The Amex ones are rewards points, and you have to play a lot of games to get the value. Used to be really simple to get large basically cash or cash equivalent rewards.

Re: How credit cards make money

#128

Post by masklinn »

davchana wrote: post #79
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…

Just a data point about your last paragraph, depositing cash to make payments. My chase atm card does not allow to deposit cash directly to any chase or non chase credit card. I have to put it in chase checking, and then I can use it for payments. Also, capital one, synchrony, amex does not allow me to pay more than 10% of my outstanding balance on their credit cards.

> Also, capital one, synchrony, amex does not allow me to pay more than 10% of my outstanding balance on their credit cards.

Do you mean “in cash” or, like, as any single transaction?

Re: How credit cards make money

#129

Post by symlinkk »

mattfrommars wrote: post #122

The knowledge which the author has been sharing has been my interest for a long time. I gave up because lack of material on it. Any idea how did OP gain all these knowledge? For example, I want to implement a QR payment application, think like transferring money through Venmo using QR code, now Paypal does it, very popular in China -- basically a payment processing application but my local country - think Mexico or P…

You have to know people.
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