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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

#131

Post by gsb »

nutjob2 wrote: post #99
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.

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

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

#132

Post by nutjob2 »

tiffanyh wrote: post #53
Torkel wrote: post #49

Earlier quoted context omitted.

How does it work if I have a US credit card and use it abroad? Do I still get the kickback even though the merchant fee is capped? This feels like a potential arbitrage opportunity... I live in Sweden, but if I can use a US credit card I can get high rewards?

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

This is misleading. Banks put a fee on foreign transactions, many do this even if the transaction is in the card's native currency.

The card companies always add a margin to FX conversions, usually in the 0.5% range. This is fairly benign since the market rate can move between the transaction and the settlement, so sometimes you save money.

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

#133

Post by bluGill »

greenavocado wrote: post #42
svpk wrote: post #21

Earlier quoted context omitted.

I know that Discover has a card with a 5% discount category that changes once a quarter. Everything not in the category gets 1%. It's not hard to get the card (or at least wasn't) and was frequently advertised to college students. If you combine that with a card that gives 2% on everything than it wouldn't be hard to average over 2% cashback as long as you were mindful about using the discover card for qualifying pur…

> as long as you were mindful about using the discover card for qualifying purchases and the 2% card for everything else. And that's the rub. Credit card companies know most people won't be too mindful most of the time about their spending habits.

There is one other rub - because I use my bank's card I get better interest rates. How does a .25-.5 % on my various loans and checking account compare to 2% on groceries - this is a complex question that it not easy to answer.

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

#134

Post by iso1631 »

aprilthird2021 wrote: post #66
internet2000 wrote: post #38

Earlier quoted context omitted.

Not only would the 3% fee not make me blink, as my cards have 3% cash back for dining, I doubt I'd change my behavior even at a 5% discount. If anything it'd dissuade me slightly from patronizing the restaurant. Credit cards are convenient and cash isn't. The genie is out of the bottle, no way to make people move back to cash.

You're not the avg person though. Most people are being squeezed by inflation and watching prices on everything and trying to claw an extra 2-3% back wherever they can. If interchange fees were capped, people would go back to cash, imo. A lot of research shows you spend less when you pay with cash. And the lack of credit card rewards as a draw might lead people to carry it again

> If interchange fees were capped, people would go back to cash, imo

And this is based off evidence from countries where interchange fees are capped?

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

#135

Post by decimalenough »

Torkel wrote: post #49
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.

How does it work if I have a US credit card and use it abroad? Do I still get the kickback even though the merchant fee is capped? This feels like a potential arbitrage opportunity... I live in Sweden, but if I can use a US credit card I can get high rewards?

Most credit cards charge fat fees for foreign transactions (3% is common) and make some extra money on the exchange rate as well.

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

#136

Post by matheusmoreira »

bluGill wrote: post #118
matheusmoreira wrote: post #82

Earlier quoted context omitted.

> Otherwise you're giving up 1-3% discount. I always ask for a discount but for some reason I almost never get it. The rational move then is to pay in as many installments as I can get without any additional interest. Then time itself gives me the discount. My actual money stays invested and I only pay later. My credit card gives me 1.1% cashback on all purchases. Inflation too does some of the work.

You shouldn't get a cash discount - cash costs the merchant MORE than credit card fees. You have to count all the costs of cash that credit cards don't have: counting, and recounting the cash and change. Then the manager counts and recounts everything in the back room at the end of the shift. Then the manager counts everything twice again to write up the deposit forms. Plus you need a cash register with the extra cas…

> You shouldn't get a cash discount

Maybe, but "should" has nothing to do with it. Either I get one or I use my credit card.

> cash costs the merchant MORE than credit card fees

That's not my problem.

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

#137

Post by Lucasoato »

ramijames wrote: post #121
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.

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.

I’ll never understand this credit card debt thing... and why should businesses eat the credit card commission cost? Is it 5%? You pay for it, why should I?

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

#138

Post by amazingamazing »

ramijames wrote: post #121
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.

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.

Honorable but foolish. You could effectively get a discount and still use it the same way as your debit card.

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

#139

Post by fhdkweig »

quickthrowman wrote: post #116
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.

Assuming you have sufficient income, paying your balance off in full every month and instantly redeeming the rewards each month doesn’t take a whole lot of time. I just use a card that gives 1.5% cash back.

Agreed. I have my rewards configured to automatically convert to cash to reduce my bill. The button was buried deep in the website, but once I found it, I've never had to go back to the rewards site again.

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

#140

Post by tyrabound »

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.

That is a spurious argument. You have a choice in whether you pay interest, you do not have a choice about a purchase including the cost of paying payment processor fees since the price is the same if you use paper money.

One of the most corrupting yet hidden forces in America today are the payment networks MC/Visa etc. due to their bribing and corruption of the government in order to prevent things like making payment processor fees separate/independent of the cost, i.e., similar to how taxes are added after the fact, not included in the price; and also preventing merchants from having two different prices, cash vs card.

I’m a bit surprised that HBR does not seem to even really have an accurate mental model if the matter, unless they’re making an editorial choice to speak in vernacular turns to relate it to the audience.

The problem is not really the cards, it even credit cards, it’s actually the payment processing networks that are the corrupting force.

If America has a legitimate government, there would have been a federal alternative payment processor that charges nothing as an accompaniment and based on the authority to mint the currency, which is what a payment processor today is, a digital currency mint.

To put it into perspective, when you purchase something by credit card, a merchant may have to l pay a little under 3% on a $100 purchase. When you purchase something cheaper let’s say $5, a merchant may pay 6.5%. And no, they don’t just say “awe shucks, I guess I’ll lose that money”, They increase the prices by some averaged amount.

Some may say that they can’t do that because competition, well, because there is no real competition and because the payment processor de facto monopoly/cartel has basically every single company in lockdown and you have no real alternatives, especially in places like Europe where they’ve foolishly and enthusiastically started forcing everyone into digital payment, all the merchants simply roll what is effectively a kind of organized crime/mob extortion into the prices of the goods and services the common person pays and never knows is paying.

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