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How credit cards make money

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Re: How credit cards make money

#191

Post by hammock »

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…

It is a tangled tangled web, but if in fact the "folks like us" are actually profitable, due to fees charged to merchants, there is disruption waiting to happen in that arena, perhaps by some huge merchant somewhere (Amazon? Walmart?)

Re: How credit cards make money

#192

Post by rsstack »

sofixa wrote: post #151

Generally good article, but this part bothers me: > For another, this ended up being an almost peculiarly American experience. In Europe, regulators were worried about the cost of interchange to businesses (rather than consumers) and capped it. Since issuers didn’t have the margin to compete on rewards paid for by interchange, they instead leaned into branding and convenience, and credit cards became a smaller portio…

While I agree with your main points, note that none of the specific examples you used include a credit card transaction in the US.

Re: How credit cards make money

#193

Post by dataflow »

patio11 wrote: post #29
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…

FWIW: I think technologists are far too quick to jump to "I bet they want to do it for free marketing" and far too slow to think "I bet they have a large team of people who does almost literally nothing other than study this exact question, has thought about it for hundreds of thousands more hours than any credit card user has, and has a highly developed technical infrastructure capable of authoritatively answering i…

You can say that, but then some of us hear about events like [1] [2] [3] that make you wonder how in the world wealthy financial services companies with their almighty teams could not foresee rather blatantly obvious things like (say) the possibility of enthusiasts using their cards to get cash back from tax payments.

Or, for example, why do so many banks give several-hundred-dollar "direct deposit" bonuses to people who just do a normal ACH transfer to themselves, despite explicitly claiming that they only allow employment income. Surely that's unintentional rather than being some kind of customer acquisition reverse-psychology tactic?

[1] https://www.doctorofcredit.com/paypal-key-will-stop-allowing...

[2] https://www.doctorofcredit.com/paypal-key-no-longer-working-...

[3] https://www.doctorofcredit.com/rumor-plastiq-to-stop-allowin...

Re: How credit cards make money

#194

Post by pishpash »

101keyboard wrote: post #138
nostromo wrote: post #91

Earlier quoted context omitted.

I got burned by Aliexpress and now I highly recommend people use credit cards for all purchases. I had a debit card saved on Aliexpress. The account was compromised by unknown means (maybe public wifi). Someone bought several $1,000+ phones from China that shipped to me in the US. I presume the sellers were in on it and were selling me unwanted inventory at inflated prices. Because they had tracking information, my b…

My Citi Dividend 1% Cash Back card allows me to create Virtual Cards for such things. Any other cards anybody can recommend?

Capital One has that, and Paypal.

Re: How credit cards make money

#195

Post by TeMPOraL »

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…

> At the end of the day, credit cards are still significant better for customers. (...)

Yeah, I don't know. Thing is, I don't like the stress involved. I prefer to deal with the money I have, not with the money I hope I'll have in one month's time. Not to mention, the cognitive burden of constantly keeping in mind the various balances and expected money flows, and having to manually push money around. It all feels like working with an angle grinder without protective gear.

My ideal credit card would be one that's automatically capped to the balance on my account, pays itself automatically, with no involvement on my part, and doesn't let any person that knows its number pay for stuff with it.

Oh, wait. That's exactly what a debit card is. :).

Re: How credit cards make money

#196

Post by javajosh »

nostromo wrote: post #91
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 got burned by Aliexpress and now I highly recommend people use credit cards for all purchases. I had a debit card saved on Aliexpress. The account was compromised by unknown means (maybe public wifi). Someone bought several $1,000+ phones from China that shipped to me in the US. I presume the sellers were in on it and were selling me unwanted inventory at inflated prices. Because they had tracking information, my b…

Next time that happens, file a complaint about HSBC with the CFPB (https://www.consumerfinance.gov/). I recently had a problem with PayPal and it was resolved in days after I file a complaint with the CFPB.

Also, please don't bank with HSBC. They are the worst of the worst. You'd be better off with Wells, that's how bad HSBC is. https://www.icij.org/investigations/fincen-files/hsbc-moved-...

Re: How credit cards make money

#197

Post by zeusk »

xtracto wrote: post #189
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…

What Plaid (and similar others) are doing to "connect" and interact with a bank was basic bank login flow scraping (maybe not scraping itself, but you can check the HTTPS network traffic). I know Paybook [1] is doing it in Mexico [1] https://www.paybook.com/w/en/paybook/site/home

It seems like they're better integrating now, recently Bank of America started listing connected institutions via Plaid with an option to disconnect them.

Re: How credit cards make money

#198

Post by beambot »

patio11 wrote: post #9

I'm happy to answer any questions or take suggestions for future issues if you have them, HN. Repeating something I've said before: this is the 3rd issue of a weekly newsletter, and its going to come out on every Friday for the foreseeable future. As someone who has spent more than 10 years here, I'm keenly sensitive to HN's desire to not have the front page be as predictable as my new shipping cadence. I'd appreciat…

(1) If you find the time, I'd be very keen to read about this history of how this market came to exist & how the earliest entrants succeeded or failed. Pointers to books (or better yet, your voice) would be great!

(2) How do you think crypto & defi will change the credit card markets?

Re: How credit cards make money

#199

Post by heffer »

passerby1 wrote: post #186
Fnoord wrote: post #155

Earlier quoted context omitted.

You can save your debit/credit card, just don't save the CVV (if it is static). My debit card provider also has a feature to randomizes CVV every 5 minutes ie. for every purchase (I can enable or disable the feature). CVV is mandatory for online usage of debit/credit card. The same provider also give 25 IBANs per account. I could, for free, put 25 virtual debit cards on them, and have the IBANs empty unless I put mon…

> My debit card provider also has a feature to randomizes CVV every 5 minutes What's name of your debit card provider?

Likely referring to the European neobank Vivid Money.

Re: How credit cards make money

#200

Post by Talanes »

blacksmith_tb wrote: post #89
vel0city wrote: post #85

Earlier quoted context omitted.

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 had no idea that was an option, but I see BofA[1] supports it. Seems broadly less convenient than online, but I suppose better than needing to wait in line for a human teller. 1: https://www.bankofamerica.com/banking-information/assistance...

> Seems broadly less convenient than online

How are you paying cash online at all?

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