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How credit cards make money

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Re: How credit cards make money

#211

Post by quantisan »

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…

Frank Abagale (most known in Catch Me If You Can) has said that

> Every time you use [a debit card], you put your money and your bank account at risk. > > Instead, use a credit card. I use one for practically all of my purchases, even when I’m traveling abroad. With credit cards, federal law limits my liability if there’s an unauthorized use of my card. > > When I use a credit card, I’m spending the credit card company’s money every day until I pay my bill at the end of the month. Meanwhile, my money is earning interest in a bank account.

https://www.cnbc.com/2019/08/27/debit-cards-are-dangerous-wa...

Re: How credit cards make money

#212

Post by thefunnyman »

zeusk wrote: post #197
xtracto wrote: post #189

Earlier quoted context omitted.

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.

This depends highly on the bank. From what I’ve read, an overwhelming majority of banks don’t offer any kind of API for transaction data so Plaid is just storing your password, impersonating you, and web scraping your transaction data. This is almost certainly a violation of your banks TOS and I wouldn’t expect any help from them in the event your credentials are leaked and your accounts liquidated.

https://support-my.plaid.com/hc/en-us/articles/4410324401047...

Re: How credit cards make money

#213

Post by [deleted] »

lotsofpulp wrote: post #100
stefan_ wrote: post #48

Earlier quoted context omitted.

They are still an oligopoly that charges ~2% on every transaction for the grand cost of maintaining a bunch of servers, plus whatever liquidity risk they take on by ignoring all security standards introduced since the magstripe? If you think you are winning on rewards, you might also believe you can win long-term playing in a casino.

> plus whatever liquidity risk they take on by ignoring all security standards introduced since the magstripe? The card networks told merchants they are risking losing any and all chargeback for non chip purchases a few years ago. If a merchant is taking mag stripe still, that is their risk. > If you think you are winning on rewards, you might also believe you can win long-term playing in a casino. I am definitely ea…

[deleted]

Re: How credit cards make money

#214

Post by nottorp »

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…

> In Europe, regulators were worried about the cost of interchange to businesses (rather than consumers) and capped it.

Hmm not everywhere. I recently went to the Netherlands and was surprised to see not everyone accepted credit cards - while they do accept (local) debit cards. My cards are Romanian, so you can't blame US banks.

In one small store they explained to me that accepting Visa/MC would cost them 10%, which looked insane to me.

Re: How credit cards make money

#215

Post by jltsiren »

steveklabnik wrote: post #15
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…

One thing that might be fun to cover: I got in a twitter discussion today about why Europeans don't use credit cards as much as people do in the US. Researching this question and related ones ("why are wire transfers free in Europe but not in the US") are basically impossible to Google, as similar but not actually good results ("the cheapest way to wire money to Europe") drown out any primary resources.

That may be because you are asking the wrong questions. Each country had developed its own banking culture before EU started harmonizing things. You may get better results by googling for the reasons in a specific country, preferably in their language.

Once you start investigating, you will find many different reasons. Some cultures favor cash because it's concrete, or for privacy reasons. In some countries, banks prioritized efficiency and were quick to phase out checks in favor of wire transfers. In many cases, stores were used to cheap domestic payment methods and didn't start accepting international credit cards until banks made them cheap enough. And in some cultures, there is a deep aversion to anything related to debt. If you dig further, many of the reasons can be traced back to adverse experiences in the 20th century, including world wars, the hard times after them, hyperinflation, and living under nazi/communist rule.

Re: How credit cards make money

#216

Post by emodendroket »

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…

Right, it's hard to see what the advantage of debit would ever be. The guy at the bank always looks at me like I'm crazy for wanting just an ATM card and not a debit card, but between credit, cash, and checks, I cannot think of any situation at all where I'd want to use debit instead.

Re: How credit cards make money

#217

Post by drfuchs »

drfuchs wrote: post #99
adrr wrote: post #39

Earlier quoted context omitted.

But the card issuer is issuing debt for 0% to these users. Upwards of 60 days. That cost money to the card issuer.

The card issuer doesn’t pay the merchant for a while, so it’s the merchant who is essentially paying the actual debt interest for a few months. Ask the owner of any small business where you use your card how long it takes for them to actually see the money.

Evidently, my dry-cleaner lied to me.

Re: How credit cards make money

#218

Post by 8ytecoder »

emodendroket wrote: post #216
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…

Right, it's hard to see what the advantage of debit would ever be. The guy at the bank always looks at me like I'm crazy for wanting just an ATM card and not a debit card, but between credit, cash, and checks, I cannot think of any situation at all where I'd want to use debit instead.

A bit convenient at places that charge extra for credit card and carrying a chequebook is not always convenient. I just load it into Apple Wallet and leave it there.

Re: How credit cards make money

#219

Post by magicalhippo »

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…

> Moral of the story: don't use debit cards

I use a debit card for groceries and such. However, just to be sure, my paycheck goes to an account with no cards attached. I then transfer small amounts ($100 or so) every now and then to the debit card account.

This limits my exposure to card fraud, and also has the nice side benefit of giving me back some of that "spending feeling" that cash has. If I have to transfer say three days in a row it's noticeable and I can think about what I've spent it on, and maybe slow down a bit if I know I'm running low.

Re: How credit cards make money

#220

Post by bostonvaulter2 »

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…

I'm sure that working at Strip has been helpful for his credit card knowledge.
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