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How credit cards make money

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Re: How credit cards make money

#291

Post by rootsudo »

magicalhippo wrote: post #219
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…

> 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 sa…

A waste, get cash back on credit cards for grocery, 3%. Not shocking or great, but 3% on an annual bill of $10,000 is a nice $300, maybe a week of free groceries?

Paycheck to cards not attached does not matter, ACH transfers can still be done much easier vs a EMV/Stripe read of a debit card.

So all you are doing is amplifying your risk without any reward.

Re: How credit cards make money

#292

Post by ilammy »

Jensson wrote: post #285
perl4ever wrote: post #283

Earlier quoted context omitted.

You're looking at it the wrong way. It's just a shell game to get around truth-in-lending laws. Using a credit card is borrowing money. Interest rates have to be disclosed. So the fees plus the grace period are a way of making it look like typical card users are not paying a lot of interest. People getting cash back are actually paying low interest rates, because the market dictates it. If the fees were prohibited, t…

Well, I live in Europe, use debit and the transaction costs are 0.15% with no hidden fees anywhere in the system. And that is the norm, I don't know of anyone who uses credit cards here. (Although we call debit cards issued by Visa or Mastercard credit cards since Americans call those brands of cards credit cards, but people who use them don't have any credit, your account gets deducted instantly and you can't buy if…

> But when people has to pay the real costs of credit cards then basically nobody wants one.

I believe there is an opportunity cost for not using a credit card in US: you don't build your credit history. This might leave you disadvantaged in the future because... the finance industry (as an extension, the society) is structured in a way that you must have a good credit history.

Re: How credit cards make money

#293

Post by makeitdouble »

quantified wrote: post #276

They also drive up prices by a few percent when compared to cash. If you want to support the merchant, spend cash and they don’t lose the 3-5% overhead to the card & network.

To add to dantheman’s point, a lot of merchants are more than willing to spend 3~5% in fees if it means making a register line 10~15% faster, or reduces the cash stock they need to keep at hand and manage thorough the day.

Privileging cash as a customer isn’t universally better for the merchant.

Re: How credit cards make money

#294

Post by mgbmtl »

dantheman wrote: post #280
quantified wrote: post #276

They also drive up prices by a few percent when compared to cash. If you want to support the merchant, spend cash and they don’t lose the 3-5% overhead to the card & network.

There is a cost to dealing with cash, which is why some merchants prefer to be all card/no cash.

I don't know for op, but I assume cash means debit, where the fees are very low.

Tangentially, I was happy to be able to use debit to buy a new car. Had to phone my credit union to tell them to raise the limit on the day of the transaction, but it saved me having to go to the bank during their working hours to get a certified cheque.

Re: How credit cards make money

#295

Post by perl4ever »

Jensson wrote: post #285
perl4ever wrote: post #283

Earlier quoted context omitted.

You're looking at it the wrong way. It's just a shell game to get around truth-in-lending laws. Using a credit card is borrowing money. Interest rates have to be disclosed. So the fees plus the grace period are a way of making it look like typical card users are not paying a lot of interest. People getting cash back are actually paying low interest rates, because the market dictates it. If the fees were prohibited, t…

Well, I live in Europe, use debit and the transaction costs are 0.15% with no hidden fees anywhere in the system. And that is the norm, I don't know of anyone who uses credit cards here. (Although we call debit cards issued by Visa or Mastercard credit cards since Americans call those brands of cards credit cards, but people who use them don't have any credit, your account gets deducted instantly and you can't buy if…

>I'm not sure why Americans say that credit cards with 3% fees would be better than this system

I don't know if you're trying to characterize my remarks above, but if so, this is inapposite.

I claimed the fees were a shell game, which implies having them isn't significantly better or worse.

If they weren't hidden, it would be clearer how much interest was being paid, but people who pay a low rate would probably still want to borrow.

I do feel like there is more fraud protection with credit cards as they currently exist, which is not to say that is specifically tied to a detail like fees not being regulated.

It seems all around logical and reasonable to me to want to pay a few basis points more in fees in exchange for fraud being someone else's problem. It's not just a fee for service, but also aligning incentives.

If your bank can take the position that fraud is (virtually) impossible, that's not just inconvenient when you happen to be an unlucky victim, but it minimizes their motivation to prevent anything that contributes to it.

Re: How credit cards make money

#296

Post by apahwa »

nikitaga wrote: post #287
treyfitty wrote: post #234

One of the under appreciated legal precedents set a couple years ago was the Ohio V AmEx anti trust case. The case predicated against AmEx’s merchant contract forbidding merchants to steer customers away from using their Amex card. This was a common practice for many years, especially at restaurants since AmEx charged restaurants 6%. The Supreme Court ruled that amex was able to keep the anti-steering provision in me…

This has nothing to do with credit cards and everything to do with the kind of people ruling this country, and the kind of systems we have to keep "electing" them. If that case wasn't about AmEx, it would have been about some other random oligopolist, with the same outcome.

why is electing in quotes?

Re: How credit cards make money

#297

Post by jedberg »

toomuchtodo wrote: post #246
jedberg wrote: post #133

Earlier quoted context omitted.

Zelle has a few thousand dollar per day/week/month limit, which, at least in the Bay Area, is too low for rent.

I can send $5k per day to seasoned Zelle contacts who I’ve sent funds to previously (Chase).

It depends on your bank and your credit and your relationship with the the bank. They basically have to loan you the money to send so it’s a question of what their credit risk is.

Re: How credit cards make money

#298

Post by nikitaga »

apahwa wrote: post #296
nikitaga wrote: post #287

Earlier quoted context omitted.

This has nothing to do with credit cards and everything to do with the kind of people ruling this country, and the kind of systems we have to keep "electing" them. If that case wasn't about AmEx, it would have been about some other random oligopolist, with the same outcome.

why is electing in quotes?

Because US election system does not reflect the will of the population, or even the voting population. FPTP is a highly deficient system that results in the same two parties staying in power indefinitely, which is only marginally better than a single party state. So, I find it hard to blame the population for the politicians they elect in this case. US elections are a lot more constrained by the ruling class and the laws passed by said ruling class than in many European countries for example. USSR had elections too, you know. Doesn't mean there was any freedom or democracy.

Re: How credit cards make money

#300

Post by ghaff »

perl4ever wrote: post #286
ghaff wrote: post #268

Earlier quoted context omitted.

I’m not personally—and I may or may not pay cash if someone charges extra for credit. (But handling cash isn’t free.) Yes, someone is paying for my 2% cash back card but it’s still a net benefit to me.

People misinterpret this as some sort of tragedy of the commons, but I think that's begging the question. We (anyone/anywhere) could pass a law that said no more fees, and the credit card companies could instantly raise interest rates and end grace periods to compensate exactly. And then instead of cash back, they would have cards with much lower rates. I don't see that anybody would be better or worse off, to first…

Not sure I understand that. I don’t really care about the interest rates under the current regime but of course I would care about lack of grace periods, cash back, and other card benefits.
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