How credit cards make money
bam.kalzumeus.comOne 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 merchant contracts because they defined credit cards as a two sided market, and the harm to customers couldn’t be proven. In essence, the Supreme Court set a precedent that in any 2 sided market, in order for something to be considered anti competitive, a high bar needed to be met: the government must show that both sides of a 2 sided market be harmed in order for something to be anti competitive.
Had the ruling been the other way, almost every industry would have been impacted- Uber, App Stores, Advertising…etc are all 2 sided markets.
In essence, Credit cards have had a huge impact to our lives this century for reasons that are not appreciated enough.
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.
It's at the point where I'm genuinely surprised to legislation that provides benefits to the consumer. On the rare occasions that it does appear, the first thing I wonder is "what's the angle".
I don’t think the FCRA could come into existence today. It’s crazy that Republicans used to create pro-consumer regulations. We’re so far from that these days that it feels impossible absent some major shock like the CFPB after 2008.
And look at how the CFPB is treated!
I guess it has to be both unprofitable and universally agreed upon
You seem to think this was a bad outcome? The ability of a business to steer customers away from a credit card that charges the business high fees?
It is a bad outcome. The high amex fees put up the price of coffee for all customers. Amex are making money from customers they don't even service. It's a scam and the business owner should encourage the customer to pay cash if possible.
Wife and I own a brick and mortar service based business with recurring revenue. Credit card customers get a 3% transaction fee added while ACH we swallow the 1% cost. I don't believe the terms of services says we can do that. I doubt Visa will send someone to investigate. If we didn't, we would need to increase prices for everyone.
(Our ACH used to be cheaper but Intuitwants to squeeze small business owners :https://quickbooks.intuit.com/learn-support/en-us/payments/a... )
Interesting! Would it be possible for you to not accept credit card but accept ACH?
No, I mean we don't mind offering it if they pay the fee. Customers have different reasons for preferring credit cards.
Maybe they honestly can't afford it and need to use it for the credit aspect.
Some aren't comfortable with automatic withdrawal from their checking account.
Some it's just a habit and don't use checking accounts.
I'd say about 15% pf customers would rather take the fee.
The normal cash back on a card is 1% and some even higher so to them its not that big of a deal...but to a business it ads up.
Our profit margin is about 20% of sales. If we gave up 3% of sales, that is taking away 15% of our profits!
To give example numbers, if we charge $100 per month we pocket $20 after expenses (rent, payroll, etc)...but If we swallow the credit card fees that's $3, and makes the profit down to $17. So after all this hard work of customer acquisition, providing services etc, such a little thing takes away 15% of our profits (and that's before it passes through to us as income tax!).
ACH used to be a flat $.50 per transaction...it takes time to reconcile invoices and payments so right now just sucking it up.
I remember going to a restaurant in Belgium-Bruges(in 2015) that had the fees listed at every table. They were charging you the table cost + whatever fees were listed for your card. While I can't remember the fees I do remember that is was enough to make me decide I want to pay cash.
I don't know if it's legal or not to do that but I found it an interesting quirk of the times we're in (and maybe the owner was pissed off).
Afaik it's not legal anymore to do this in Germany (and probably Belgium/EU?), or rather: It's illegal for the businesses to have different prices for different payment methods (a workaround are coupons for using certain payments, but probably only for special offers). As far as I remember PayPal was usually the most expensive payment method (compared to CC, bank transfer etc.).
Interesting Australia went in the opposite direction: per-type fees are A-ok, but they have the be the true fees.
The problem was that vendors tended to make arbitrary minimum fees for using cards which in no way reflected the actual fees they were paying. Smaller stores were steering customers to cash as it was easier to under-declare earnings with cash. In response Amex in Australia reduced their fees to stores while simultaneously reducing the value of their awards points programmes (since those were ultimately funded by the fees being charged.)
This also plays into application stores - since developers often don’t pass on fee reductions (such as the subscription fee reduction of 30%->15% after 1 year.)
I’m so confused. The ruling agrees with you?
Edit: nope I was wrong, I read it the other way.
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.
Just my on-the-ground view as an American, I've seen both major parties in this country change radically in my lifetime to the point of being unrecognizable. In the case of the Republican party this has happened twice.
The USSR had only one Party, but intra-party politics were all the more fierce as a result. I'm not saying that a full or even reasonably varied spectrum of true, non-spectacular or intelligent alternatives are being presented to the American voter. Just that what a 2-party system lacks in superficial variety it may more than make up for in internecine disagreement.
The ideological spread between Joe Manchin and AOC covers most of the ground covered by center and left European parties.
> The ideological spread between Joe Manchin and AOC covers most of the ground covered by center and left European parties.
Most Americans don't have the option to vote for AOC or Joe Manchin (nor for their ideological equivalents). Neither for congress, nor for the President. They get shit candidates and still vote for them because the only viable alternative is an even worse candidate from a party you hate more than the other one. This is very much by design of FPTP, because it prevents third party competition from posing any threat to established parties. The two parties just pick their ideologies from a list of hot topics and never face any competition for the implementation of those ideologies.
This is very much not the case in more proportional voting systems, which provide true political competition across the political spectrum, not just superficial ideological posturing that isn't subject to competition. This is all very well known both practically and academically with tons of research to back it up. Youtube and wikipedia have all the mechanics, the references, and real world data, spelled out.
> Just that what a 2-party system lacks in superficial variety it may more than make up for in internecine disagreement
Sure, a political duopoly is better than a monopoly, but just like in other markets, only slightly so. Political power is a market like any other market, and needs significant competition from more than a couple actors to produce outcomes that are best for the consumers (voters). Even that AmEx case is a prime example, a direct result of shitty parties produced by this shitty election system. And that result will stay here for decades if not forever, regardless of which party is in power, because this election system is not going anywhere, and will keep producing such results.
I used to be really impressed with European-style proportional representation, until I spent a lot of time in Germany.
I still prefer it to two-party system, but the last German election ultimately came down to two wet-noodle candidates absolutely nobody liked nor respected, and one of the wet noodles won. Now the establishment lumbers on, having lacked anything like a political vision for generations now.
I really wish there were more of a market of systems in the world, so we could think bigger. Probably wouldn't matter to the US, but just in principle.
>> Most Americans don't have the option to vote for AOC or Joe Manchin (nor for their ideological equivalents). Neither for congress, nor for the President.
But Americans do usually have a wide variety of choices in the primaries. It's the primaries where the actual policy ideological positions are fought out. There would be no AOC - or MTG, for that matter - but for some highly motivated sets of voters with various axes to grind. However, most Americans prefer political gridlock to any well-tuned agenda. The reason AOC and MTG are outliers is because most nominees are forced to run toward the center in general elections, and govern toward the center if they win. Yeah, this is why they mostly end up endorsing corporate handouts, and we can all decry it, but it's arguably a lot better than letting the more extreme left or right-wing agendas come in and flip the table.
Considering other presidential systems, look how close France was recently, to Marine Le Pen and genuine fascism. Or how quickly Venezuela turned into a one-party state under Chavez. Consider how close we were to Trump replacing the elected government.
The status quo in which corporations call the shots and banks rob everyone has been de rigeuer in America since the 18th C. This is an unfortunate but ultimately comprehensible state of Hobbesian chaos. The weakness of narrow-agenda political parties is the strength of that economic engine, and we are all - all of us with cars, houses, tech jobs, and money to blow on vacations and dinners - beneficiaries of a system that moves very, very incrementally and doesn't try to steer a tanker like a speedboat.
> how close France was recently, to Marine Le Pen and genuine fascism. Or how quickly Venezuela turned into a one-party state under Chavez.
People who have strong opinions against proportional representation invariably seem to be completely uninformed about its particulars, and love nothing more than to bring up random countries that they know nothing about and that have little to do with proportional representation, or blame all the country's problems on an election system for no reason.
1) Both French and Venezuelian presidential elections were held under a simple voting system that is a lot closer to FPTP than to proportional representation in its mechanics. The only difference from FPTP is that they have a second round between the two candidates who got the most votes. In the US two party system that second round wouldn't make any difference 99% of the time.
2) It takes some epic lack of self awareness to complain about some right wing loser in another country, when your own country's FPTP system elected Trump despite him losing the popular vote, and then almost elected him again. Whereas the French loser you're complaining about lost 66%-to-34%, and even worse than that the previous time she ran.
3) Venezuela's problems have nothing to do with their election system. Nor do presidential elections have anything to do with proportional representation. But if you like looking at random countries and assigning all their problems to their voting systems, why don't you look at this map and tell me how well those countries have been served by FPTP: https://en.wikipedia.org/wiki/First-past-the-post_voting#/me...
> most Americans prefer political gridlock to any well-tuned agenda
You don't know what Americans prefer, because currently they are exhibiting their preferences under duress. The primaries only serve to choose a candidate who will be "electable" under a broken FPTP system come election time – it is a losing proposition from the very start. Americans are only given the illusion of choice, with all the fanfare to keep them happy. They never see any real choice the way people living in proportional representation countries do.
> a lot better than letting the more extreme left or right-wing agendas come in and flip the table.
Lol. US politics is disintegrating largely because of FPTP elections, UK did Brexit largely because of FPTP elections, you think other countries on that FPTP map are doing much better? Proportional representation systems are a lot better at keeping extremists out of power, because in FPTP extremists hijack mainstream parties who win elections and end up governing.
In proportional representation systems, extremists get elected in small quantities and then productive coalitions form to keep them out of power, so they end up just warming the seats in parliament instead of destroying the country. This isn't just my opinion, it's been studied, researched and proven. Look. It. Up.
I don't think any of your points are wrong, but you neglected to address properly the substantial and useful point the person you are replying to made: That it's the primaries in the US system that provide citizen driven democracy.
That's a fair point, and a meaningful one too.
> The primaries only serve to choose a candidate who will be "electable" under a broken FPTP system come election time – it is a losing proposition from the very start. Americans are only given the illusion of choice, with all the fanfare to keep them happy.
Well there's clearly some evidence this isn't the case. 2 out of the last 3 presidents (Obama and Trump) were not the pre-ordained establishment candidate, and it was broad popularity by primary voters that caused them to become the candidate.
Their "broad popularity" only ever existed in the context of US FPTP election, in the context of a two-party system. If Americans had the option to vote for e.g. greens or labour or fiscal but-not-social conservatives, neither Obama nor Trump would be as popular. But Americans don't have such options, because even though some of them are right there on the ballot, voting for anyone but the two major parties under FPTP is literally throwing your vote away.
And it's not any different in primaries. Primaries are also FPTP, with all the same mechanics. The notion that you're better off voting your heart in primaries without consideration for all the standard FPTP mechanics making your vote useless is just another lie to make Americans feel better about their broken system, and is not backed by any math.
I brought up France and Venezuela as examples because they are more analogous to the US, in that they have powerful presidencies. It was to point out that the FPTP voting system is not all; more important for balancing the people against the state is the power (or lack thereof) of a parliament or congress to check the executive branch. The US is headed in a direction wherein the congress simply rubber stamps the executive of the same party; but again, to my point about Americans preferring gridlock, this is exactly why the opposition tends to gain seats in off-year elections.
And to my point about the wide range available in primaries within each party, it's exactly why longstanding politicians lose their seats to others within their own party who are more attuned to the electorate.
I think the focus on voting systems is misguided, but in any case, it's written into the Constitution and has been this way since the 1770s, and there is zero chance, ever, that the United States will adopt a parliamentary system. So the whole thing is moot. And as interesting as it is to read the opinion of America's faults from someone from a country with only one functioning political party, where all local and party elections are determined by force / kidnapping / murdering the opposition, it's tiresome to be lectured as to which system is more successful at improving people's lives or fulfilling the electorate's demands.
I don't entirely agree.
I live in Australia which has a preferential voting system, and yet two parties dominate for the most part.
There are electoral-related reasons for this but also there are branding/marketing reasons that make it more likely that large parties continue to dominate.
It's easier for large brands (parties) to hold mind share. It's very hard for minor parties to build a brand built around anything other than opposition to specific things or outrage.
What evidence do you have that the politicians elected would be any different under a different system?
I mean, San Francisco uses ranked choice and they ended up through a fluke with some District Attorney who everyone hates.
You may just want to consider that although you may not like the outcome, many voters do?
Also, the basic structure of the Senate means that a clear majority of the country is represented by a clear minority of Senators.
That's the purpose of the Senate. The Senate is there to represent states, not people.
The House is there to represent people.
Both need to agree in order to get something done. This ensures that something that is passed is approved by a majority of people and a majority of states.
Otherwise, without this proposition, the states might not have ratified the constitution - the states predate the nation, and the nation is a union of states. This method of government is called "Federalism".
You can have federalism without anti-democratic institutions like the Senate. If the Senate was abolished or starting apportioning senators by population, the US would remain federalist, because there'd still be plenty of powers devolved to the states. That's what makes it federalist.
> anti-democratic institutions like the Senate
Representitive democracy is anti-democratic, not allowing babies to vote is anti-deomcratic. Based on the role purpose of the Senate, its more democratic that those examples.
Its purpose is 2 votes per state, with representitives elected by the people of those states.
You may not like that that is its role, and that is fine, but you can not say it would be more democratic if some states had more votes in the same way it would not be more democratic for some people to have more votes.
Democracy is rule by the people, so yes, the current setup is anti-democratic, precisely because it gives greater representation and voting power to some people than others.
Each person's vote for a senator in Wyoming is worth 50x or more what it is in California. That's wrong, and it's anti-democratic. People ought to be on an even playing field.
> Wyoming is worth 50x or more what it is in California.
No it’s not, they are different elections. The people in Wyoming are voting for who they want to represent their state’s power.
What you’re arguing is that the state should not have power on its own. There would be literally no purpose to the senate if it were proportional to the people.
No, you can't. The only way you can truly prevent states from having their interests overriden by a majority of the nation is to give them a direct role in the legislative process.
Democracy is three wolves and two sheep voting on what to have for dinner. It's last thing we want. So when the three wolves invite the two sheep to join them in a democracy, the sheep wisely say "Not a democracy, but a federal union, with an upper house in which votes are allocated by species rather than population, then we will join your nation". Now the wolves may moan that this is anti-democratic, but they agreed to it, as that's the price paid for getting the sheep to join with the wolves. The sheep are the small states, and the wolves are the large states.
So anti-democratic structures are good. But at the same time, giving the population input is also good. We want popular pressures to have a veto, but not to be able to force legislation onto states without their consent.
Similarly, we want the states to have a veto but not to force their legislation onto the nation as a whole without the public's consent.
This is the balance -- a mechanism to limit mob rule while also requiring mob consent. Seriously this is not some strange thing I should have to explain -- these issues were all debated during the discussions surrounding the adoption of the constitution, as you can read in the Federalist Papers. See especially no. 10.
https://founders.archives.gov/documents/Madison/01-10-02-017...
It is why we do not live in a democracy, but in a Federal Republic. The house is the hotbed of populism, that's where all the crazy stuff happens, and the senate is the moderating force that can filter it out. The house then has to moderate its positions and pass something that the states also consent to.
And that's exactly how it's played out. The senate always moderates or blocks extremist measures coming out of the house. The founders were amazingly prescient.
Moreover this obviously leads to better and more stable government. Control of the house flips from red to blue to red every 5-8 years. Now imagine a nation's entire base of laws constantly flipping back and forth that often.
As an example, when the GOP controlled the house in 2017 they tried to pass a tax bill to completely eliminate the SALT deduction. The Senate moderated that to 10K max. Now the democrats control the house and they want to make it (effectively) unlimited again. The Senate will block that. In 2024, say when the GOP is back in control of the house, they will try to eliminate it again. The Senate will block that. The 2017 house eliminated Obama's ACA -- but the Senate blocked that. Just think of all the whipsaws in policy we would have if healthcare is massively reconfigured every 4 years. So you need to do more than just get 51% to redo healthcare in America. That's how it should be. Yes, it's anti-democratic, but thinking you can rewrite a nation's laws with 51% is foolishness. It's a recipe for secession and civil war.
In other words, going from 49% to 51% doesn't mean you go from 0 to 100% power, but rather you have to settle for 48% of what you want, and then 51% of what you want. The removal of that discontinuity creates stability in government.
It is intentionally, and wisely, anti-democratic, while also being intentionally, and wisely, anti-aristocratic. Both sides need to come to a compromise, and this stability is why our constitution has lasted as long as it has.
States don’t have interests, states are a pass through entity for the people they represent. The current structure disenfranchises the people actually living in those states. They’re semi autonomous provinces, not independent nations in a confederation (especially since we’ve settled the question of whether anyone can leave the union).
The voting blocs aren’t between small states and large states, those basically don’t and haven’t existed for a long time. The senate is not a moderating body; the founders entirely failed to account for political parties.
The constitution isn’t a suicide pact, the founders lived in a completely different world, and it’s very apparent that the US federal government system is dysfunctional and failing.
The US legislature is designed to not do much, especially with the filibuster. Which is a huge problem when there are a succession of crises that the legislature has failed to address.
States' interests matter and should be explicitly represented at the state level.
But we're not talking about the state level, we're talking about the federal level. Senators are there to represent the people of their state, and the fact that some people get vastly more representation than others is wrong. People should be as equal as possible for a given playing field.
Funny how the people arguing that it's okay to do this to protect 'minorities' are never, ever okay with doing this for any other minorities. Give extra voting power to people in low pop states to shield them from the majority? Great! Give extra votes to black people, or Asians, or Muslims, or Jews? Uhhhhhh, no, no thank you.
How do you deal with the problem of the US population becoming more urbanized such that eventually we might have 70% Republican states to 30% Democratic ones? The Senate then becomes a purely Republican controlled one.
That's extremely unlikely, but let's hypothesize a situation in which 70% of the states are rural Republican and 30% are urban Democrat. So the GOP always controls the senate and Dems always control the House. Then you either form something like a coalitional government where both sides have a veto, which in your scenario would be just the status quo, or you negotiate some kind of split.
This would be like the scenario where Lebanon assigns fixed seats for christian/muslim votes.
The issue with geographic states as minorities - as opposed to other minority categories -- say bald men -- is the geographic group is a functioning community and it can secede, so you have to decide whether you want to keep them in the country or not.
This goes back to the original debates in the constitution, where the smaller population states weren't willing to be a part of the country unless they were given a veto.
Nothing about that has changed.
It's just like when you have a team -- 10 developers with 6 feeling strongly to do A and 4 feeling strongly to do not A. Well, you find some compromise where both sides agree, because you if force A, and you do that over and over where the same group of 4 keep having their ideas overriden, then you lose 4 developers from your team. They secede as there is no reason for them to be a part of a team that keeps overriding them, and they can walk.
So if the 70% of your states are constantly having policies shoved down their throats that are extremely hated, then you are going to lose those states.
Now you can say, "no if they try to secede we will crush them militarily" and now the mask comes off that this is about domination and the imposition of the will, which suddenly undermines the whole concern for fairness and democracy.
So you are back to requiring a compromise. If you have 51% of the population, you should get 51% of what you want. Not 100%. And this power discontinuity is a well understood defect of the democratic decison making process -- e.g. it's not representative, whereas a consensus decision making process is more representative. In the consensus process, you give a veto to the minority. Now which minority gets the veto? Well, the founders selected the small state to be the minority because they can actually walk. Not bald men. So due to the underlying dynamics to keep the nation together, we give the rural states disproportinately a bit more power.
> That's the purpose of the Senate. The Senate is there to represent states, not people.
But what are "states", if not the people in them? Land area? Then Texas and Alaska should have what, hundreds of senators for each of Rhode Island's?
That a feature, not a bug.
> FPTP is a highly deficient system that results in the same two parties staying in power indefinitely
New Zealand has used MMP for 25 years and yet it still dithers between two major parties. Minor parties do tend to have to be incorporated into coalitions with one or the other major party, which is something, however, they’re almost always the same minor parties falling along the left right divide. Electoral systems do have an effect and they are setup to make it hard to radically change the system, however, they strengthen they don’t create the two party dynamic. Two major parties aligned with common human biases always seem to spring up when people are free to choose.
But MMP means that if people are really unhappy with the current system then a new party will appear. Trump wouldn't have been a republican, instead he would have been the leader of the new right, similar to how many such parties popped up like mushrooms all over Europe. They weren't old parties that got reformed, they were new parties created as a response to people demanding such parties.
You are right that such changes are rare, they certainly don't happen once every 25 years, but the fact that they can happen is really important. Otherwise you are left with situations like current USA where many wants to vote for lower taxes but don't want to support Trumps other political views, in Europe you just vote for another right wing party but what do you do in USA?
Similarly you have many people who wants to vote for higher taxes and more government programs, but don't want to vote for all the identity politics. What should they vote for? Now the entire left is associated with identity politics and the entire right is associated with opposition to identity politics, making it hard to distinguish between different views and probably making the whole political conversation way more toxic than it needs to be. It has gotten to the point that people often assume you are racist if you argue for lower taxes etc.
You really should look deeper into how New Zealand lawmaking and governance works if you think their situation is anywhere close to the US just because they also have big parties. The two systems (and outcomes) couldn't be further apart.
MMP in NZ has increased competition and brought effective collaborative governments, and it hasn't even been 30 years.
Using a different system to get the same outcome doesn't disprove your parent's claim. That claim is most definitely false though; Canada uses plurality voting.
(For reference, the Canadian House of Commons, according to Wikipedia's footer, divides into 158 Liberals, 119 Conservatives, 33 Québécois, 25 New Democrats, 2 Greens, and 1 Independent.
The Senate divides into 41 Independents, 20 Conservatives, 12 Canadians, 12 Progressives, and 8 non-affiliated, which last category raises interesting questions about the meaning of "Independent".)
It's worth noting that the American two-party system is explicitly protected by many laws that grant special privileges to "the two largest parties" or some similar category; it doesn't rely on the electoral system at all. If other parties got equal treatment before the law, you might see more of them around.
Canada has FPTP just like the US, the slight differences in implementation explain the slightly better outcomes, but that's about it. Don't know how that disproves anything.
The last time Canada had anyone other than conservatives or liberals govern the country was more than 100 years ago. [1] What kind of opposition is warming the rest of the parliament seats doesn't matter all that much, because just like in the US, there is no culture of inter-party collaboration in Canada, because there is no need for it: minority governments are rare (thanks to FPTP). This is very much unlike countries with proportional representation, where coalition governments are the norm, because when stupid voting mechanics are not protecting the duopoly, no single party is ever good enough to capture more than half of the vote.
The senate in Canada isn't even elected, senators are appointed by the Prime Minister. And it doesn't have the same prominent role as the US senate. So I've no idea what are you trying to say here.
FPTP favors the two biggest parties by a huge margin. It's damn math, it's been proven decades ago. Look it up.
[1] https://en.wikipedia.org/wiki/List_of_Canadian_federal_gener...
Okay - I'll be the one that asks. What does FPTP stand for?
As far as I know, it’s “first past the post” [0] isn’t it?
[0] https://en.wikipedia.org/wiki/First-past-the-post_voting
Interesting vocabulary choices.
Sounds like a bad thing to me. Why not offer the service to retailers for free and then make your money by charging interest on unpaid customer debt? Making retailers cover the operating costs of your moneylending business just seems like bullying.
Isn’t Amex a no interest, pay in full every month type of CC? Or am I thinking of something else?
I think Amex offers that as well as actual credit cards.
The word you’re both looking for is “charge card”
The funny part about Ohio v Amex is the same lawyers who defending Amex and the anti-steering measure are now on the other side in the Epic vs Apple case.
Cravath, Swaine & Moore was the law firm defending Amex and the anti-steering measures, and now they're Epic Games' lawyers attacking anti-steering measures.
> Cravath, Swaine & Moore
That looks familiar... I could swear I've seen that on GrokLaw, but of course it's been so long I can't for the life of me remember which side they were on -- or even which case.
I’d wager that on average lawyers aren’t on any specific side.
I believe it. Just mildly humorous to me.
I suppose you can multiply that effect by some unknown but really large number and you'll arrive at the total impact caused by favoring Common Law over Civil Law
What does that even mean? Credit card companies exist (and make money) in both common law and civil law countries.
Or you could even look within the US and examine the singular state that is a civil law jurisdiction and there is no real impact vs the other 49 states. In fact I’d wager a guess very few people even know 1 of the states is a civil law jurisdiction because it has very little impact in practice.
Court decisions in common law jurisdictions have important and long-lasting effects, not only on the case at hand, but for decades (or centuries) to come on things you wouldn't think can be remotely related to the case.
It's not like that in civil law jurisdictions. Had this case been in France, the decision on credit card would not have created a precedent that Uber and AirBnB and App Store could use to their advantage, because the concept of precedent does not exist in the same manner in France.
And Louisiana and Quebec are not civil law jurisdiction, they are mixed systems because they are still subject to federal laws and supreme courts, so they have civil and common law both.
I know the difference between common law and civil law. I just didn’t understand:
> “multiply that effect by some unknown but really large number and you'll arrive at the total impact”
There are countless comparative law articles on civil/common law systems, it’s not exactly clear this “impact” you’re trying to measure. I suppose you could try to determine the number of codified laws in a civil law jurisdiction vs the number of original cases cited in published opinions in a common law country. But even with a total number of cases that relied on stare decisis in rulings, I just don’t know what impact that reveals.
If it's a problem then it can be fixed through legislation, no need to change what's been litigated.
I had to take a few minutes to understand this case. So essentially, merchants who were already accepting Amex cards couldn't tell their customers to use a Visa card instead if they had one. If a merchant didn't want to accept Amex cards then they shouldn't have partnered with Amex.
Merchant’s can’t do it because the contract they have with Amex says they can’t. The case said that Amex were allowed to have such terms in their contact (ie that it’s not anticompetitive to have them)
> 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)
do you know if the grocery store was relatively successful? I imagine that doing business with whole town, instead of just 75%, is economically preferable
I think it did ok. I never met my great grandfather. I heard a lot of family stories about the store. A lot of family time across 3 generations was spent there. I’m the first that never saw it first hand.
I knew the great grandmother. I remember her fondly, but she didn’t talk much other than in duty of running the house. Food, cleaning, gardening, laundry, etc. They were depression era mentality. Saved all the butter container. I think they themselves were raised by Czech/Pol immigrants to Texas.
Anyways, I knew they did well financially because of seeing my grandfather squander a ton of assets. They were super modest folks but as the town grew, they built apartment complex. They had several 100s units. Also the grocery store was on a gold mine of a street intersection. Supermarket competition and sufficient rental income are my guess at what caused my great grandfather to close the store and sell the land.
Our local small town cafe did this up until COVID... via a big three ring binder. You could run either a credit or debt as long as it was close and a couple of families i know would do this so their kids could stop and get snacks without cash.
I went with a girlfriend to her small-town-CA home, about 15 years ago. Went to get groceries and she just gave their name and a 3-digit number and the groceries went on the family account. I'm 40, but I had never before seen that in my life.
I saw this happening in Woodside CA (very much in the SF Bay Area) less than a year ago.
Yep, Robert’s Market does this. Great for kids who walk home from the elementary school down the street, and can pick up a snack on the way home.
Given the demographics of Woodside, it’s also frequently used by nannies and other family helpers who shop for the uber-wealthy residents who call Woodside home…
This was (and still is) the norm in Mumbai where I grew up. We had an account at the local grocery store; the store owner knew us by name and would let us buy snacks on the way back home from school or after a cricket match. The term “khaata” (translation: account) is well known in Mumbai, and should evoke feelings of nostalgia about a simpler time for others who grew up in Mumbai like I did.
Accounts were typically settled at the end of the month. The system is predicated on trust and customer service.
Eureka CA?
Nope, other side of the state.
As for pharmacies, it’s often because insurance companies didn’t do online billing.
People would have to pay for their drugs, submit a claim by mail (or drop off at their employer) and get a cheque.
Sometimes they could send the cheque to the pharmacy directly.
Sometimes the pharmacy (or dentist or whoever) would submit the claim for you.
Credit cards reduced the necessity of this (so you’re not floating the cost, but the pharmacy is directly until they get paid by the insureco).
There’s still some people that will pay cash in Canada for their meds and submit their receipts so they can get that 1-2% in points, but that doesn’t really work where drug prices aren’t controlled.
As pharmacy chains and insureco increasingly become one and the same, and the insureco can take its time paying out-of-network pharmacies to starve them a bit.
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.)
>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 accounts. The grocery store was the actual lender of credit. With co-branded credit cards, it's the bank and not the retailer that's lending money for customers to buy merchandise.
Another popular one people do not expect is Apple credit card’s bank is Goldman Sachs.
Apple doesn’t hide they partnered with Goldman Sachs.
https://www.apple.com/newsroom/2021/08/apple-card-and-goldma...
It also explicitly shows up in credit reports as "GS BANK". Had to explain that to a few friends that didn't look too closely into how Apple Card worked or the fine print of their credit line.
The physical card even has "Goldman Sachs" laser etched on the back.
It’s pretty prominently branded on the physical card.
It's because there are white label credit cards that are extremely easy to setup if you're a business and they're so profitable. Not only does the store get a sale upfront which a customer might not have been able to afford without it, they get additional revenue when folks are slow to repay their bill.
Do you know if these first part transactions also bypass Visa/MC and interchange? It seems like they should have it so the affiliated merchant can just send the charges over to the issuer directly and bypass everyone else.
The store gets money when customer pays the bank interest?
Yes, the retailer gets a portion of the interest payment.
Example story mentioning it: https://www.nytimes.com/2017/05/11/business/dealbook/retaile...
As sibling says they’re mostly co-branded. But there was a period when every retail gas supplier and most major chains actually had their own credit cards. And you often had to, as a young person, figure out who would give you a card so you could build up credit and move up the credit card ladder.
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.
Probably most of it predates me in adulthood, but sitting down and writing checks every week or two used to be a non-trivial chore for most people. These days the challenge for me is remembering that I do need to manually pay a few bills now and then manually.
Small hardware stores do this still for businesses, but some still do it even just for personal accounts. (Pennsylvania, Centre County area…)
This point is also made in “ A Piece of the Action: How the Middle Class Joined the Money Class”. It paints a very good historical context to understand our current financial world from the lenses of consumers.
Edit: Ops link takes you to a chapter in the book :-)
> 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 least for in person transactions. However, the limit does not apply to banks with less than $10 billion in assets.
This is why some online banks can offer lower fees and sometimes even debit cash back (1% is the most I've seen though, so not competitive with credit). But its also why ever fintech under the sun pushes debit cards so heavily--the debit card is issued by a (small, non Durbin-covered) partner bank who then shares revenue with the fintech company.
At the end of the day, credit cards are still significant better for customers. You can have multiple cards with different benefits while keeping all your money in one place, and you can prevent overdrafts because you don't have random subscriptions taking out unpredictable amounts of money in the middle of the night and causing a check to bounce the next day. You are no longer obsessing over "early payday" features or ACH speeds.
Credit cards also provide a nice hack to allow cash deposit for those with only online banks--you can often use a big bank's ATM to make a payment towards the credit card, allowing you to get rid of ordinary amounts of cash.
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 a different law, the Electronic Funds Transfer Act. With debit cards, users' liability is capped at $50 only if they notify the bank within two days of realizing the debit card is missing. Beyond that, they could be responsible for up to $500 of a crook’s spending spree. And waiting more than 60 days to contact the bank could leave a user stuck paying every cent of the unauthorized charges.”
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 bank (HSBC) said their hands were tied and I lost several thousand dollars overnight. It didn't matter that it was obviously fraud -- I provided customer service emails, logs showing the purchases all happened at 4am local time, and all at the exact same timestamp.
Moral of the story: don't use debit cards, don't save your cards online (save them in your browser and unselect "save this card"), don’t expect your bank to have effective fraud detection, and don't trust Aliexpress to have your back.
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-...
Funny how the banks are able to roll back at will when they are defrauded but when it is their customers they pretend that they can't do anything. I've seen transactions six months old rolled back because it benefited the bank.
Which is why I cringed at patio11's twitter thread where he insisted that the banking system is one giant kumbaya circle that works together to Do The Right THing
I've worked for a bank, let's just say that I can't agree with that. A US bank at that.
I just noticed:
I’ve worked for several us financial institutions, including banks and that exchange seems extremely typical to me. Especially the “hold harmless” bits. Which particular part of that story telling rang false to you?
The part where the banking system is a giant kumbaya circle run on gentlemen’s agreements to do the right thing. When you are clearly defrauded or scammed, banks do nothing about it. His entire thread advertises, “I’ve never wired money to a scammer”.
The thread seems to be saying banks get along with each other. It doesn't seem to me to be saying banks get along with their customers.
It's saying they'll drop everything to Do The Right Thing. Letting scammers walk away with easily recoverable money isn't the right thing, and doesn't benefit the banks either.
It didn't seem to be a Do The Right Thing story to me. To me it said they are nice to each other because they want to be on good terms with each other.
Scroll up [1]. The thread was him defending the banking system as being obviously superior, by this collegiality, to the crypto world.
If you're right, that his point was just, "between powerful agents within this platform, there exists a state of mutually assured destruction that makes them play nice", then ... well, that's not much of a defense.
The test of a platform is whether it defends the rights of everyone, not whether the few big-time power-brokers can defend themselves by such long-term game-theoretic threats.
To me he's not saying banks are morally better, but rather that banks solve problems better than cryptocurrencies. He's specifically talking about what happens if the bank misplaces $70M. In most cases the other bank gives it bank, if not then they say "who cares" and declare it "ops loss".
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 money on it. Good luck scamming me this way. After all, the accounts are empty except for a few min when I put money on them to spend it.
Random CVV sounds fun, but that's kinda in the same "fun only" space as port knocking in networking. There are real auth methods that solve this, i.e. 3D Secure.
> 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.
Bunq.
My solution to this is having a debit card connected to an account that has no funds and allows no overdrafts. And I only load the account when I specifically want to pay for something. I do this for everything, incl. Spotify, Netflix, etc. I pay a subscription when I want to pay for it, so usually at the end of the month I load the total of my subscriptions and they all go away. This also helps me keep track of my spending and is a good way to see how little things add up, like apple in app subscriptions. I do this religiously because once I was traveling in the winter and suddenly I had $200 disappear from my card and I was unable to get a cab/uber and almost froze to death. Had to get help from police officers. I swore to never again let anyone just take money from me without my approval, whether I owed them or not.
So you find my card in the wild, good luck.
How is this better than using a credit card?
Debit cards has orders of magnitude less fees per transaction. You might be fine paying 3% of your money to credit card companies but a lot of others would be fine with a debit card. The US system makes everyone share the burden of paying for credit cards, but in Europe they can't do that so people mostly go with the much cheaper debit cards.
Some people can't have credit cards bc they're not us citizens or permanent residents.
Some people can't control themselves.
I haven’t had anything this bad but always use credit cards online and maybe even in real life and pay off the balance as the protections are so much better - it is stupid really.
yes, never use your debit card and use only credit cards online, but cash is better for non-major in-person purchases as it's inherently private and anonymous. it's also better for the payee (hopefully a local retailer not a mega-corp), since they don't have to pay the fees. for major in-person purchases, the extra (fraud, warranty, etc.) protections provided by the credit card may be worth the privacy/anonymity tradeoff.
"non-major in-person purchases as it's inherently private and anonymous"
Most of the time that's an anti-feature - there is no point of hiding transactions of you buying bread, it could provide you an alibi in case you are accused of a crime, but there is no conceivable way it could be used against you.. (people don't stop to buy bread on the way to the crime scene)
how many common crimes are you committing for that to be your primary concern? sometimes you just don't want to share every single bit of purchase data with hoarders like visa, chase, kroger, and google.
> how many common crimes are you committing for that to be your primary concern? sometimes you just don't want to share every single bit of purchase data with hoarders like visa, chase, kroger, and google.
I think that GP is concerned with being able to show that they didn't commit a crime, rather than that they frequently commit them.
That said, I generally prefer cash for in-person transactions, not just for the anonymity, but because most smaller retailers pay much higher fees to the credit card processors than big ones.
An excellent example is NYC taxis. The CC processing goes through a couple different levels of "service" providers and the drivers get dinged for 5% on every transaction. Whereas a large retailer is likely only charged 0.5-0.75%.
Which can make a big difference for people like cab drivers. As such, I always pay cash for taxi fares.
You should consider wearing a gopro in public and stream at all times when you go out, that would surely provide you with an alibi /s
You joke, but we do that in high-risk environment, like driving in Russia (dashcams) or protesting.
Paying by card has saved my butt several times, when I was able to prove to a retailer when and where I bought a product for warranty purposes, or get out of a contract that had 2 weeks 'cooloff' period to terminate but the agency kept playing dumb and 'loosing' all my letters and emails.
Cash is wonderful too for tax evasion. Hence cash only businesses.
yes, but that’s a non sequitur. tax evasion via cash-only businesses is likely a rounding error on national receipts, and most of those businesses are straight up illegal (fencing, drug/weapons/human/sex trade, etc.), so justice is difficult/expensive and can be pursued more aggressively via criminal law anyway. we should worry a teeny-tiny bit about mom-n-pop taxes and service worker tips, and rather a lot about tax enforcement for big businesses and the well-off.
Where are you living that cash-only businesses are mostly illegal enterprises?
In the northeast there are tons of cash-only bars and restaurants (im sitting in one), food places (especially hot dog stands lol), and housing/plumbing/electrical contractors (friends with a few that offer _steep_ cash-only discounts).
Cash is king if you want to avoid government scrutiny.
Not anymore with the bank reporting coming up. Unless if you keep all the cash under the bed.
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.
> Right, it's hard to see what the advantage of debit would ever be.
Not being able to indebt yourself is THE major advantage of debit card. Not everybody in this world is reasonable when it is about spending and finance management.
In some European countries with a more conservative mindset related to debts (Germany, France, ...), people will tend to have the exact opposite stance :
"Why would I ever need a credit card ? It is dangerous. My debit card is accepted everywhere"
There are a number of credit card issuers in the US offering 1.5% cash back.
Suppose you charge $1000 each month at the rate of about $33 per day, and also pay it off when the bill is due.
In a year, you've gotten 1.5% of $12,000 back which is $180, but you could also look at it as though they are paying you 36% per year to use (on average) $500 of their money.
The latter interpretation makes it seem irresistible to me.
And you pay 3% on every transaction to get 1.5% back. Seems like a pretty bad deal. Or do you really think businesses just gives you 3% for free on every purchase rather than raising prices on everything to make up for that 3% loss? A raw 3% of revenue is huge, there is no way businesses can take that without raising prices as consumer sales is pretty efficient and has small margins already. So they raise prices for everyone or they raise prices for people paying for cards, but either way you are paying more than you get back for that 1.5%.
> A raw 3% of revenue is huge
The business doesn't lose 3 percent of revenue, because it also saves money not dealing with cash:
- eliminates cash theft - always a chronic problem for business.
- reduces costs of transporting/dealing with cash
- improves bookkeeping and paper work
and it gains revenue by dealing with people who don't use cash. A large number of customers don't make routine purchases with cash, and these are higher income customers.
So the choice isn't "pay 3% on X or don't pay 3% of X" The choice is "pay 3% on X" or "don't pay 3% on .9X".
> The business doesn't lose 3 percent of revenue, because it also saves money not dealing with cash:
Debit cards circumvents the need for cash as well and are much cheaper. Everyone uses debit cards where I live, cash is very rare so companies doesn't need to deal with it much.
So the difference is really just a straight 3% vs 0.15% with no other consequences.
I think 3% is an exaggeration. And in fact, you can get 2% cash back. I don't think there's very much being charged when all is said and done.
This seems to show the fees can be considerably less than 3%, although PayPal or Square will charge nearly that:
https://www.fool.com/the-ascent/research/average-credit-card...
https://www.mastercard.us/en-us/business/overview/support/me...
That's an interesting point. I'm not aware of any POS payment processor used by business that accepts debit cards but not credit cards. Not sure why that is.
I think it is mostly that it confuses buyers and that confusion costs more than credit cards costs. You'd need regulations to get around this.
Except for a handful of businesses like cash stations, almost nobody raises prices for credit card users in the US (in fact I think their merchant agreements forbid this). So if I use cash I'm the sucker subsidizing everyone else's rewards points.
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, then not much of substance would change, except the numbers would all be higher.
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 there is no money left).
I'm not sure why Americans say that credit cards with 3% fees would be better than this system, and make fun of Europeans for not wanting to use credit cards. To me it just feels like US finance industry tricked everyone into choosing the more expensive product since they hid the costs of it from the person making the choice. But when people has to pay the real costs of credit cards then basically nobody wants one.
> 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.
I interpret your tone as suggesting the justification is circular and arbitrary, that finance doesn't serve a human need.
People can take loans all over the world, USA is the only country I'm aware of where you need to do stuff like use a credit card to take a loan. Don't you think it is suspicious that the finance market decided that the only way to get a loan is to first buy a lot of expensive finance products? It is kind of like how politicians are mostly lawyers, and they decided that the only way to ensure your rights is to pay a ton of money to a lawyer, is that just a coincidence? I don't think so, to me both of those seems very corrupt.
I didn't mean it in a negative way. I've never lived is US so what do I know. Just suggesting a reason for why people might want credit cards.
But you have a point with circularity and arbitrarity. Credit is basically about trust, and the thing with trust is that you already need trust to build more trust. When do you start trusting people to take loans is just as arbitrary as when a person attains the age of majority.
>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.
People will go toward the option the system points them to, and in the US you don't pay extra fees for credit cards and have the best fraud protection with them. So why wouldn't you use it? Sure, I guess I might think twice if I had to pay a surcharge with every card purchase. But I don't, so why should I behave as though I did?
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 order. The difference is framing, and psychological response.
People look at stuff totally differently when it's divided into different buckets.
> the credit card companies could instantly raise interest rates and end grace periods to compensate exactly
I don't think you can simplify it that much. If you end grace periods, the people that currently don't pay interest will suddenly be charged huge amounts. If you drastically lower the interest rates to make their costs match the old model, then other people that pay the card off slower will suddenly be paying much less than before.
It's easy enough to ban fees charged to the business, and force them to be charged to the customer, to make pricing more transparent and remove the silliness around rewards. But trying to replace fees with interest rates doesn't work, unless you set up some crazy nonlinear '''interest rate''' calculation.
Yes. Grace periods are basically the only way credit cards work for business users among others. Four and five figure balances—paid off on time at the end of the month—are how a lot of people routinely use credit cards.
> the people that currently don't pay interest will suddenly be charged huge amounts
They will be charged the same amount if the interest rates are set accordingly, it will just be explicit.
>other people that pay the card off slower will suddenly be paying much less than before
You say that as if their rate must remain, if not fixed, in a fixed ratio with others. I don't see why.
>trying to replace fees with interest rates doesn't work
You might be right. But I don't see why, and I think that if I can guess a little, people in the industry know much more and are smarter.
Just as a nice round example number, let's say someone is effectively paying a 1% fee at time of purchase.
How do you turn that into an interest rate? Stuff at the start of the month and stuff at the end of the month are going to pay interest for different lengths of time. What if they change the timing of purchases?
Let's say you pick an average you're satisfied with. Okay, now you've calculated a rate you need to charge for the first month to match the old fee. You have to charge this specific percentage for the first month to make the math work out. ...but what if that percentage doesn't match the percentage you used to charge after the grace period?
One way to resolve this is to charge a first-month interest rate and a subsequent-months interest rate. But that's not really an "interest rate" anymore, is it? You're just obfuscating the fee, and the goal of this exercise was to make things more transparent.
The other way to resolve this is to have the "interest rate" change every single month, based on the timings of when you did all your purchases. This is just taking the old system and hiding it inside a black box, and that black box spits out an "interest rate" each month.
Unless I'm grossly missing something, there's no way to use just an interest rate to emulate a system of upfront fee plus interest rate. Do you have a suggestion of how to make the math work? Tell me what interest rate could replace "2% fee, 1 billing cycle grace period, 16% interest afterwards". Also tell me what interest rate could replace "0.5% fee, 1 billing cycle grace period, 16% interest afterwards".
>that's not really an "interest rate" anymore, is it?
If a grace period is ok now, why would it not be ok?
But if there has to be one rate per customer, sure, fine, why can't it be adjusted based on their minimum balance over time?
>Tell me what interest rate could replace "2% fee, 1 billing cycle grace period, 16% interest afterwards"
Option 1 would be to add (for the sake of an example) 24%, keep a sort of grace period, classify people in two groups.
Not exact numbers, just an outline.People who were eligible for 2% cash back now pay 0% during the grace period, 16% after. People who were not eligible for cash back now pay 24% during the grace period, 40% after.Option 2, if they want to get rid of grace periods, they just separate people who usually pay off their balance monthly and those who usually don't and charge them the different rates.
> If a grace period is ok now, why would it not be ok?
Grace periods are fine! But you said get rid of them, and I was pointing out that you can't simplify the math that much. It ends up being a mess with a hidden grace period inside a bunch of confusing math, rather than an understandable and relatively stable interest rate.
If you're happy to keep grace periods, great, let's do that. And I'll skip the rest of the post because it's not worth fussing over in that case.
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.
I am more comfortable with exercising self control than with the idea that if my card is somehow misused I don't have access to my funds until it's straightened out. In fact, if you don't trust yourself, I'd say cash is even better, because the physical act of taking out the money makes you less likely to spend it frivolously.
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.
> 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.
My wife and I do this, but we still got scammed. My wife's debit card got skimmed, and there wasn't much money in that account but it gave the thief enough info to do a social engineering attack at the bank (USAA in this case). Took several calls before they found a cooperative representative, but they managed to convince them to reset the password, tell them the username, reset the PIN, and disable the two factor token (which is a Symantec app that runs on a smartphone). When the bank fails this badly, nothing can really protect you.
Sure was an awkward call with the USAA security department after they worked out the exact timeline and actions of the attack. They didn't really have much to say in their own defense. Cost them about five grand in the end. The really annoying part is that now if my wife needs to call them for anything on the phone they make her jump through many hoops to identify herself. E.g. she has to answer the credit bureau-based questions every time, plus a PIN, plus a phone password. We may move banks just so we're not stuck with an online-only relationship because of this experience.
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.
Wife picked up the Amex Plat right before the signup offer & annual fee changed drastically this year, offer was 10X on the first $15k spent on gas & groceries and 100,000 points after spending I think $6k within 6 months.
Only using it on gas & groceries, will average 16 points per dollar (approx 12-16%) when we reach $15,000 spent total.
The new deal is similarly structured but horrible in comparison, “shop small” is the category so it’s not realistic to max out the bonus spend without overspending.
What if you overdraft and then get hit with fees? Or even NSF fees?
My bank doesn't allow overdrafts beyond $10 or so, no fees except a few percent in penalty rate if I keep it negative for a while.
There are some edge cases where one might overdraft more (delayed transactions IIRC), but again no fees.
> Because they had tracking information, my bank (HSBC) said their hands were tied...
But a lawsuit might untie them. That said fraud can sometimes be too hard to prove.
I got burned by Ryanair at the start of the pandemic. I'd paid something like £2,000 for flights, and for months those scumbags refused to refund me.
I'd paid with a credit card, so I asked my card provider to do either a chargeback or section 75 (I forget which) to force a refund, and the money was back in my account within a couple of weeks.
I had a hotel double charge me a number of years back. I called the hotel to straighten it out and got some run around. So, I called my bank (USAA) to ask what I should do. They said “do a chargeback and that’ll force them to show documentation”. “Okay, I’d like to chargeback one of the transactions.” “We’ll just do it for both and let them sort it out.” Hotel never responded at all, so the entire stay was free instead of just being the correct amount.
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.
Capital One has that
Sort of.
Do they still require using Chrome for that feature?
Fuck Google, I'm not about to use them for that!
Use Chromium. Also you should use several browsers anyway.
Privacy.com - I use it for any recurring payment or overseas purchase
This is one of the main reasons why I use credit cards over debit.
If there's a dispute over a charge, I believe with debit cards the money is still out of your account until it gets sorted out -- this could be days or weeks.
With credit cards, the money in dispute is not "owed" to the card company, and at worst it reduces your available credit by that amount, which is only an issue if you're spending enough to max your card out anyway.
Even though the end result is similar, there's a bad feeling about the debit card fraud: It's my money tied up, while with credit it's the card issuer's money.
FWIW I had fraudulent debit charges credited to my account the next day while under investigation. Though the experience was enough to pretty much stop using debit cards except for specific accounts that are not my primary.
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...
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, get a new one and it's not all that painful. The autopayment card has yet to be compromised.
I wish it were easier to get temporary card numbers without giving someone else access to my purchase data.
Your credit card gets compromised several times a year? Is this normal? I’ve had like one fraudulent charge in over 15 years of using credit cards.
It was exceptionally bad a year or two ago when I developed this method. My card got compromised at least once a year - I'm guessing via skimming at gas pumps, etc.
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.
I can't be the only one that uses my once-every-18-month credit card cancellation to help me track down the services that I forgot I had subscribed to.
Unless you're dropping the account completely, it's not super effective, because card issuers participate in services to update your subscriptions to newly issued numbers.
Or you could just... look at your statement?
My card number and expiration get skimmed at, I assume, gas pumps and such. I call my issuer, tell them the card has been compromised, we review charges and throw out the fraudulent one(s) and they cancel that card number. The underlaying account remains in place, they overnight be a new card (with a new number and exp) rendering the old one useless.
It used to be a huge pain, because after that I would have to update all my stored payments and autopays.
I use this approach and it has reduced my stress immensely. Before when my regular credit card was compromised I would need to cancel it and reprogram all my auto-billing accounts. With about 20 of these there was always a painful hiccup. It’s been several years now of smooth sailing.
I used to have to burn cards every year or so until I started only getting gas at stations that accept Apple Pay. I haven't had to burn a card since then.
You guys would love revolut we have in Europe. It has capability to generate virtual card numbers that automatically get disabled after a single use.
Revolut is available in US for a year or more now, but I’m not sure about the feature you mentioned.
I'm not sure if that distinction makes much of a difference since the vast majority of debit card theft is not via the physical card, but through skimming.
Debit cards do have the disadvantage of your money being gone until the bank makes you whole. But I'm not sure if the liability is really any different (unless physically stolen and not reported, I guess).
>You missed the biggest advantage of credit cards - the limited liability of the card holder to fraudulent charges!
An excellent point. Although my bank (Chase) caps my debit card liability at $50 despite the difference in the law.
But that has its own disadvantages. Whenever I travel, if I use the debit card, I invariably get declined the first time I use it and my phone and email blow up with "Fraud Alert!" notifications.
Which is annoying as hell, especially since if I use a credit card for the same transaction, Chase doesn't flag that as fraud.
Which, of course, is related to how they indemnify my debit card above and beyond the law.
> Credit cards offer consumers the widest fraud protection
That's for consumers, but what protection do I get on my company credit card?
> "he biggest advantage of credit cards - the limited liability of the card holder to fraudulent charges" - in the USA, and IIRC also in UK, but not in general; in many countries there is no legal difference in cardholder liability between credit cards and debit cards.
Isn't a lot of the risk of fraudulent charges, etc. due to bad credit card design decisions and outdated technology? Is this something we should be grateful for?
Yes it is. In Europa we use 3d secure some kind of 2fa for credit card payments (online at least, in RL most still use their maestro kind cards) and fraud is more or less a non issue.
Accepting credit card as merchant for years now I only had 2 fraud issues, both using American credit cards.
> 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. :).
Yes, but what happens when someone does make fraudulent charges with it?
"The major difference between a thing that might go wrong and a thing that cannot possibly go wrong is that when a thing that cannot possibly go wrong goes wrong it usually turns out to be impossible to get at or repair."
I'm especially leery of anything that someone powerful and/or authoritative says can't go wrong, because when it does go wrong, that's what they'll say, again.
I've had people make fraudulent charges on my debit card. The answer to your question: It wasn't a big deal.
The bank contacted me immediately and said they noticed strange behavior on my card and had thus blocked it. They sent me a transcript with the obvious fraudulent charges highlighted, and asked me to identify any additional ones.
When I asked about reimbursement the man sighed and said they might not get everything back, but then quickly corrected himself: they were legally required to reimburse me, it was just the bank that would potentially loose some money. I had everything back in my account within 24 hours.
So I have a question, to people who warn me of the dangers of debit card fraud and preach the advantages of credit: was I just exceptionally lucky with my bank? My bank was just a run-of-the-mill small town local bank, I wouldn't have expected anything extraordinary out of them. But yet their response to fraud was stellar. It's really left me wondering what all the hype is about.
I don't have a horror story to tell. In general, I don't want to rely on the customer service of my credit union (or the regional bank that I used to use).
>I had everything back in my account within 24 hours
That's the thing though, they take your money, rather than the banks, even if briefly. Does it matter? I don't know, but it seems like a quantifiable risk.
I think that banks are privileged in some way, in being able to take what they claim you owe them, from any accounts with them.
So my theory is that it's prudent to be paying via some third party on general principles. I don't even use a credit card from the same bank that has my checking. Partly because of inferior terms and customer service, but partly to avoid them having leverage in a dispute.
> > At the end of the day, credit cards are still significant better for customers.
> Yeah, I don't know.
Credit cards are safer for the consumer, by regulation. So that much is just factual.
You can set up automatic payment for your credit cards if you like, no involvement. I don't because I like to review each line item and control when I post the payment, but it's possible.
A debit card is basically an open port into your bank account. A credit card is a firewall which buffers all withdrawal requests for a month (or so) until you approve them (or reject any fraudulent ones).
it's not like debit cards are extremely safe to begin with. banks (in the US, at least) will happily let you withdraw $XXX more than you actually have and charge you a fee on top of it.
do you routinely overdraw your bank account? if not, you probably a) keep more than enough in checking to cover a typical month's expenses, or b) carefully track your balance to ensure each purchase won't take you past zero. unless having a credit card in your hand gives you an uncontrollable urge to spend more money than you have, I don't really see how this is any less trouble than a debit card. if you're not living paycheck to paycheck, just put the card on autopay and keep 2X your monthly expenses in checking. if you don't have a lot of surplus income, you need to be careful, but it's no different with debit.
I've never owned a credit card. Can you have them automatically pay off the balance every month? It seems like this would cut into their profits.
I think the point above was more or less:
- With a debit card if you have 10k in the bank and spend 100 dollars a month, you don't need to do anything extra.
- With a credit card, you need to remember to pay off your balance.
> I've never owned a credit card. Can you have them automatically pay off the balance every month? It seems like this would cut into their profits.
it's worth noting that issuers generally make money on credit cards. this is in contrast to checking accounts, which are often a loss leader. the card issuer will happily let you screw yourself over (to a point, this is what the credit limit is for), but they won't go out of their way to directly screw you. there's far less incentive to do overtly malicious things like debit reordering (pretty common for checking accounts). [0]
so yes, all major issuers offer autopay. there is a subtlety here in that they don't usually let you autopay your current balance in its entirety. instead, they'll let you autopay the last statement balance at most, which is enough to avoid accruing any interest.
tl;dr: if you keep a decent buffer in your checking account and set up autopay, a credit card is no more trouble than a debit card (and actually less trouble, in some ways).
https://en.wikipedia.org/wiki/Overdraft#Transaction_processi...
Some banks let you disable overdraft protection. Your card will just be declined when there isn't enough to cover the balance.
I thought courts had required banks to allow opt-out for a long time. Apparently more recently [1] this was expanded so that account holders have to opt in.
[1]: https://www.huffpost.com/entry/overdraft-protection-expi_n_6...
The only downside are services like Google AdWords or Etsy who don't accept debit cards as credit cards at all.
The intersection between the people that have random overdrafts and those that just pay off their credit card debt in full every time is the empty set. Why make up excuses for a few rent seekers that tax the entire economy?
Merchants WANT people to use credit cards. There is nothing stopping merchants from offering a cash/debit price and a credit price since 10 years ago. The frank dodd legislation made illegal for card networks to ban offering discounts for debit card payments, and in Mar 2017, the Supreme Court said merchants cannot be barred from advertising higher prices for credit cards.
https://www.ftc.gov/tips-advice/business-center/guidance/new...
https://en.wikipedia.org/wiki/Expressions_Hair_Design_v._Sch...
It is very clear that most merchants earn more from people using credit cards more often, otherwise they would try to dissuade or offset it by adding a premium for using credit cards.
Target sort of does this by giving a 5% discount if you pay via ACH from your bank account (via a debit target redcard account), and in the western US, a grocery store company called Winco advertises it does not take credit cards at all in order to provide the lowest prices.
On the other hand, Aldi in the US used to only take debit cards, and they started taking credit cards 5 or so years ago, so they are obviously assuming they will earn more money by lifting prices a little and attracting credit card users.
I don't think "WANT" is the right word there. "WANT" is active, and I would posit that merchants "reluctantly accept reality" when it comes to credit cards.
The obviously silly analogue would be that a merchant who dislikes guns could choose to hang a sign in their texas cafe with "no guns allowed", but they probably won't. That doesn't mean they WANT people to bring in guns, but that they think it would do too much harm within the market they're in to reject them. It would be a case of "reluctant acceptance of reality".
I think credit cards are the same. It should be self-evident that a merchant would want customers to pay with debit cards since the lack of interchange fees means the merchant makes strictly more money. Of course they want to make more money. But they also must accept that charging more fees for credit card users or rejecting them entirely would reduce overall customer base and profit, and so they accept that people can use credit cards. They want customers, not credit card usage.
Retailers do track spend based on payment type. It was the case several years ago that people who paid with credit cards tended to spend more and buy higher margin items than other payment types.
I'm not sure if this is still the case, but if it is, then that is one situations where accepting credit cards pays for itself.
It is helpful to keep in mind that different businesses can pay wildly different fees for CC transactions. Walmart can sell you a $0.50 item for basically nothing, while a corner market might be better off if you stole it instead. So Walmart might absolutely want everyone to use credit cards while the corner market would likely prefer nobody did.
>It is very clear that most merchants earn more from people using credit cards more often, otherwise there is no reason they would try to dissuade or offset it by adding a premium for using credit cards.
Can you elaborate? IME merchants do NOT want people to use credit cards; transaction fees eat into the sale price. I remember a time when some electronics stores would explicitly advertise a cash discount, so as to avoid the transaction fees. I once worked in a bar that accepted every major credit card, save American Express, because of their several-points-higher transaction fee. The premium is added to offset this.
How is it very clear that most merchants earn more?
Cash management is also very expensive for most merchants. There are effectively 3 reasons merchants might prefer cards to cash these days a) their volume is so low that cash management is not an issue (that is the transaction fees) b) their margins are so low on a particular item that the transaction fee eats all of it but the broader business still uses credit cards or c) they do not want an electronic record of the sale.
D) they sell cannabis and are not allowed to use the regular banking system.
> How is it very clear that most merchants earn more?
Because they do not offer discounts for cash/debit, and they also do not charge a fee for using credit card.
As I showed in my post, legally, merchants are clear to advertise higher prices for credit card users. The fact that they do not means they do not want to dissuade credit card use. From there, it follows that since businesses are interested in earning more money, that if they do not want to dissuade credit card use, then they must be earning more money (or at least breaking even) due to people using credit cards.
People spend more money when they use credit cards than debit/cash. Note that my above post specified “most merchants”, not all merchants. Obviously, some merchants do benefit from dissuading credit card use, such as the examples I gave, or many gas stations and small restaurants or convenience stores.
>Because they do not offer discounts for cash/debit, and they also do not charge a fee for using credit card.
Except they do. Especially smaller, mom & pop stores, as I mentioned here[0].
I also mentioned it…
> Note that my above post specified “most merchants”, not all merchants. Obviously, some merchants do benefit from dissuading credit card use, such as the examples I gave, or many gas stations and small restaurants or convenience stores.
>Obviously, some merchants do benefit from dissuading credit card use
Or they just prefer to deal in cash so they don't have to pay as much in taxes.
Research suggests people simply tend to spend more when paying with plastic. Sometimes up to 100% more.
https://www.nerdwallet.com/article/credit-cards/credit-cards...
Merchant here, not only are credit cards the least used option in my shop, but next to PayPal also the most expensive for me as merchant. This is Switzerland tho mind you and most people have what you'd call debit cards.
It's really only a matter of time until I remove credit cards completely in favour of non-US, local, low fee, secure, banking alternatives which already make up the far majority of transactions.
> Merchants WANT people to use credit cards. There is nothing stopping merchants from offering a cash/debit price and a credit price since 10 years ago. The frank dodd legislation made illegal for card networks to ban offering discounts for debit card payments, and in Mar 2017, the Supreme Court said merchants cannot be barred from advertising higher prices for credit cards.
Many small retail stores in my area (delis, bodegas, restaurants) incentivize cash/debit. Not by charging less for them, but by charging extra for using a credit card.
Small retailers pay significantly more for CC processing than large retailers. 5-10x more, in some cases.
I specifically noted it at end of my comment:
> Note that my above post specified “most merchants”, not all merchants. Obviously, some merchants do benefit from dissuading credit card use, such as the examples I gave, or many gas stations and small restaurants or convenience stores.
I'm not sure what you're getting at.
Is my comment unwelcome because you said something similar?
It is welcome, I had just assumed you had not read to the bottom of my comment.
>It is welcome, I had just assumed you had not read to the bottom of my comment.
I went back and re-read your comment, and yes I did read the bottom of it.
The stores I'm talking about aren't large retailers (like Target and Aldi) as you mentioned.
Most of the small stores I'm talking about pay 3-5% on CC transactions, unlike those chain stores who likely pay 1.5% or less.
What's more, the volume/revenue of such small stores makes such fees prohibitively expensive, unlike Target or Aldi, who already pay less and whose customers are more likely to spend larger sums.
The profit on a sandwich and a beer ($10-12) for such a small store might be a couple dollars. Having to pay 1/3 of that in CC processing fees isn't viable.
Which is why those stores have credit card surcharges.
That was my point, which is, at least AFAICT, a much different one than you made.
Apologies if I misunderstood.
And to clarify, my comment wasn't intended as a rebuttal of yours. Rather it was intended to be complementary, or at least adjunct.
Charging less for cash is identical to charging more for credit, is it not?
>Charging less for cash is identical to charging more for credit, is it not?
It is not. It's the converse.
And the effect is likely quite different -- discounts for cash are usually significantly less than surcharges for credit cards.
It is the same thing if the end result is prices differing by the same amount.
>It is the same thing if the end result is prices differing by the same amount.
Perhaps, but as I said:
At least that's been my experience....discounts for cash are usually significantly less than surcharges for credit cards.
I'm confused. Your comment seems to directly contradict the top comment in this thread. You say the Supreme Court ruled merchants cannot be barred from charging higher prices to card users, whereas treyfitty[1] says the Supreme Court ruled merchants can be barred from charging higher prices.
Good question. Ohio v AmEx ruling specifically states:
https://www.law.cornell.edu/supremecourt/text/16-1454
> The antisteering provisions do not, however, prevent merchants from steering customers toward debit cards, checks, or cash.
So Ohio v Amex is about having different prices for AmEx compared to Visa/MC/Discover, whereas Expressions Hair design was about having different prices for cash/debit compared to credit cards.
I think what happened was due to Dodd Frank in 2010 explicitly allowing cash/debit card discounts, and political focus on credit card processors from states to drop their requirements that merchants not have different prices for cash/debit/credit card purchases, all the processors backed off from preventing merchants to not give lower pricing to cash/debit card users. However, Visa/MC even backed off from preventing merchants from giving lower pricing for any other card processor, since they wanted to avoid anti trust scrutiny since they are already so prominent. However, AmEx decided to fight it, and won big not just for AmEx but other two sided markets.
It definitely leads to a logically inconsistent result where merchants can display different prices, but the route taken to get to each decision was wildly different. Amex could have maintained in its contracts that merchants could not offer lower pricing for cash/debit cards, but I think AmEx wanted to avoid the way that would make them look (Amex versus Visa/MC is a David v Goliath case, whereas AmEx vs cash/debit is rich people versus poor people).
Here is a good comparison of both rulings:
https://jobs.luc.edu/media/lucedu/law/centers/antitrust/pdfs...
Everybody finds different local maximums. I autopay credit cards in full every statement, while most charges that hit my checking account are overdrafts - it autopulls from the companion savings account with a better rate. Credit cards coalescing many small charges into one allows me to easily stay within 6 transactions per month (Reg D). Although I look forward to returning to using cash wherever possible after the pandemic has cleared up a bit more.
Yep. I'm the same way. The only thing to be careful about (in the US) is that banks can force convert a savings account to a checking account if you make more than 6 withdrawals a month. It hasn't ever happened to me, but they warn me regularly about it.
Wasn't there a suspension of the rule related to the pandemic?
I’m not sure I’d still call it an overdraft if the cash is just sitting in an adjacent savings account and gets pulled automatically.
> You are no longer obsessing over "early payday" features or ACH speeds.
Timing ACH payments _sucks_.
Tangential, but I'm in a renting situation where my landlord demands rent land in their account on the first of the month. Receiving rent on the 26th (i.e. 5 days early, not 26 days late) was deemed "too confusing" for them. I now have to play this awful game of timing ACH transfers to land on their account as close to the first as I possibly can.
What state are you in? What they are doing may be illegal. In California the rent is on time as long as you pay in advance of the deadline. If you send in six months rent all at once, then you are on time for the next six months.
Also your bank may be able to do this for you. If you add your landlord as a bill pay recipient and set the due date as the 1st, the bank will mail the check on the appropriate day, and if it arrives late, will often cover the late fee.
I just tried this, I opened my bank's app and it took me the whole of 2 minutes to set up a standing order to pay my friend £10 on the first of the month. It would be in his account on the 1st, or the next working day. I pay my cleaner via bank transfer when she leaves my place, and it's in her account by the time she's in the bus. My bank mailing cheques to my landlord is a concept that's just bizarre to me.
Given that you are sending pounds instead of dollars, I'm guessing you live in a civilized place with modern banking and not a backwoods like the USA.
The problem is not technology, it's the USA banking system. We have no way to instantly send money to someone over a few thousand dollars without huge fees. Oftentimes rent exceeds that limit in urban areas.
You can send money via Zelle instantly, but I would stick to check or ACH purposes for legal dispute reasons in the case of conducting business, especially paying rent.
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).
I see $20k in 30 days, $10k in 7 days, and $3.5k in 24 hours in my BoA account:
https://i.imgur.com/he9PXTn.png
I can see $3.5k/day would be a problem for paying rent easily in some places. I guess this is the best we have for instant online payments until FedNow goes live.
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.
Zelle is actually not supposed to be used for anything other than personal payments, despite that rule not being followed by many, many people. My bank told me that Zelle will ban people for it
Also, the "instant" limit on Zelle is too low for any reasonable rent in an urban area. It's $1000/day for my bank
Bank of America has a column for small business limits on its Zelle website:
https://i.imgur.com/he9PXTn.png
There is a whole FAQ section for using Zelle as a small business:
Sorry, I should clarify that I mean Zelle on a personal account. Maybe the rep was bluffing or clueless, but it's what I was told. Perhaps it's permitted if you have the proper business account, but a small-time landlord may not have this
Oh, they've not declared it as a lease violation, they've just asked me to do it this way and I've compiled, despite being annoyed by it. I haven't checked local laws (MA), but I've tried to be a good tenant.
Also, no, my bank will not do this for me. My landlord actually is overseas (permanently), so mailing a check is not feasible.
I'm in a renting situation where my landlord demands rent land in their account on the first of the month. Receiving rent on the 26th (i.e. 5 days early, not 26 days late) was deemed "too confusing" for them.
I ran into this at my last place. I'm the sort of person who likes to pay things ahead so I don't have to think or worry about them. I was used to paying my rent ahead and quarterly.
When I moved to the new place (in a western state), the apartment company insisted that rent be paid exactly on the 1st, and paid online.
Not only did it not want the rent early, it was not possible to pay early, as the company's online system would show a zero balance, and would not show a payment mechanism.
Even worse — I couldn't pay a bunch up front. It would only allow payments for the exact amount due for that month.
Payment was also accepted by check. But only in person, and with a $75 "processing" fee.
And this wasn't some rinky-dink neighborhood landlord. It was a national apartment company with over 20,000 units in a dozen states.
Interestingly, my new apartment has the same online system as the old one, but allows me to pay however much I want as often as I want. (As long as it's not late, duh.) So it wasn't a technical limitation, it was management's policy.
>Payment was also accepted by check. But only in person, and with a $75 "processing" fee.
That's illegal in New York[0].
Ha! My current apartment wants me to pay $19.95 to do a one-time eCheck (direct debit, it's basically free on their end) but allows me to drop checks in the office for free. What a backwards system.
My landlord demands cashier's checks or money orders. It is really annoying. I just want to automate it. With my previous landlord I had automatic bill pay set up.
If I rented, that would be pretty much impossible for me. I travel a lot, couldn’t drop it off in person or guarantee having access to an online system, or otherwise deterministically get a payment to them on a specific date.
A lot of landlords would absolutely prefer someone who pays long in advance. If I were you I would've given these guys the middle finger and found a better landlord.
Unfortunately you often don't find out about this policy until you've signed the lease and set up your payment account.
Any such policy would need to be specified within the lease to be enforceable. If there is nothing in your lease that mandates a bespoke payment method, call their bluff and just pay by check.
There are real issues with incomprehensible leases and terms of adhesion sprung late in the process, but it behooves us to keep focus on the specific contours of the problem so the people who are able to push back on such nonsense can better do so.
The primary reasons people choose a residence are price and location. Method of payment is probably not even in the top hundred reasons on the list.
I'm not saying that this is the only way to push back against such bullshit, or asserting that those who don't push back deserve what they get. I'm merely pointing out one avenue for fighting it that someone may want to explore.
It might be important enough for you, next rental. It might be important for someone with similar preferences [0] that has read your comment and will be on the lookout. I've rejected unconscionable leases wholesale and gotten simple boilerplate ones in their place. It can be done.
The more we openly discuss such bullshit, the fewer surprises can be sprung on renters late in the process. And sharing the wisdom of experience, for instance that it's totally acceptable to sit there and slowly read complex legal documents when the counterparty wants you to quickly sign (or even saying you have to take it home to review!) means more negotiating power for those still learning.
[0] Really, having a single day window to pay should be a concern to anybody. It sounds like an utterly shameless way of creating late fees.
Agreed, luckily RTP rollout is well under way, and it won't be long before ACH is a thing of the past. [1]
FedNow, the Fed’s instant payment system to replace ACH, it currently ahead of schedule for a 2023 GA. Beta testing between a handful of financial institutions is working as expected (from what I’ve heard). One way or another, instant payments will be here shortly.
I am used to US credit cards and moved to Germany a few years ago.
In Germany credit card chargebacks are very cumbersome. I had 3 banks' customer service tell me at first that it isn't possible (like they had no process for it or the agent never did that or is too lazy) and then the next agent said it works but has huge-list-of-drawbacks-fill-9001-forms-and-waste-days effort.
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?
No, i mean if my outstanding credit card balance is $100 (statement or not, but outside of pending, means cleared), then Amex or Capital One apps does not allow payments bigger than $110 (minus any pending payments).
Oops, I meant 10% "over", or 110% of balance.
So many stories here, I’ll add another. Bought an appliance from a vendor that advertised free installation, but on two occasions the tech refused to do installation because it was coded incorrectly in their system. Hired a contractor, disputed the cost.
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 use Wells Fargo. Their ATM's take and scan in checks, etc and they will actually take in cash and count it inside the ATM. You get to confirm the amounts and it deposits into your account (subject to normal holds/availability timing). They have a slot that is like a conveyor belt that opens and I just insert the stack of paper you can hear what sounds like a bill counter sorting the stack and counting it. You get to see scans of the checks. It typically shows each one and asks you to confirm the amount the OCR thinks is correct. No envelopes, etc just feed it the stack of paper in any order so long as it's short side first. Occasionally it will reject a bill that is too wrinkled. I use it regularly instead of waiting to see a teller.
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...
My credit union's app was very frustrating for depositing checks. Many reviews online said so, but apparently were ignored. So for a while I would go to an indoor ATM when I got a paper check which is not that often.
Then I had an idea - I got a piece of black construction paper for a background and it was much happier taking pictures of checks on that.
> Seems broadly less convenient than online
How are you paying cash online at all?
I don't have a deposit banking relationship with any brick-and-mortar banks, so for me it's very convenient: I have a way to turn my paper money into electronic money.
Right before using phones to deposit checks, some of the more advanced ATMs would let you deposit checks directing via scanning (older ones would basically just take the check and a teller would handle it later).
> Credit cards also provide a nice hack to allow cash deposit for those with only online banks...
Thank you, I had no idea about this! Going to seriously help me "deposit" cash since my bank's closest physical presence is two states away...
I just have two bank accounts. One I use to pay online, that I put money into myself, and another where I receive my salary. The most anyone can surprise charge me is about 60 EUR, because I don't keep more money in the online purchases account. The upside is that I understand all parts of how this works. I never managed to grok all the details about credit cards and their endless features. I just pay the bank to maintain two accounts with two debit cards, and it costs me the exact same amount every month.
> never managed to grok all the details about credit cards
You should look at getting a charge card. Basically a credit card where you can't keep a balance. Its basically a pay-after debit card where you can not pay a charge if its fraud.
Some have nice perks, but you can just ignore that if you want.
Credit cards are not a panacea. For subprime customers, debit cards are often more popular because they help ensure people spend within their limits.
> they also have different networks (not MC or Visa)
Is that also some weird American quirk? Everyone I know has a couple debit Visa/MCs..
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 portion of the payment mix (about 47% of electronic payments, compared to almost 70% in the U.S.).
First, the 47% is for all types of cards, debit and credit. Second in the SEPA space (at least the eurozone), wire transfers are free of charge, and are frequently used(for rent, salary, buying a kitchen, even between friends, at least in France), which removes some of the uses for bank cards. Furthermore, bank cards usually have limits, so buying expensive things (like a car or kitchen) isn't necessarily straightforward, unlike a wire transfer. IMHO shit prices and delays are the reason peope in the US often use cheques where in the EU we'd use a wire transfer, and it isn't really true that cards are less used here.
> 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.
The Netherlands is an outlier. They say they don't accept credit cards, but actually they mean they don't accept Visa and MasterCard, regardless if it's credit or debit. Maestro is the network most used locally.
However, it's gotten drastically better in the past few years, with at least the bigger stores accepting Visa/MasterCard now.
> However, it's gotten drastically better in the past few years, with at least the bigger stores accepting Visa/MasterCard now.
I'm guessing this has to do with the fact that Maestro is being phased out in favour of MC debit: https://www.mastercard.com/news/europe/en/perspectives/en/20...
Hmm now that you mentioned it i used to have Maestro branded debit cards. They magically turned into Mastercards upon renewal indeed.
Also card usage varies a lot between countries, mostly for cultural reasons.
Moreover I'm fairly certain that before the mandatory cap on interchange, countries with relatively high card payments were also the ones with the cheapest PSP fees.
While I agree with your main points, note that none of the specific examples you used include a credit card transaction in the US.
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 appreciate if folks could be selective in submitting these; in prior years I'd space out my essays to avoid wearing out my welcome but that's difficult to do with a newsletter that is open-to-the-public.
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.
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 $converted_currency or USD that isn't so corner. I'll let patio11 cover this (if/when he gets to it) as there are details I no longer have access to and thus can't do the subject justice.
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.
Even if you have a card that charges an exchange fee, they likely charge a fee for USD denominated foreign transactions too, although it may be slightly less, and the more favorable exchange rate from your bank may cover the fee.
It does not directly answer your question, but many (most?) merchant agreements in EU have significantly higher fees for accepting non-EU cards. E.g. Stripe takes 1.4% vs 2.9% for EU vs non-EU (card-present EMV transactions are typically much lower cost, but that still shows the idea).
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.
Interchange rates in Europe are capped at an order of magnitude lower than in the US. The economics of rewards credit cards just don't work out in Europe.
> ("why are wire transfers free in Europe but not in the US")
this applies only to a subset of Europe or european banks.
Do you want to expand where it isn't the case?
IBAN EU Transfers have to be free by law AFAIK
Instant transfers may cost fees
Europe is bigger than EU.
Are there countries where wire transfers cost money within a country?
> Europe is bigger than eu
Condescending much? Especially since this doesn’t mean anything for the question asked
I take it interchange fees is the reason some small stores will not take credit cards for small purchases, and low-margin stores will often not take Amex.
Separately, is the "credit score" system a particularly American concept? In the UK the credit report companies will give you a number, but it seems to be something they make up to fill a consumer demand rather than something card issuers actually use. Do you know how the FICO score became such a central thing in US consumer credit, and does Japan work differently?
Substantially correct on the first part. In particular, and depends on the region/processor/card brand, many SMBs will have interchange which has a fixed-per-transaction component in addition to a percentage fee, and that can be prohibitive at small "basket" sizes.
The U.S. has the world's most developed and widely relied upon credit reporting infrastructure, by a substantial margin. The history of FICO doesn't quite fit into the margins of this comment but I'd love to do an issue on it someday. Credit scores per se are less a thing in Japan but there are cross-issuer I-can't-believe-its-not-bureaus which have information sharing agreements, the dominant purpose of them being identifying fraudulent actors and account takeovers rather than credit risk (nearly zero in Japan, historically).
Thank you. It matches my impression that lenders in other countries do share information, but mainly negative factors such as defaults. Than means "credit building" does not exist in the same way.
> nearly zero in Japan, historically
That surprises me actually. I know Japan has a very, let's say, high conscientiousness culture but do they never get into economic problems and are simply unable to pay card bills?
"Never" is a strong word, but you're welcome to read the English-language reports of Japanese lenders which break this out for their consumer businesses. Factors which generally tend to depress it include low revolving credit use, relatively high underwriting standards for credit (not solely a positive thing—ask your favorite Japan-resident foreigner for stories sometime), formal or informal risk transfer, outsourcing collections to the yakuza by policy [0], etc.
[0] I feel it necessary to say "I am not making this up. It happened at first-rate financial institutions many times within the last 20 years."
Yeah, I'm currently going through the process of getting a mortgage for a property in Tokyo. I'm also interviewing about a potential job - nothing unusual there, moving around every 2-4 years is common in the software industry.
I was told in no uncertain terms by my real estate agent "Do not move company until your loan is approved. You're already impacted by the fact you work for a foreign company, and you will probably get declined if you start somewhere new."
The fact that I'd likely be looking at a substantial raise and therefore be in a better position to pay off any mortgage is irrelevant, the bank just cares about stability.
(I'm sure you already understand this, this story is for the benefit of other curious thread-readers)
>Credit scores per se are less a thing in Japan but there are cross-issuer I-can't-believe-its-not-bureaus which have information sharing agreements, the dominant purpose of them being identifying fraudulent actors and account takeovers rather than credit risk (nearly zero in Japan, historically).
Not debating you but a random reddit commenter says a (pseudo) "credit score" in Japan is implementation and semantics. The CIC, Zengin, and JICC organizations' credit histories data functions very similar to a USA credit score.
https://old.reddit.com/r/japanlife/comments/goy0vv/are_credi...
I feel bad about the stores that don't take Amex. Either their owner is relying on knowledge that's decades out of date, or they have a very bad merchant account provider. Amex cards cost no more to charge than Visa/MC cards these days. There are even Visa/MC cards with higher interchange fees than any Amex card.
Hey Patrick,
Thanks for this. I'm earlier in my career but very interested in fintech, so as i explore where i want to go, your writing has been immensely helpful and informative!
I am particularly fascinated at the moment by the world of differences in how finances work for people vs businesses. (eg. People typically pay taxes in income, but businesses pay taxes on profit. That leads to differences in how money is made/spent between those groups.)
I guess one suggestion i have for your newsletter is in how credit is given to businesses - humans (at least in US) have fairly well understood credit scores. Its well documented how credit card companies, consumer loans, mortgages evaluate individual credit from those scores, but how does a business acquire credit to for short term spending (corp cards), what about to make big CapEx purchases like buildings, maybe even for financial funds and speculative transactions? How are those businesses evaluated, underwritten, etc? What about banks borrowing from other banks?
Patrick, as someone with a startup in this space, I just want to say that your content is fantastic. I really appreciated reading this, and was unaware that Japan had a (pricing cartel?) with rewards. Is the market highly concentrated there as it is in the US? If it is indeed an inexplicable coordination situation, has there ever been any antitrust action in this space there?
Due to my quirky position as a foreigner who works in the financial industry in Japan I will not comment on structural sources for observed pricing discipline, but if you're interested in this topic, you may enjoy the Japan Fair Trade Commission's writing on it: https://www.jftc.go.jp/en/pressreleases/yearly-2019/March/Su... It's an active area for them, according to their public statements.
>It is believed by many that banks make lots of money selling "your data." This is not a significant contributor to the economics of credit cards, for reasons which are slightly too complicated to get into in this piece. The short version: much like Google and Facebook, issuers can demonstrate to the most sophisticated organizations on the planet that they can deterministically influence actual purchasing behavior. That's easier to sell than a CSV file and worth more to more businesses.
What did you mean by this? I get that raw customer transaction data might not be as valuable as one would think, but you seem to suggest that there is another thing they do with the data that DOES make money. Can you elaborate?
Is it true top tier customer reward cards (black/platinum/amex business/etc) have interchange fees that push into 3% territory? If so, how do companies like Square make money when they only charge the merchant 2.6% for a POS transaction?
No. Aggregate interchange for top-tier Visa and Mastercard personal cards maxes out at ~2.3%.
Corporate cards actually earn significantly higher interchange, but even those don't aggregate out above 3%. Actually, the networks spend a lot of time policing banks from trying to arbitrage the difference by issuing corporate cards to individuals.
Payment processors like Square just know that their margins will vary by the type of card used by consumers, but aim to have an aggregate positive margin across all cards. Once you get into enterprise contract negotiations with them though, they'll look at your card mix to make a pricing offer.
Square, by virtue of their business model, get lower interchange fee because charges where the credit card is present, has lower fees. Online-only merchants get no such discount.
1. History and death of attempts at carrier-proxied mobile payments, including SMS and so forth.
2. Parallel graph of dominant internet access points and type thereof (fixed/mobile) per market vs. dominant payment systems and payment characteristics such as payment size, card not present, etc.
3. True history of SWIFT.
4. Parallel graph of Chinese mobile payment growth vs. historical credit card payment growth.
5. Overarching trend in bank points of presence including ATMs and branches across multiple developed markets vs. mobile.
6. Trends in subscription payments as a percentage of overall credit card spend + subscription support in alternate settlement systems.
If you have a credit card that charges no foreign exchange fee, could you overpay your credit card (i.e., leave a balance in your favor on the card), then withdraw cash at foreign ATM machines, thereby avoiding both forex fees and credit card interest?
The terms & conditions on my credit card sound like it should work (I shouldn’t be charged interest if I have a credit balance), but I’ve never tried it.
Failing that idea, do you have any tips for frequent American travellers on how to get foreign cash without paying excessive conversion fees?
> Failing that idea, do you have any tips for frequent American travellers on how to get foreign cash without paying excessive conversion fees?
Many credit union deposit accounts with ATM access can use some foreign ATMs with no fees and reasonable forex rates. Some online deposit accounts with ATM fee reimbursements will also reimburse foreign ATM fees and have reasonable forex rates. Things like Schwab and Fidelity, IIRC. My personal experience is a bit dated, but I'd try to have two separate cards on different networks if possible, because my ATM card only worked in half of the UK ATMs I tried, and that wasn't very convenient, as the ATMs I couldn't used were at the chunnel station and I needed cash for an unlicensed taxi.
I second the parent’s suggestion of using a checking account that supports low-fee foreign withdrawals. Charles Schwab has worked for me at many international ATMs.
Some people advise sticking with four-digit PINs for compatibility with older ATMs [1] but I don’t know if that’s a practical limitation at this point.
[1]: https://www.latimes.com/travel/deals/la-tr-spot-20140713-sto...
There is usually a fixed cash advance fee to pull money out of a credit card at an ATM. Last i checked it could be $20-30.
There are plenty of debit cards that you can use at foreign atm's with no ATM fee or foreign transaction fee.
I just used a US Capital One 360 debit card to withdraw Costa Rica Colones today. Based on Google’s currency conversion for today, it cost me $0.80 more than it should have. Maybe other banks / countries are more egregious?
(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?
Why not write on Substack? I'd love a comments section for your newsletter.
I welcome comments in my inbox but, having long-ago had them on my blog, do not consider the lack of them a bug.
Which is very reasonable. The SaaS product for comment moderation on a very niche site hasn't arrived yet (afaik. links welcome). Realistically though, you've outsourced the cost of that that work to dang/the team on HN. Which is what I'd do, but I wonder how dang feels about providing that as a service.
Patrick, how much do you read in a given day (eg. hours?) All those words (and the deep knowledge they reveal) must come from somewhere. And what do you read? Not just twitter I suspect.
This article of yours is fascinating: https://bam.kalzumeus.com/archive/financial-innovation-is-ha...
Thanks
Varies wildly by the day (and year); probably two hours at the median. I have an advantage in that this sort of thing was a hobby for me for 20 years and then it became very work-relevant the last 5.
Someday I'll try to curate a reading list but in the meanwhile the sort of things I read are generally the sort of things I link to in essays/on Twitter/etc. Everything from WSJ to Byrne Hobart's newsletter to Fed research papers to e.g. almost any book that looks plausibly interesting about financial fraud (best one: Lying about Money, Dan Davies).
As someone who soaks up information as a sponge, there's a wealth of knowledge to be gained from experts in their field, interactively, and access to Slack at a fintech company provides that in piles. I'm curious, how much time would you say you spend on slack/how do you interact with that?
Have you read up about the world of commodity trading at all? I imagine you’d be interested in the book The World for Sale if you haven’t already read it. Interesting combination of market structure, fraud and geopolitics.
*Lying For Money
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, this is extremely well studied and extremely clear: that archetype is staggeringly contribution margin positive. It's actually one of the best performing ones at some issuers, principally because the archetype spends a lot per account, has negligible defaults for non-fraudulent users, and therefore earns lots of interchange at favorable margins.
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 with a particular issuer. People outside the credit card ecosystem believe this is much more common than it actually happens. A lot of thought goes into the design of products to decrease the likelihood of adverse use, cap the damages, and encourage users who are very skilled at gamesmanship to game their way to being contribution positive.
Having sat in data presentations from credit card companies, the extent of the data that credit card companies have is incredibly detailed. For those customers who they don't make money on from interest and fees alone, I would imagine that data more than covers the difference. These customer are still VERY desirable from a data perspective.
While there are legitimate tracking concerns, the data the credit card companies capture and disseminate is incredibly fascinating. You've got spending data, layered with market segments, layered with location data (both on the cardholder and the business side), and even time of day. Overlay all that with very accessible data from the Census or ESRI, and they can really tell a significant story of how money flows through the modern economy. This is what's feeding the internal fraud detection engines (which have gotten a lot better), but there are also private institutions that are more than willing to pay the credit cards a hefty sum to get access to all this data.
> 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 have them as a customer, even if they lose a little bit of money on them.
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 it."
It is a curious, curious belief in the engineering community that we are better at trivial math than banks are. That is not a bet I would encourage people to make.
Reminds me of:
> The entire fintech sector rules because it’s tech ppl looking at a 500 year old sector that accounts for 10% of the economy and employs some of the smartest and most ruthless people in the world and saying “You know what, I bet these guys are leaving a lot of money on the table” [0]
[0] https://twitter.com/quantian1/status/1447705628521152517
God, this is so accurate.
I see this pattern almost weekly with engineers (both online and offline). The hubris is fascinating. (Full disclosure: I was often guilty of this myself for the first decade-plus of my career.)
The current discussions around Covid and vaccines made me realise I am continually guilty of this hubris. I've heard people say before "whenever I see a discussion on a subject I am an expert on, HN is full of ignorant commenters", but I feel it far more viscerally now.
The first stage was: these anti-vaxxers don't have a degree in immunology, what makes them qualified to even attempt to interpret scientific papers on the subject?
The second stage was: wait, I don't have a degree in immunology either, why am I pretending to be "following the science" when I don't have even the vocabulary or the context to properly grasp immunology papers?
Accepting that I am a functional ignoramus with regards to Covid, viruses, immunology, vaccine development etc. is very freeing. I'm basically knowledgeable on very few things, and am not an authority on (vaccines|economics|law|history|basically everything). Being good at software engineering doesn't make me an expert at everything I read two articles on.
But you have expertise in at least one field, which confers to you an improved ability (relative to someone who is expert at nothing) to recognize expertise vs ignorance. This is, as I understand it, a fairly straightforward conclusion based on the Dunning-Kruger effect.
Oh, I don't doubt that they have a very sophisticated model for this. I'm just saying they probably take customer acquisition cost into account in the model too.
"I bet they do it for free marketing" doesn't mean "I bet they didn't do the math". It means "I bet their marketing department measures everything and is good at math too."
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...
> It is a curious, curious belief in the engineering community that we are better at trivial math than banks are. That is not a bet I would encourage people to make.
Although sometimes people are right on that bet, disrupts an entire industry and becomes billionaires. Entire industries can turn a blind eye to problems that are obvious to some, and later it turns out the industry experts were wrong.
So I wont stop making simple back of the envelope calculations and discuss and judge industries based on that. In most cases you are wrong when you do it (which you'll realize when you dig down a bit further), but sometimes the industry is wrong and you really don't want to miss those cases.
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 card application.
I imagine all the other banks were not impressed, and ever since then, you can get a few hundred dollars here and there but nothing like the initial Sapphire Reserve promotion came out since.
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.
> It is not the same as sapphire reserve and before times.
If I'm not wrong, cashing out Chase Ultimate Rewards points wasn't that lucrative until recently, when they introduced Pay Yourself Back — it was 1 cent per point before, and is much higher now for certain categories (groceries, restaurants) with Pay Yourself Back.
> The Amex ones are rewards points, and you have to play a lot of games to get the value.
For US residents, cashing out at 1.1 cents per point would be opening a Charles Schwab brokerage account and the linked Amex Platinum card, then "investing" the points. That doesn't sound too complicated.
(Speaking as a non-US resident playing the game myself: I do have extreme difficulty trying to get good cash value for my points, since Schwab refuses to open a brokerage account for me.)
Chase Ultimate Rewards got heavily nerfed since the Sapphire Reserve release. For the first couple years, you could get 1.5 cents per point for any travel (flight, car rental, hotel), and the price on the chase ultimate reward portal was the same you got via the actual airline or car rental or hotel website (i.e. the cheapest price.)
Then they made it so you had to use ultimate rewards via Expedia, and they bumped up all the prices, so effectively your UR points lost a ton of value. Searching the same flight on Expedia UR website was more expensive that directly going to the airline.
Then I stopped following because I had already canceled all my UR cards, but I assume they downgraded it even further because I heard they raised fees and substituted some benefits with door dash or lyft credits or something.
> For US residents, cashing out at 1.1 cents per point would be opening a Charles Schwab brokerage account and the linked Amex Platinum card, then "investing" the points. That doesn't sound too complicated.
I did not know this, but that seems okay. However, I have experience with AmEx being strict on people who constantly open cards for sign up bonuses.
Amex explicitly no longer offers me sign-up bonuses because I'm not a profitable customer for them.
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?)
>The "folks like us" archetype is one which is definitely tracked and goes by different names at different places.
Out of curiosity, what names does that archetype go by?
The term for us, who pay off their entire balance every month, is "deadbeats".
That’s an interesting term for “profitable customer who pays their debts”
I'd be much more profitable to them if I didn't pay the debts, and they'd accrue the usurious interest charges.
I found this out (and the term) after discovering my credit score was lower than I expected. With some investigation, it was low because it showed I had a lot of credit card debt. Paying it off each month did not factor into the credit score.
In particular it's good to remember that for every dollar you spend on your credit card, the credit card company is charging the merchant a percentage fee, so even folks who never miss a payment and max their rewards can still be very profitable
They just keep extending credit until they're right. It cost them nothing to extend you credit and pretty much one interest payment makes up for it. The perks that offset the annual fees on their fee cards are just an accounting gimmick on their end. "Oh cool Audible gets to print awesome revenue numbers while we just pay back the customer that paid who feels like it makes their annual fee worth it" and who knows what arrangement behind the scenes is, shares? More targeted customer data?
And if you actually are spending, as you suggest, they make enough from the merchants who are eating the 3% transaction fee.
You're the data product, like every other cool free thing over the last decade, and they have a sustainable business model.
And if you ever do have a disruption in your earnings while you are floating a balance on the credit card, you've just become their whale customer that is paying for the whole operation with interest. By the time you default they really don't care about collections because they've already made so much, they're very ready to sell off the debt to some collections agency for pennies. You can be the most meticulous and responsible user of debt, and still have this happen to you eventually. They're just the house in their credit casino and all they have to do is wait.
> And if you actually are spending, as you suggest, they make enough from the merchants who are eating the 3% transaction fee.
You mean, the customer eating the 3% fee? The merchant isn’t going to take the hit to their margins, the interchange fee is built into the price of what you are buying.
Many merchants take a hit to their margins, many dont. It doesnt really matter to the credit card company but what you said is useful to point out, my point was only that percent is going to the credit card company
Issuers get higher interchange rate for customers they deem as high-spenders. So while these high-spenders (who presumably also pay off their bills) aren't generating interest revenue for the Issuer, they are generating higher interchange revenue.
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.
Settlement is a couple of days. If merchant is getting their money later, the processor is holding the cash. I’d guess to manage risk from chargebacks.
Merchants pay interest with the increased interchange. This is why debit cards have reduced interchange. ~2% vs 0.05%
2-3 business days between charging someone's card, and the settlement including that charge hitting my business checking account. Not months.
Evidently, my dry-cleaner lied to me.
They were probably just trying to get you to pay with cash/debit card.
I take advantage of that by using the card to pay bills (that don't charge a "convenience fee" to use a CC) and try to time things to get as close to the 60 days as I can.
It's just a long standing habit of mine.
That seems like a lot of trouble compared to setting up auto pay for everything to save a few bucks.
Well, I did try to get my credit limit raised temporarily once so I could buy a car with the card, and get the cash back. The CC company refused. I pointed out how they'd still be making 2% net on the transaction, which would be well worth their while. This kind of pitch was above the pay grade of the phone people, and I got the "there's nothing I can do" garbage.
We're not rich, but we are maximally financially solid and stable. I mean, I drive a 2001 truck I bought new, for cash. Better half drives a newish base Prius. House is not fancy.
How on earth can it make sense for us to get issued two $95/year CCs, as happened this year. I can use the 20% AirBnB bonus to cash in $1200, each card, as happened once. We're waiting on passports for the second. Edit: I've also cashed in points for 12 transatlantic flights over the last 15 years, on other CCs.
We haven't missed a CC payment in decades. I can cancel at any time. We don't have that many accounts to switch, might take an hour.
We're puzzled. But ok, we do it.
Edit2: Ok, after reading more comments, the profit from us would seem to come out of spend. Some more details then. We make net slightly less than 6 figures, and save 50% of that for retirement. House payment is $800, and nearly done. Travel is our vice, but we do eg a week in Paris for maybe $1500, and we do everything we want to. A big chunk of that is AirBnB, and... the CC typically pays that.
I'm not denying that the super solid big spenders aren't super profitable for the issuers. I am puzzled why we get issued the cards. I mean, 2 cards from the same vendor just splits the pie between the two accounts, and increases the spend zero.
Depending on the issuer, you might still be net positive as there’s a higher chance you’ll buy other products from them later. Think home loans, brokerage accounts, CDs, etc.
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 earning more via cash back rewards than I am paying in fees. A 2% cash back card which can be had for free, gets you pretty close. At 5% cash back, you’re clearly earning more than however much prices are inflated to pay for the card processor fees.
And at the end of the day, I don’t have the option of paying 5% less at most places. So any percent cash back is a win.
The issuing banks have teams of people who are very smart, have extremely accurate data down to the individual transaction, access to the computers to crunch that data appropriately, and spend their (working) lives on this topic. You are a dude doing this in their spare time as a hobby, with access only to your own set of data and not even the full set of that (e.g. you don't see the interchange fees etc.)
I suspect that the bank is winning much more than you think on your business, even if you are getting a good reward. They are getting other people to pay them even more than they are paying you.
Maximizing credit card reward can be a hobby that leads to minor ROI- like investing in individual stocks it might be lucrative and if you enjoy it more than golf definitely pursue it. But don't think you are fleecing Bank of America or Chase or whomever.
I used to think that, but I'm not sure. If we're generating enough interchange/fees (or other forms of revenue that aren't so obvious) for them, it might be worth it.
I pay $550 annually for one card, but I easily pay for that (and then some) through statement credit and redeeming points. The net value I get out of the card is well over $1k per year. But it's not clear to me whether or not the issuer makes that back via other means. Just they aren't making that back from me. I expect card issuers are very very much aware of customers just like me, and are able to financially justify my existence.
I'm guessing your data is pretty valuable to them.
The article disagrees with data sales being a relevant factor.
They are still earning interchange, and profit from foreign currency conversion rates unless you watch out for it.
They can also earn money from retailers to promote them to you. Point hunters often end up spending extra to reach a rewards threshold, which can be very profitable for the retailer. It's also common to sign up for a card with great introductory rewards and then keep using it for years, because you get busy and forget to switch card every few months.
My understanding is that merchants are charged around 3% of all that you purchase in interchange/surcharge while you get only like 1% back in reward.
This is definitely true but just fyi by now you should be getting 2% back on everything, more if it's specific categories. If you're only getting 1% and have good credit, you need a new card.
Note that while this may be the case in the US, where interchange fees are outrageous and therefore the cards can offer such "rewards", the relevant figures may look quite different in other places.
How do you square that with card issuers that require you to pay in full each month, like American Express?
Those days are long gone for American Express.
Only a handful of their cards - the Green/Gold/Platinum - are charge cards, and they all now have "Pay Over Time" (allowing a month-to-month balance on charges over $100) and "Plan It" (allowing one or more charges to be put on a 3-24 month payment plan with a fixed finance fee).
https://www.americanexpress.com/en-us/benefits/payment-flexi...
https://www.americanexpress.com/us/credit-cards/features-ben...
>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.
Citibank did just that with me.
> It's not clear why they don't just fire us as customers.
They do. When they do it aggressively, it results in bad PR, though.
Not necessarily.
Merchants may get charged a lot for credit card fees but cash handling come with significant costs too such as banks charging for deposits, having to travel to the bank, counterfeiting, security, and leakage.
This article says the cost to handle cash is 5 to 15%, more than credit cards.
I would love for an EU law that prohibits sellers from swallowing the cost of transaction fees or marketplace cuts. Imagine the app store having to specify the additional cost a user has to pay for a monthly subscription or a customer balking at the 4%-6% surcharge they have to pay because they want to collect their AmEx points or want to pay with their built-in iPhone ApplePay feature. Those leeches of the financial industry would disappear very quickly.
I would love that too. I remember that there was an opposite movement, i.e., all prices need to have all fees included, which is fare but prevents competition. Exposing credit card fees upfront to customers is the only way to promote real competition between credit cards and their networks.
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.
Then, politeness suggests you ask if you’re thinking about it.
It’s an interesting approach, as you wouldn’t enter a restaurant and ask what dish would make them the most margin. Or go to the post office to ask what packaging is cheaper for them to ship. In that respect I think asking what payment means costs more to the shop would break a social norm, so I’m surprised you file it under politness.
Otherwise shop owners have many many ways to signal how much they want you to do something or not. Wether the card reader is hidden under the counter or the most prominent thing when you need to pay could be a very clear signal for instance.
I'd argue it isn't the same. Asking for cheapest package/most margin dish affects you most of the time, while paying cash is the same as credit card most of the time.
Although I've never seen a merchant not prefer cash, except maybe big corporations.
Your average cashier probably doesn't know or care.
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.
> If you want to support the merchant, spend cash
WTF? Why is this burden on the customer? If you want to support them you buy from them, period.
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 ...
I think they were trying to get payments going for a startup idea and were trying to get payments integrated. Or at least that's the founding story.
"In early 2010 John and Patrick began working on Stripe together. At the time Patrick was working on several side projects and they debated why it was so difficult to accept payments on the web. They sought to solve the problem and see if it was possible to make it simple - really simple. The next 6-months they played with it, showed it to friends, and saw how people interacted with it, iterating along the way."
[1] https://www.startupgrind.com/blog/the-collison-brothers-and-...
You have to know people.
> 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 always wondered this, but when some minor crime seems to get heavily investigated by police. Seems like there are avenues to report something and have it taken seriously that just doesn’t exist for the general public calling the general number.
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
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...
Right, I know that there are just a handful of banks that are porviding conncetion flows.
I had experience with Capital One I think, their connection flow was horrible and broke the UI of your app: Basically your user had to go into a Capital One webpage (which was pretty ugly, specially in mobile) and then there were several checkboxes that they had to click through to allow specific accounts to be "seen" by the Plaid like services. Then they took you back to your application and if the user selected not to share any account, your application would basically crash.
I cannot imagine the UI hell that Plaid will be when every bank implements their own propriertary flow for approving account visilibility.
I'm sure that working at Strip has been helpful for his credit card knowledge.
Apart from talking to people, I think he read a lot of bank annual reports and spent time on forums dedicated to helping people get redress from banks.
Hey Patio - what's your current take on Crypto and have you / do you cover that in your newsletter or have a more recent twtr thread to send us to?
I know you've been a major skeptic of the gratuitous pyramiding, wash trading, and shaky (or non existent) foundation of Tether etc
But w/your depth of knowledge on the current financial system would be very interested in your take on the current market and next gens of defi / staking / shared pools / etc
Would love to see you ingest and break that all down
https://techcrunch.com/2021/10/13/payments-giant-stripe-says...
Title should be "How credit cards make money"
I think HN automatically removes "How" from the beginning of titles, on the basis that it's superfluous or clickbait-y or something.
I personally find this confusing, it often changes the meaning of the title IMO.
If you want to learn more about this space, I'd check out Payment Systems in the U.S. [1] which talks about a lot of the history and parties at play here.
It's also fun/interesting to look at the published interchange rates for various classes of commerce. Here's Mastercard's: https://www.mastercard.us/content/dam/public/mastercardcom/n...
[1] https://www.amazon.com/Payments-Systems-U-S-Third-Profession...
Would be interesting to know if credit card companies sell data and which data exactly?
Turn on your ad blocker and then visit
https://www.fastcompany.com/90490923/credit-card-companies-a...
Why was the title changes from "How credit cards make money"??
Does anybody know excactly what data a store get about me, if I buy it with a Credit or Debit card. Does someone has some example data or so?
If you're using an EMV chip card, they don't get any personal information about you from the card at all. The card is used to authenticate a transaction, nothing more. The store's payment gateway knows what brand of card it charged, how much money was captured and when, none of which is personal information.
First lines of the article:
"Credit cards make money through net interest, interchange, fees, and marketing contributions."
I love you.
(For issuer) also via overseas usage, FX fee and spread.
Interesting discussions about credit card and more!
>You have probably used one [credit card]
no
>mostly [aware] how it is a complicated bundle of services with a pricing structure strictly more complicated than a venture capital fund’s.
yes
steal money
FTFY
Cost of handling cash is higher than you might expect, which means that interchange fees aren't nearly as bad a deal for the merchants as people think.
Flagging to remove unnecessary author name in title.
but... i like this author? when i see patio11 or Patrick McKenzie's name in a submission title or submitter field, i know that i am going to be reading some good writing today.
Me too. However, including some author's names and not others is inherently an editorializing decision and I'd prefer to keep the editorializing out of headlines. I didn't flag it, but do prefer that the original headline stays (which is "How credit cards make money", not "Credit cards make money" anyway)
In this case, the domain is a clear cue to me.
The HN convention is for titles to generally very closely track original titles unless those are misleading/clickbaity/etc, and assume that HNers have the domain name to author map reasonably cached.
(Thanks for the praise! Hope to continue earning it.)
1. It's not general practice at HN to put the author in the title, unless it really changes how you interpret the title. For example, you might submit Principia Mathematica (Bertrand Russell) if you think there's a real risk people might confuse it with Philosophiæ Naturalis Principia Mathematica by Issac Newton.
2. kalzumeus.com is patio11's personal domain, so it's even less necessary to put the author in the title.
I think there is a risk of developing a superstar cult if the authors name is in the title. I also don’t like titles like “Harvard scientists have found X”. Suddenly the article gets more credibility because if “Harvard”. Although in reality the big name institutions are putting out as much BS as everybody else.
Really? I find him self-important and full of dubious ideas. I know that's not the conventional wisdom about him here, but take a long look at what he actually says about things. He's often wrong, and is rarely open to the possibility that this is the case.
HN's staying power comes from its highly conservative approach to website design but I agree that there are some articles that would greatly benefit from having their author's names attached to them.
> "A much smaller portion of interchange goes to the credit card processor, to the acquiring bank, and to the credit card network"
That's technically not accurate. Credit card networks do not earn money from interchange [1].
[1] "Visa does not make money from individual transactions." https://revenuesandprofits.com/how-visa-makes-money-understa...
> Visa does not make money from individual transactions. Instead, it earns revenues from the issuers and acquirers based upon the overall payment volumes and number of transactions processed.
Which is effectively the same thing.
But it’s not.
You’re assuming the card networks are even charging issuers, and issuers are funding these fees from the revenue they collect in interchange. They are not.
It’s not uncommon for the card networks to not even charge issuers at all. The card networks need to win over the issuers to even issue cards for their network. It’s much easier to win an issuers business by not charging them any fees at all.
I would like to reiterate my standard disclaimer for this publication but if you want to bet that I don't understand how scheme fees are calculated that is a poor decision.
I’m not suggesting you don’t understand it, but see my sister comment in this thread.
How it’s worded implies issuers are even paying a fee & that fee is derived from interchange. When that’s not always the case.
That raises a question though: In your opinion, where/in what subjects would betting against you not be a poor decision?
I'm less good at poker than many people's model of me predicts. (Probably juuuuuust about good enough to do 2/5 profitably in Vegas, though I mostly play tournaments because they're more fun for me.)