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How credit card rewards became a $9.2B wealth transfer

256 pointsposted 6 days ago

by conbrian

(library.hbs.edu)

475 Comments

SXX

6 days ago

Important context: this is US thing. EU capped interchange fees at 0.2% for debit and 0.3% for credit cards.

So in US card processing is x5-x10 more expensive.

59percentmore

6 days ago

Things that are more expensive in the US for no reason:

  Healthcare

  Internet access

  College

sighs and adds "The very act of making a purchase"

At least we have cheap gas? farts

Healthcare and college are "Baumol cost disease": because they depend on skilled workers, much of that is the same as "American salaries are higher than in the rest of the world", and unlike manufacturing or software (+) you can't outsource it to lower-wage countries.

(+) there still seems to be a massive wage premium for "being physically in a San Francisco office" even if most of the work is being done by an AI, which cannot be sustainable

avadodin

2 days ago

You can make all sort of excuses but we literally felt bad for 1:1 exchange students paying 2k a month while we paid 2k a year.

Their education was not 10x ours and their economy was only a few % over ours per capita.

sharemywin

5 days ago

because code is only a small part of software development. don't forget ping pong tables. lol. I'm both making a valid point and making fun of it too.

sharts

2 days ago

I dunno, telehealth with foreign doctors while maybe in-person nurses could lower costs substantially.

porkpieshoe

5 days ago

If it was this simple, then high costs would be limited to the labor-driven portion of the bills.

This is not the case.

joenot443

6 days ago

Bit for bit, internet access is cheaper in America than it is in Canada or Australia.

Canadians like myself have ~40% of our provincial taxes spent on healthcare, so in my case about ~8% of my gross income. Somewhere in the tune of $20k/yr. While I was living in Seattle and filing American, quite a bit less of my gross income went to healthcare. Just food for thought.

StrauXX

6 days ago

But that is not because it's less efficient. With the Canadian system being socialzed and 20k$ being just 8% of your income it is to be expected that you would pay moch more than the median person into the system.

59percentmore

6 days ago

"I make $250k CAD a year, my experiences must be representative of, and relevant to, the masses," is a wild thought to have.

Well, maybe I spoke too soon, because my private American healthcare turns out to also be about 8% of my gross income (of $60k)(before copays and my deductible)(and also it's crap). Twinsies!

But yes I agree that it would be awful to have my health needs taken care of and a mere ~160k USD left to spend on everything else.

joenot443

6 days ago

Oh I certainly don’t think it’s representative to that of the masses, I was sharing an anecdote.

I think either way both of us are in really good shape. In my experience the quality of American care is better in nearly every regard (having experienced both pretty intimately), but the simplicity and the peace of mind of the Canadian system has its benefits too. In either case you end up paying.

> But yes I agree that it would be awful to have my health needs taken care of and a mere ~160k USD left to spend on everything else.

I’m confused - do you actually think it’s awful?

bluealienpie

5 days ago

I think the main issue that the NHS model of 10+ years ago worked when fully funded. The Canadian model is a mix match of US healthcare and Medicare. Some drugs aren’t covered, some procedures take forever, and you don’t get guaranteed doctor. Many European healthcare system have solved the issues we have, but Canada has refused to adopt any sensible system.

59percentmore

5 days ago

You're being disingenuous. You clearly meant your anecdote to be representative, at least for "Canadians like [yourself]". But I suspect that it was meant to be a broader statement, and you're only backtracking now because the ridiculousness of that notion is apparent.

>I think either way both of us are in really good shape.

I'm lying in bed with non-specific upper abdominal discomfort that I'm hoping isn't related to digestive issues (pancreatic) that I've had for years, but which I can't get treated for because my insurance-related circumstances have made it very difficult to get consistent access to, and then to be taken seriously by, relevant specialists. These issues have combined with chronic injuries that were poorly managed in their acute phase and poor access to quality nutrition to make it difficult for me to exercise consistently. Contrarily and consequently, I'm quite out-of-shape.

The best and most consistent care I've ever gotten was while I was on Medicaid (which was still yet hampered by the professional stigma against accepting Medicaid and treating Medicid patients well).

>In my experience the quality of American care is better in nearly every regard (having experienced both pretty intimately

You experienced the quality of care available to rich people. That quality of care is not widely available, not for lack of institutional capacity, but primarily due to lack of profit.

>I’m confused

I really don't think you are.

InsideOutSanta

5 days ago

> Canadians like myself have ~40% of our provincial taxes spent on healthcare

Worth noting that taxes in the US are a lot lower than they should be because a large portion of government expenses are financed with debt. Canada owns over 400B in US debt, so that's Canada "subsidizing" US taxes.

Also, yes, that's how healthcare works: when you're young and less sick, you tend to pay more than you get out of it, and then it reverses as you get older.

goalieca

5 days ago

Canada has a huge debt problem at the provincial and federal level. The provincial level even covers for the cities spending problems.

NewJazz

4 days ago

What do you mean "quite a bit less of my gross income went to healthcare"? Are you factoring in the insurance premiums paid by your employer? For many people that is both an invisible and significant health care cost.

corranh

4 days ago

That’s pretty comparable actually. The most recent quote I received for private healthcare in the US was just under $2,000 per month ($24,000 per year).

bvanheu

5 days ago

there is a big chunk of people who wouldn't afford healthcare in the USA but still have access to in Canada. I don't mind paying more taxes if this means everyone has healthcare access.

5 days ago

The EU doesn’t have the challenging scope and geography of the US, no?

db48x

5 days ago

The problem in the US is less of a geography problem and more of a regulatory one. Many towns and cities in the US gave the cable companies local monopolies back in the 50s and 60s. There are technical reasons why this worked ok (not well but perhaps better than the alternatives) for television, but now that the same rules have stretched to apply to delivery of internet access they no longer have any technical basis. So at this point they’re just a barrier to competition and exist only to raise prices.

The good news is that modern fiber systems blow cable internet out of the water. It is far cheaper to supply symmetric gigabit internet to every customer over fiber than over cable. Fiber just has more bandwidth to go around. And because it’s a different technology it is not subject to the same local monopolies that cable is encumbered with. This means that the free market is correcting the problem and has been for a decade. In many parts of the country it is now possible to get internet that is faster and cheaper than what is available in the even the best built parts of Europe. The main obstacle to that build–out is probably local permitting. Many large cities require new permits, with public comment periods for each and every one of them, for every single block that an ISP lays fiber for. Cities like San Francisco have imposed a glacial pace on their ISPs.

toast0

5 days ago

> And because it’s a different technology it is not subject to the same local monopolies that cable is encumbered with.

Exclusive francise agreements between municipalities and cable operators have been outlawed since 1992. But it's generally uneconomic to overbuild a new network with the potential to touch every home unless a large portion will subscribe.

Fiber internet is typically much better than cable internet, but cable internet is good enough for most people, so they're unlikely to switch unless it's significantly cheaper, which it often isn't -- especially since local incumbents tend to lower prices or rollout better service when a new entrant is entering the market (or announces they will ... Google Fiber city selection announcements drove lots of competing rollouts even though Google didn't install anything in those cities).

Regulation requiring wholesale access / line sharing / or strict separation of first mile and service infrastructure would allow for competition in service and routing, without having to build a 3rd last mile network. Congress did this in 1996, but the FCC walked it back for cable, the courts said if it doesn't apply to cable, it doesn't apply to telephone, and the FCC said internet over power lines exists and provides competition despite the lack of providers. Congress never came back to make clear that it wanted line sharing, so it disappeared from the mainstream.

I have municipal fiber where the municipality handles last mile only and I have a choice of IP service providers. But installation was very expensive and monthly service is also expensive relative to the ILEC and the cable company, although the cable company service on my street ends before it reaches me.

The cable and telephone companies have a major cost advantage that they can rebuild their networks with a good expectation of customer uptake; and they're allowed to manage the finances of build out however they see fit. The muni fiber (in my state anyway) has to bill customers for the costs of install and even if it could self-finance a build out to service all homes, wouldn't see a lot of uptake because most people find their current service to be good enough.

59percentmore

5 days ago

The federal government subsidized a planned, massive fiber build-out almost 3 decades ago. The telcos pocketed the money and then refused to complete the build-out, complaining that the last mile was too expensive. Municipalities pull teeth and the telcos have slowly rolled out to-home fiber piecemeal in the intervening years, as the local capacity to handle their extortionate rates appears. Alternatively, they will lay cable to your unconnected house/neighborhood for payments in the six- and seven-figure range.

Where we are is very much not a function of the free market.

db48x

5 days ago

Oh, I agree. There are huge distortions that have delayed the roll out of fiber internet by decades. But money talks, and ISPs are now building huge fiber networks in some parts of the country in spite of the best efforts of our government. I subscribe to Ziply Fiber (<https://ziplyfiber.com/internet>) which is building a large network in the Pacific Northwest that provides superb service to millions. They’re not perfect, but they’ll provide up to 50Gbps (symmetric) service to residential customers across four states. Compared to Comcast/Xfinity, which tops out at 2Gbps × 300Mbs, Ziply is amazing. That’s the free market fixing the problem in spite of the distortions introduced by local monopolies.

And that competition is definitely a good thing. Xfinity’s offering was far worse before they had competition because there was no incentive to offer anything better. They’ve even introduced a new idea to the market in order to win people back away from fiber: guaranteed fixed prices for five years. No surprises when promotional rates expire, no price increases, no shenanigans at all for five whole years. That alone is a breath of fresh air compared to their own business practices of just a year or two ago. Ziply had to respond by lowering their prices and ending promotional rates because they were losing customers. You know the old saying: as iron sharpens iron, so too does man sharpen man.

It would be better, of course, if the government were not mismanaging things. Switzerland’s solution is the better way to go than what we have today. Their government paid to build a nation–wide fiber network, and any ISP can service any customer on that network. That allows ISPs to compete on price and features without worrying about having to build their own competing and overlapping network. This is already how electric service works in many states, so it’s not even like we can’t make it work.

59percentmore

4 days ago

It's not the government, and I'm calling bullshit on your narrative because there's no mention of municipal fiber, and the industry's successful lobbying to make it illegal in most of the country. THAT would have been REAL competition.

>Their government paid to build a nation–wide fiber network

So did we. The last step is nationalizing that network and finishing the build-out in-house.

db48x

4 days ago

Municipal fiber exists in some places, but not most. It’s actually fairly common up here in the Pacific Northwest. Dozens of towns dotted around the map have their own municipal fiber networks, but Ziply serves more customers than all of them combined. Thus I say that the free market is fixing the problem that the government created. Another good example is Starlink. They provide service to millions in very rural areas that are out of reach of other ISPs.

When we paid for national broadband access here in the US, it was not for fiber to the home. It was for DSL. Worse, the FCC measured coverage not by service address as it does today, but by census district. The phone companies merely had to assert that they could provide service to an address in the district and the FCC would count the whole district as covered. The districts aren’t very big, so in dense areas that was not a bad estimation. In less dense areas it was just a giant loophole. They could provide service to one house on the edge of the district and not bother with the hundreds of homes miles away out in the countryside. Officially we got exactly what we paid for.

As you say we could still nationalize these fiber networks and stitch them together into a real national network. Of course they don’t all use exactly the same technology, and it would be a huge political fight, but in principle I could see a government agency gradually buying networks from the ISPs and integrating them. Of course you know that if Trump proposes it then the Democrats will immediately oppose it on the general principle that Trump proposed it.

59percentmore

a day ago

The reason municipal fiber doesn't serve more customers is, again, because states were lobbied by telcos to make it illegal. Likewise, the loopholes that allowed the intended broadband buildout to be stymied. The problem is ultimately one of hobbled regulation allowing corporations to move and abuse freely. That makes the problem the free market.

db48x

2 hours ago

Regulation is not the free market. Of course companies are going to lobby for more regulations if they think that they can get away with it. It only works because the legislators are idiots who think that free markets _must_ be regulated. It is easy to hoodwink them into passing idiotic regulations. They boast about the accomplishment in their press releases as if they had saved the country.

Municipal fiber is not outlawed here in Oregon, so there are quite a few municipal networks here. But they are not expanding as fast as even a single ISP like Ziply Fiber. None of them have expanded beyond their small town to serve unincorporated areas near by. All of them are funded more by taxes than by subscribers.

xyzelement

5 days ago

// subsidize demand and restrict supply

I have never seen anyone articulate this so crisply.

The government has created a situation with the student loans thing where basically anyone can borrow 500k to get an obviously useless degree.

Are the colleges going to ensure they collect that money? Obviously yes.

Gormo

5 days ago

> The government has created a situation with the student loans thing where basically anyone can borrow 500k to get an obviously useless degree.

The point applies even to the useful degrees, and more broadly to the universities irrespective of any particular degree program. Student loans and scholarships make demand almost completely inelastic -- totally insensitive to price increases. Universities compete to attract the best students, and a major mechanism for doing that is to invest in non-academic amenities, such that tuition prices are funding much more than literal tuition. Combine these two factors together, and you have a feedback loop of continuous price inflation.

Similar factors are at work in the healthcare and housing sectors, with the most important element being that external subsidies eliminate price elasticity on the demand side of the equation, and completely obliterate the dynamics that ensure downward price pressure in normal markets.

gnz11

5 days ago

You can add Pre-K education to that list. It's on par in terms of costs with sending your kids to college.

xyzelement

5 days ago

This is why people are moving out of the US in droves, the universities are empty and nobody goes to the doctor.

api

6 days ago

Internet access sort of has a reason: the US is geographically huge and more sprawled out. But that's not enough to explain all of the difference.

mrguyorama

5 days ago

Why was that not a problem in the mid 1800s when we crisscrossed the entire country with railroads and telegraph cables?

Sure is funny how FDR had us spend a little cash 100 years ago to ensure even the remotest farm gets electricity, and we already gave ISPs a shitload of cash to do the same, but now "We can't" build telephone poles to rural places. Even though those same places already have telephone poles for power and telephone.

AT&T was able to leverage it's monopoly position and defense industry relationship to basically invent everything that runs the modern world (and were compelled to license those advancements out) while modern monopolies can't even dig some holes.

6 days ago

I pay $40/mo for 500mbps in my Bushwick apartment - is that considered expensive?

alistairSH

6 days ago

By US standards? No, probably not.

But, a quick search indicates you can get similar broadband in Glasgow, Scotland for ~15 GBP/month. And Rome, Italy looks like ~25EUR/month.

stefanfisk

6 days ago

I’m in Stockholm, and our condo HOA (BRF) includes 1Gbps per unit in the fee for all units because billing individually would cost more in admin than the service itself. We have FTTP and then cat6 to each unit.

Symbiote

5 days ago

marcyb5st

5 days ago

Just did my internet contract for my apartment in rural Italy (a town of around 2k people in the Verona province). 1Gb symmetric is indeed 25EUR/month. I added a few stuff on top like static IPv4 and reached 32EUR/month.

dawnerd

5 days ago

I’m paying 100 bucks for 2.5gb fiber in socal. I don’t consider that expensive either. I’ve seen internet prices internationally and they kinda suck outside of some areas that have decent providers - but that goes for the US too.

tiffanyh

6 days ago

To be more specific, this is a US credit card topic.

Debit card fees are capped in the US, yet I’ve never received a discount from a merchant for paying with debit instead of credit.

As such, I just pay with credit and have never understood this argument.

post-it

6 days ago

That's what makes it a wealth transfer, from debit card users to you.

kevin_thibedeau

5 days ago

I stuck to a debit card for decades but got tired of the discrimination after it was rejected by the IRS as validation for COVID stimulus. Gas stations could be problematic. Canada could be problematic. Everything works with a credit card. If you are a responsible spender you may as well reap the benefit of the wealth transfer.

iso1631

6 days ago

In my country card fees are less than cash fees, so I guess that's a wealth transfer from card payers to cash payers?

tiffanyh

6 days ago

That’s a great point.

Managing cash for a merchant also brings real costs as well.

You have to take it to the bank or pay a service to pick up cash. You’re way more likely to have “leakage” when any cashier can pocket cash. Etc

SkiFire13

3 days ago

The costs of credit cards are higher in part because of the reward programs for using such cards. That's where the wealth transfer happens, and there's nothing like this for cash.

user

6 days ago

[deleted]

5 days ago

6 days ago

It's partly true: this only applies to consumer cards. That's why many EU banks still offer corporate credit cards with huge cashback etc. For example, revolut offers no cashback in France on their metal cards if you have a consumer account, but up to 1% cashback on the same card if you have a "freelance" account. https://www.revolut.com/fr-FR/metal/

Second thing: interchange fees are not the only fees that your typical store has to pay, the total fees are much higher. I think the EU essentially capped Visa/Mastercard profit in the EU, more than they capped small business fees for card payment.

toast0

5 days ago

> That's why many EU banks still offer corporate credit cards with huge cashback etc. For example, revolut offers no cashback in France on their metal cards if you have a consumer account, but up to 1% cashback on the same card if you have a "freelance" account.

If 1% is huge, that's a lot better. 2% cashback is my baseline for normal in the US and I currently use a 4% on everything card (no longer available for new customers).

I don't like the cashback system, but the economics insist I use it while it's available.

Steve44

5 days ago

> That's why many EU banks still offer corporate credit cards with huge cashback et

We're a business in the UK and the charges for accepting Business credit cards is much higher.

I don't have current charges to hand, but in 2023 Personal Credit Cards were 1.97% whilst for Business Credit Cards we were charged 3.43%. That's probably how they afford such high cashback/loyalty schemes.

I think we're paying about half those rates now. I know Amex is somewhere between Personal and Business charges.

gorgolo

5 days ago

Never heard about this before but it sounds crazy. Are you able to control this somehow, like reject business cards?

Steve44

5 days ago

5 days ago

> A U.S. retailer told me the credit card companies won't allow that in the U.S.?

That used to be the case, but it's not current. Merchants can charge a credit card fee, and many do. Many merchants near me (washington state) don't, but those that do add a fixed fee of 1-3% for credit.

hypeatei

5 days ago

They can't make it an explicit line item of "3% surcharge" or whatever. Instead, the business will raise prices across the board and offer a "cash discount" of 3%

Torkel

6 days ago

How does it work if I have a US credit card and use it abroad? Do I still get the kickback even though the merchant fee is capped?

This feels like a potential arbitrage opportunity... I live in Sweden, but if I can use a US credit card I can get high rewards?

5 days ago

That link doesn't support your claim:

>> Your bank may or may not use the rate indicated by this calculator to bill you

---

(As a side note: the fine print follows up with this:

6 days ago

This is flat out incorrect. It's actually quite difficult to get a cash FX rate that's even close to as good as the standard credit card FX rate, which is also set by Visa/MC and not the banks.

Where the banks do get their pound of flesh, though, is the foreign transaction surcharge, which is often around 3%. No-fee cards exist but you need to look for them. And a whole new set of charges applies to doing a foreign cash advance on a credit card.

nutjob2

6 days ago

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

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

the__alchemist

5 days ago

I think this is generally mitigated: When traveling, people use the card that doesn't have this fee. You have cards A and B. Has a fee; B doesn't. At home you use either. When traveling, you use B.

Symbiote

6 days ago

In Denmark most retailers will pass on the surcharge they get from accepting a foreign (non-EU) card with higher fees.

AnssiH

6 days ago

My understanding is that they are much less generous on average compared to U.S.

E.g. for now I have the most premium card offered by my bank (50€/mo), and it gets me extra product insurance, rental car insurance, travel insurance, free lounge access, and some other things like that, but no cashback or similar.

I think some premium cards do offer cashback nowadays, but they are in the minority. Some cards also offer airline reward points. My experience is limited to Finland, though.

Hikikomori

6 days ago

US are not generous either. Merchant increase prices by 5% to cover costs, you get 2.5% cashback and visa/your bank pockets the other 2.5% you're paying.

bluebarbet

6 days ago

Presumably not very, because the large majority of Europeans do not use credit cards.

SXX

6 days ago

I'd say it heavily depend on country. In some of them they are popular, but in others even debit cards is something only few people have.

SXX

6 days ago

6 days ago

There are similar caps in the UK and most credit card rewards seem to be low after an initial offer period.

There are some specific discounts and benefits but not cash rewards.

It is illegal (not banks will not let you, actual legislation) here to charge more for card payments or discount for cash or bank transfer.

account42

6 days ago

Still affects us as sticker prices are not set independently. Even if you exclusively buy locally, $ = € is extremely common for MSRP.

dtech

6 days ago

That's because the $ prices are without VAT

TacticalCoder

5 days ago

[dead]

roland35

6 days ago

Patrick McKenzie (patio11 fame) had a great blog post in credit card rewards

There is a lot that goes into it, and it is interesting how customers like me who literally never have carried interest and have to made thousands of $ in rewards over the years still make the banks money....

https://www.bitsaboutmoney.com/archive/anatomy-of-credit-car...

maerF0x0

5 days ago

It's a mess, much like tip culture[1], because it just real equalized like this:

1. Merchant sells for price X

2. Credit card is invented

3. Merchant has to sell for price > X (say, 1.02 X) to cover some buyers using CC

4. Credit card offers 2-3% rewards on some goods

5. Merchant has to sell for prices even > X (say 1.04 X) to cover nearly all customers using cards. Customers who do not use the cards pay 1.04X and do not get rewards to compensate.

6. Merchant loses because they're beholden to processors, Customers lose because they're getting 2-3% of semi-currency for the cost of ~4% cash currency.

7. Processors get their profit

[1] - Employees deserve good wages for good work, tipping is just a bad algorithm to accomplish that

j4kp07

4 days ago

[dead]

steveBK123

6 days ago

Credit card points/miles are an interesting topic, and I have found them to be kind of useful cyclically myself over last 20 years.

They are a way for airlines to create value out of thin air with their own fiat currency. For the average consumer the miles create less of a pure economic efficient benefit and more of a psychic benefit - funny money bucket that accumulates to defray some trip expenses. Economically they'd be best off with an outright 2% back card.

For the minority of customers who are flexible on dates/locations and willing to plan in advance - most airline/hotel programs have sweet spots at the more premium level.

I use them to fly overseas business class refundable fares at discount. It's not free, but the taxes paid + foregone $ I could have gotten with a cash-back card ends up being 2-3x economy non-refundable fare instead of the 5-7x listed cash price if I bought the business class ticket outright.

It's generally a time-vs-money thing though in that to maximize airline/hotel programs you need to pay attention to various limited time offers for signup bonuses, spending bonuses, conversion bonuses, redemption bonuses, etc. Without those it's a very uphill battle.

nickjj

6 days ago

> It's generally a time-vs-money thing though in that to maximize airline/hotel programs

Credit card hotel booking portals are often much worse than what's available too.

For example, you might end up paying 30-100% more for a hotel booked through Chase Travel. At the very least you'll have way less selection. Even if price matching exists, you could still end up paying more.

I am traveling to Mexico next month and I do have a Chase Sapphire Preferred card (the one with the $95 annual fee). You get $100 in hotel credits per year if you book through Chase Travel.

In one of the spots I'll be at, there was (1) selection. It was $92 for 2 nights in a pretty low populated town that I'll be passing through. That hotel was rated 3.2 stars on Google.

If I use Google search or any hotel aggregator site, there were over 10 hotels available for half the price with much better ratings.

In this case it cost me about $50 extra to use the card's benefits.

Many people don't understand how rewards work when it's marketed towards your annual fee. The $100 credit doesn't offset the $95 annual fee. You pay $95 out of pocket for the fee. As soon as you book that hotel for $100 you've now paid $195 total out of pocket of which $100 gets credited back, so you're still out $95. If you instead didn't have the card and got the hotel at the cheaper rate, you'd only be out $45 or whatever you paid.

I mainly got the card because it had a really good sign up bonus, 0% international exchange fees and reasonable rental car coverage. Other cards can cover these benefits without an annual fee.

sjhatfield

5 days ago

Have the same card solely for the rental car cover. And to be fair it works, had an issue and they refunded the full expense without too many hoops to jump through.

nickjj

5 days ago

That is good to hear.

Supposedly the free Chase cards have comparable rental insurance. The main difference is Sapphire is always primary insurance, but Flex and Unlimited become primary when traveling internationally and if you happen to live in a place that requires no car in the US and you don't have insurance, it becomes primary in the US too.

Not sure what the differences are when filing claims though.

I will say this, it seems like more and more countries are starting to require Third-Party Liability (TPL) insurance and the Chase cards don't cover that so you still end up having to pay out of pocket for partial coverage (Chase for CDW, TPL from the rental agency). Some rental places don't make it easy to split these out.

quickthrowman

6 days ago

> They are a way for airlines to create value out of thin air with their own fiat currency. For the average consumer the miles create less of a pure economic efficient benefit and more of a psychic benefit - funny money bucket that accumulates to defray some trip expenses. Economically they'd be best off with an outright 2% back card.

“Saving” airline miles is definitely suboptimal, like you said, getting 2% cash back and redeeming it immediately is the optimal strategy. Money is fungible and cash depreciates.

Plus, the “deals” you have access to with airline miles are not slanted in your favor.

ValentineC

5 days ago

> Money is fungible and cash depreciates.

At least cash has the option of earning interest in a bank account, or getting invested in other instruments.

Miles can always be devalued by the airline. Some airlines like Singapore, Qatar, and United, even practise stealth devaluation by controlling the number of cheap "saver" seats released.

ethersteeds

6 days ago

> For the minority of customers who are flexible on dates/locations and willing to plan in advance - most airline/hotel programs have sweet spots at the more premium level.

What does this mean? I'm not clear what the sweet spot is - are you talking about buying points/miles/etc outright with cash rather than earning them as credit card rewards? Everything I've read is that these are almost always bad deals.

steveBK123

6 days ago

It means that the vast majority of redemptions are a bad deal, but every program has gaps in their earn/burn charts that lead to good values.

There is no one-size-fits-all answer.

If you do not have time to look into it, plan trips 6-12 months in advance, or have flexibility (will go anywhere thats a deal), then they aren't worth it.

jimbob45

5 days ago

Economically they'd be best off with an outright 2% back card.

Robin hood is pushing a 3% card right now. Not holding my breath for the rate to last more than a year though.

swed420

6 days ago

Discussion of patio11's article:

https://news.ycombinator.com/item?id=39928604

Mamut3

6 days ago

[flagged]

xyzelement

5 days ago

Credit cards and cash have their place but the story being told doesn't track with experience.

First, businesses are increasingly differentiating pricing between cash and credit card - this is most obvious in gas stations where the price you see on the big sign is the cash price and not what you practically end up paying. Or the various restaurants and other businesses that offer cash discounts. While this is relatively new, the earlier manifestation of this is the credit card fee - eg try paying your tuition or utilities using a CC and you'll immediately find this option costs more.

Interestingly all the above usually hover around 3% so it's tellingly the rate the merchants themselves perceived CC use and infrastructure cost them.

Second, credit cards are clearly good for business volume. Most people have had the experience of wanting to buy something unplanned and not having the cash on them, but buying it anyway via credit card. On a larger scale, hard to imagine on-line shopping without a credit card.

Third, I don't find cash-only businesses cheaper. In my town there's a cash-only barber, pizza place, and ice cream shop and they cost just as much as the credit card taking ones. In every case the dynamic is there are long running businesses with sufficient clientele that they never bothered, but they don't use absence off CC fees/infrastructure to generate a consumer savings.

Fourth, poor people can play the point game too. As a broke college student I was very fond of my Exxon Mobil card that gave me cheaper gas. Now I don't really care about an extra ten cents on a gallon as much.

GPerson

5 days ago

“Most people have had the experience of wanting to buy something unplanned and not having the cash on them, but buying it anyway via credit card.”

I believe you, but this experience is totally alien to me and I don’t know of anybody who has done this. I wonder if it’s a generational thing.

HeyLaughingBoy

5 days ago

I was confused by this (because I rarely carry cash) until I saw your response below. I think OP might be using credit/debit card interchangeably? I don't use my credit cards unless I have to, but my debit card is used daily.

dcrazy

5 days ago

5 days ago

One big reason to use credit card is that it gives window to settle problems. You have month to charge back before have to pay bank. If hotel places hold, it comes out of the credit limit not your bank balance. If someone makes fraudulent transactions, it isn’t your money and you can still pay rent.

If you pay the balance on time, you are getting free liquidity from the bank. But they get if you don’t pay off the balance.

xyzelement

5 days ago

it is trivial to find a credit card with no fee and 1%-3% percent cash back.

Imagine everything you bought in the past 3 decades from grocery to hotel room and air travel. Now imagine having 2% of it in your pocket.

that's eaey to understand right?

additional benetit like purchase protection, vendor disputes, etc.

GPerson

5 days ago

Okay I can understand that. I thought credit cards had fees. What’s the point of the free money credit card?

plant-ian

5 days ago

As I understand it the cc company takes the fee money from the buyer and it's usually more than the cash back and gambles with it until they give some cash back to the buyer and then pockets the rest. If you have millions of those transactions taking place then you have a huge pool of gambling money available. They also hold the sellers money for a while usually longer than necessary to also boost that pool. Edit: a less cynical view is that you are essentially loaning that money to the credit card company and then it pays you back but it keeps the interest

xyzelement

5 days ago

//Edit: a less cynical view is that you are essentially loaning that money to the credit card company and then it pays you back but it keeps the interest

It's literally the opposite. The credit card lends you money for free - if you pay your bill every month.

That's the "credit" in "credit card" - they are extending a line of credit to you, not the other way around.

sandmn

5 days ago

There are plenty of credit cards in US with 2% cashback on any transaction and no fees if you pay bills on time (usually 20-30 days after statement closes). Some of them even throw in small sign in bonus.

liveoneggs

5 days ago

So we're on topic: as the article points out - I use cash back cards so other people (like you) subsidize my spending. There are other major benefits to using a CC but anyway..

You are, apparently, well-off enough to have enough money in your venmo/checking where you don't think about it too much but I think the OP was referring to the less well-off but common situation where you are spending a little over your current ability - be it physical cash on hand (not your situation) or the amount available in your account.

GPerson

5 days ago

I honestly don’t know what you’re talking about. I’m juggling a few hundred dollars in my checking account all the time. Is that well off? I don’t think so.

maerF0x0

5 days ago

fwiw there is still a fee involved, usually just much lower so the merchant eats it

5 days ago

I think the OP is right in that spending data is valuable as a mechanism to figure out how extract more profit, which in the end will have customers paying that price.

However, it doesn't need to be exclusively negative. The data will both show where you can price gouge but also simply where demand is.

Put your coffee shop near a metro stop and sell sourdough bread and people will buy that because they want it isn't exactly negative.

5 days ago

Imagine you walk up to a shelf and all the prices reconfigure based on a model of the most you would be willing to spend for each item, including putting fake "normal" prices so that the "sale" price you are shown is whatever percentage markdown makes you likely enough to buy.

There's no advertising here, there's just aggressively trying to drain each person's wallet as much as possible and seeing how far you can get before they change behaviour.

One example: my friend and I both requested rides using the same app, standing next to each other to the same street in the same neighborhood 3-4 miles away. He owns a car and rarely uses car services, I do not and it's my primary transportation. The quoted cost of his ride was half mine. It was shocking.

sfn42

5 days ago

That's pretty unrealistic, but I'd visit occasionally just to browse and not buy anything, making the algorithm lower the prices for me. Could build an app where people could register their prices for stuff so everyone could see what the price floor is for a given product. Good luck making a system people won't abuse the shit out of.

And I'm sure there would be competitors simply not doing this where I could shop instead.

If Uber does this and you don't like it then don't use Uber. Regular taxis still exist and I'm sure they'd love to have your business back. Or you could get a car, low-end used EVs are quite affordable and fuel is almost literally free. They seem to hold good resale value too.

Brian_K_White

5 days ago

The only reason it's valuable is because of it's utility to extract value from you. Not just money either but for instance the power to manipulate.

It's not a scientific discovery.

5 days ago

There are laws, even for credit card data. They used to be enforced and largely obeyed.

NooneAtAll3

5 days ago

5 days ago

I don’t think the credit/debit privacy split you’re imagining works like you think.

semiquaver

5 days ago

Do you have evidence to support your claim of targeted pricing practices? In what areas?

CircuitSeuss

5 days ago

FTC study, Jan 2025 https://www.ftc.gov/system/files/ftc_gov/pdf/p246202_surveil...

Frequently sited investigative video journalism on grocery delivery prices (and more): https://youtu.be/osxr7xSxsGo

Airlines: https://fortune.com/2025/07/16/delta-moves-toward-eliminatin...

Insurance: https://www.insurancebusinessmag.com/us/news/technology/gm-l...

Frankly, it’s everywhere— if a company is large enough, they will leverage consumer data to increase profits as much as the consumer will bear. There are many other examples, but I’ll just link you this as a jumping off point if you want to go further: https://epic.org/krogers-surveillance-pricing-harms-consumer...

Ongoing US house oversight committee investigation http://pallone.house.gov/media/press-releases/pallone-launch... https://oversight.house.gov/wp-content/uploads/2026/03/Lette...

semiquaver

5 days ago

With respect, not one of those links supports what you actually said:

  > these data are increasingly used for targeted pricing practices

I personally think that “pricing” an insurance policy based on information obtained from data brokers shouldn’t be particularly controversial: individual pricing based on risk is exactly the point of insurance policies! Without personalized risk evaluation half of the insured population would heavily subsidize the other half, and you create serious adverse incentives.

The others are all about companies that seem to want to use this technique. And of course they want to. But several states either outlaw this outright or will do so soon. The Trump FTC has a draft rule which would prohibit it nationwide: https://www.ftc.gov/news-events/news/press-releases/2026/08/...

This is such a toxic idea that I’m not particularly worried about it happening much in the real world.

w10-1

6 days ago

The study methods are closer to advocacy than science or policy.

Sure, take any slice of a vast number, and you get a big number.

It's not a "wealth transfer" when everyone gets what they bargained for and can opt in or out.

Most importantly, the transaction value of using credit cards or rewards systems - what the user actually gets - is not enumerated.

Beyond what others have noted (mainly deferred payment), credit cards offer legal transaction protections: my legal liability for fraud is limited (unlike debit or Zelle transfers), and I can challenge any transaction even later, which gives the vendor an incentive to ensure I'm happy even after they have my money. While reputation provides some incentive for repeat customers, the ability to retract a transaction governs even non-repeats. I would submit this alone has improves quality of service for everyone anywhere credit cards are accepted.

Rewards vary by type. Cash-back rewards reflect the fact that interchange fees were set to recapture initial investments, but servicing costs have plummeting (thanks to computing); governance-wise, it's almost impossible for a "representative" political system to extract a large cost from a small number of powerful agents with vested interests to provide a tiny amount of benefit to a very large numbers of other people. But that's a much more extensive governance issue.

So where does the benefit go? To competition between credit providers, initially as cash-back, and then to tying rebates to future purchases within controlled channels. For airline point systems that give free flights or upgrades, it improves retention, but other forms of rewards would seem to verge on tying, where power in one market is extended into another.

Politically-mediated wealth transfers are a political issue. Economically-mediated wealth transfers should raise market-regulation policy issues, in particular whether the law is inducing or protecting them, and then whether they are good or bad. Tallying that requires not just seeing the money flow, but seeing all the value received or cost exported.

B1FF_PSUVM

5 days ago

It's a bullshit guilt-trip piece, already paraded here last month. Might as well be talking about supermarket coupons.

Cash handling is not a low-cost payment method, Cash handling can cost businesses between 4% and 15% of each transaction, when factoring in labor, security, bank fees, and risks like theft and counterfeit bills.

One could argue that credit card users have been lowering prices for cash payers as business avoid cash handling pitfalls and get their funds safer and faster.

aurareturn

6 days ago

I always wondered why people in America would ever pay by cash or credit card - unless they are laundering that cash.

Otherwise, you're giving up 1-3% discount.

Set auto-pay on your credit card to pay in full every month. I've never once paid for credit card interest. I think there's a term inside credit card companies for people like me: leeches or something like that.

ndiddy

5 days ago

> I think there's a term inside credit card companies for people like me: leeches or something like that.

They genuinely don't care because they offer different products for different groups of people.

Poorer people typically use credit cards to borrow money. The amount they spend in a month is typically much lower than the balance on the card. This means that the company makes most of their money from interest payments. Cards meant for this audience typically have few or no rewards, and instead use the interchange fees to allow for a lower APR.

Meanwhile, wealthier people typically use credit cards as a payment instrument. They pay off the balance in full each month like you do. This group of people is responsible for the majority of credit card spending, and the credit card company makes most of their money from interchange fees. Cards meant for this market have higher APRs, and use some of the interchange to pay for the rewards. The cards meant for the top end of the market with the best rewards (i.e. Chase Sapphire) even charge retailers more in interchange, with the argument being that it's worth it because you get to bring in wealthy people who will buy more stuff.

cfiggers

6 days ago

When I and my (still fairly young) family needed to move cross-country, my wife and I accepted a credit card offer with 0% APR for the first year and put all our moving expenses on it. Then once we settled, we paid it down a bit at a time each month, and then right before it would have started charging interest we paid the rest as a lump sum.

Really helped us float the moving company and also some DIY renovations on our house that we didn't have all the cash on hand to pay for outright. And we didn't pay a thin dime for the privilege.

dml2135

6 days ago

Well, one reason is the one described in TFA —- credit card rewards amount to a regressive wealth transfer, and if you think that is bad, you may not want to participate in it.

Another reason is that credit card companies sell your purchase data to aggregators and advertisers, and cash affords more privacy.

strix_varius

6 days ago

This presupposes the ability to get a credit card and the confidence of sufficient funds when that auto payment hits.

sokoloff

6 days ago

If the alternative was paying cash, cash has an even more demanding level of confidence of sufficient funds required and it applies earlier with no flexibility.

strix_varius

6 days ago

No it applies at whatever time you choose - it's the most flexible option for a person whose wealth fluctuates frequently around a low baseline.

sokoloff

5 days ago

I don’t think I understand.

If I pay cash for everything and my cash level fluctuates down to $0 temporarily, how do I buy something right then?

ali_alkhazraji

6 days ago

[flagged]

aurareturn

6 days ago

  confidence of sufficient funds when that auto payment hits

How is this different than paying with cash or debit?

strix_varius

6 days ago

Because cash and debit allow you to pick the time in the month when you happen to have the ability to pay for something.

Frankly these questions astound me, do y'all really know no low income folks?

brainwad

5 days ago

You can always use a credit card as a debit card. Pay it off to zero every day. Indeed with the very low limit cards people with bad credit can get, you kind of have to pay it down faster than the bill comes if you want to keep using it.

gblargg

5 days ago

With cash: you must have the money when you make the purchase.

With card: you can set the cash aside at the time of purchase to pay when the card bill is due.

How does the card give you less flexibility or make it harder to pay for?

brainwad

5 days ago

With cash you can't overcommit - you can only spend what you have - with card you can. If you are poor, overcommitting is very tempting as otherwise you will be going without things you need/want. But that temptation leads to debt.

gblargg

3 days ago

True, cash is good if you lack discipline. For such a person, more flexibility leads to less because they misuse it in a way that reduces flexibility. It's a footgun for these people.

onion2k

6 days ago

Credit card companies are still charging merchants a transaction fee for your purchases though. The fact they're only charging one side of the transaction is probably annoying for them, but you still make them plenty of money.

MattGaiser

6 days ago

Most people can’t optimize for 1-3%. Life is flooded with 1-3% choices.

Even as someone who is a credit card optimizer, I also ignore numerous 1-3% choices a day.

Many people also spend more than they can cover on it.

ChrisMarshallNY

6 days ago

I paid a lot of credit card interest, as a yute, but, since getting married, I have paid in full. Been over 30 years. Leeches rule!

At one time, credit card companies forced vendors to charge the same, whether cash or credit, but that seems to have fallen by the wayside.

The problem is, is that cash is becoming less and less acceptable.

In a nearby town, you can't pay for parking, with cash. I have seen credit-card-only vending machines. A lot of restaurants have iPads at the table, and you never see anyone but the bus[boy|girl|whatever], bringing you your food.

5 days ago

Small cash-only businesses sometimes have other motivations to stay that way, like: The books can say whatever the owner wants them to say.

quickthrowman

5 days ago

6 days ago

Prices do, in fact, go down. For example, eggs in the USA went down from $6 to $2 in the past few months. https://www.macrotrends.net/3052/us-egg-prices

Long term average? Sure, it goes up, that's inflation. But do you know what causes inflationary pressure? Visa and MasterCard adding unjustified fees because they're a duopoly and control most of the payments market, and your government won't regulate them and cap fees.

The UK and the EU both cap debit card fees at 0.2% and credit card fees at 0.3%. When the UK left the EU, Visa and Mastercard jacked up their fees over 5x for UK-EEA payments. Not because they had to, but because they could, and they love sucking money out of other peoples' businesses. https://www.psr.org.uk/our-work/market-reviews/market-review...

Retailers in competitive industries absolutely do use a reduction in card fees to lower their prices. Maybe not all the way, but they definitely don't give it all to themselves as margin; their competitors don't.

internet2000

paxys

6 days ago

In that case a credit card is actually significantly better than debit

skinfaxi

6 days ago

Yes that was my point. A debit card stolen from you hits harder than some numbers in a database going down when you can't pay your rent.

OptionOfT

6 days ago

Problem with a debit card is that if something goes wrong (product broken, or worse, debit card skimmed) it's my debit card, and thus my money.

Credit card? I file a charge-back which is a forcing mechanism for the vendor. Credit card skimmed? I get a new one, and I don't need to wait for my $ to be re-imbursed.

ValentineC

5 days ago

Debit cards on Visa/Mastercard have chargeback protection too, but yes, the money leaves one's account until the chargeback is successful.

red-iron-pine

6 days ago

it's just as easy to check a debit balance as a CC balance.

and once debt is spent you cannot get it back. you get scammed you can dispute the credit card, and if the CC gets stolen you can fight any charges.

debit means the money is gone and that's it.

matheusmoreira

6 days ago

> Otherwise you're giving up 1-3% discount.

6 days ago

It's worth to think about it a bit, especially in larger purchases. Significant discounts on the order of 5% to 10% can easily beat all credit card benefits, and not taking advantage of it leaves lots of money on the table.

I have a little lookup table for this. Interest free installments mapped to cash discount necessary to beat the credit card. I just look it up.

   1x -> ~1.9%
   2x -> ~2.3%
   3x -> ~2.8%
   4x -> ~3.2%
   6x -> ~4.0%
   8x -> ~4.9%
  10x -> ~5.7%
  12x -> ~6.6%
  18x -> ~9%
  24x -> ~11-12%

These numbers are actually conservative. There's a lot of credit card benefits that weren't priced in. I add a couple percent to the required discount numbers and round it up to compensate.

   1x ->  4%
   2x ->  5%
   3x ->  5%
   4x ->  6%
   6x ->  7%
   8x ->  7%
  10x ->  8%
  12x ->  9%
  18x -> 12%
  24x -> 14%

bluGill

6 days ago

Mathematically you are right. However those interest free payments are generally setup in such a way as to make it highly likely you won't pay it off by the end of the interest free period. The bills they send contain the minimum payment - designed to get you past that time. I don't trust my ability to get the fine print right - it only takes messing this up once to destroy all the gains from several times getting it right. So I use the credit card anyway and pay it off every month - that payoff is the one number I can get right every month.

hvb2

6 days ago

> Otherwise, you're giving up 1-3% discount.

I would be curious what percentage of people actually qualifies for a card with over 2% cashback especially without a monthly fee. My guess is that that percentage is very low.

High earner/spender, sure but that's not most people

gblargg

5 days ago

It's not hard at all. Citi Custom Cash has 5% on the highest category spend each month for the first $500 (I use it on groceries). American Express Blue Cash Everyday has 3% on groceries/gas/online purchases for up to $6000 purchases each year. Chase Freedom Flex and Discover It have rotating categories every quarter, sometimes groceries, gas, Amazon, PayPal, etc. None of these required much income to be approved.

svpk

6 days ago

I know that Discover has a card with a 5% discount category that changes once a quarter. Everything not in the category gets 1%. It's not hard to get the card (or at least wasn't) and was frequently advertised to college students.

If you combine that with a card that gives 2% on everything than it wouldn't be hard to average over 2% cashback as long as you were mindful about using the discover card for qualifying purchases and the 2% card for everything else.

greenavocado

6 days ago

> as long as you were mindful about using the discover card for qualifying purchases and the 2% card for everything else.

And that's the rub. Credit card companies know most people won't be too mindful most of the time about their spending habits.

2. People asking for a lot of money without proven good credit.

3. People asking for more specialized credit, such as lines for businesses or lines for high earners.

Xirdus

6 days ago

What does that graph tell you? Because I think patio11 wanted to send one message and people accidentally misunderstand the graph.

cmurf

6 days ago

Outlaw rewards credit cards? Or make it compulsory that the true cost of a specific credit card is revealed to the merchant who has the right to absorb or pass on, in a line item, that cost to that specific consumer?

If I know I'm paying for my own rewards, I'd choose a card that keeps more money in my pocket. I'd go as low as the PITA factor of cash.

It's not clear to me what the net benefit is of a credit card over a debit card.

But for sure the confusion ensuing from allowing debit cards to be charged as credit cards should be illegal. The merchant account providers are probably the ones reaping the free money on the racket.

Credit is the POS default, for whatever reason. Not all POS are the same. e.g. US Post Office consistently knows if I am using a debit card, and it prompts for a PIN when I do. Every restaurant, bar, service does not ask for PIN, and the handful of merchants I've inquired with say their debit card fees changed by the merchant account providers are the same as credit. Scammy.

At least in Colorado it's legal for businesses regardless of the TOS contract with a merchant account supplier to pass on the transaction and processing fees of credit cards. It's not legal to pass on cost/fees for debit cards, ACH, or cash.

mrguyorama

5 days ago

The simple solution is the one Europe adopted: Just cap fees. We do this for Debit cards and it's fine.

>It's not clear to me what the net benefit is of a credit card over a debit card.

In a fair scheme, the net benefit to the purchaser is having a rolling line of credit for whatever they want to use that for, like managing cashflow. It's also a benefit in that it puts a behemoth with immense contractual power between you and the merchant. It doesn't matter how a merchant fucks you over, the credit card company WILL give you your money back and punish the merchant.

To the merchant, the benefits are that credit cards unlock significant consumption that humans normally would not do. It literally causes induced demand. As a consumer, you will spend more money using a credit card, and you will purchase things you otherwise wouldn't. The disconnect in your brain is known. It can also, in very specific contexts, reduce the cost of managing payments and cash. It can reduce employee theft. But this improvement is overstated.

The reason merchants put up with giving away 3% of all revenue and eating $20 per fraudulent transaction plus whatever the cost of the transaction was is entirely about the fact that a consumer using a credit card buys more than one not using a credit card. It's a big boost to your revenue.

But there is absolutely nothing about a payment network that requires such transaction fees. Certainly not "Risk", as the credit card payment network itself carries zero risk on each transaction. Every dollar fraudulently spent comes out of the pocket of merchants, not the payment network. Their only risk is consumer default, but the entire "Credit Score" system exists to nearly eliminate that risk.

The structure of the system is built to get consumers to spend more money than they normally would, and incentivize everyone to play along to get a kickback. Everything in payment infrastructure in America is designed around this. Even gift card companies are built around getting you to spend money you were not intending to and kicking a portion of that back to the brand name on the card.

losvedir

6 days ago

I think that's out of date. He links to a study showing interchange revenue net of rewards showing up to 3% by high FICO scores. (Just at a gut check that seems crazy to me, since interchange revenue doesn't really go much above 3%!). But that's from 2013. I remember when Fidelity launched its 2% flat cashback AmEx back in 2003. People didn't really know if it would be sustainable. Now 2% is a dime a dozen.

The most recent I've seen otherwise is this Federal Reserve study[0] from 2022. It finds that the marginal return on swipes is actually slightly negative because of how juicy rewards have gotten, and 80% of their profitability comes from interest (with most of the rest fees):

> we find that, on average, the credit function makes up approximately 80 percent of the credit card profitability, whereas the contribution of the transaction function is slightly negative, as rewards and other expenses on credit card transactions outpace banks' interchange revenues.5 In addition, fees—in particular late fees—comprise approximately 15 percent of credit card profitability.

[0] https://www.federalreserve.gov/econres/notes/feds-notes/cred...

djoldman

6 days ago

Credit card companies make 3/4 of their revenue from interest. From Capital One's 10k, Net Interest Income vs. Total Net Revenue:

  2023: 79.5%
  2024: 79.8%
  2025: 80.2%

I never understood why whole nation wants to live in debt just to have one extra month of cash flow (which they’ll probably squander soon).

rsynnott

6 days ago

This is arguably partly because the EU caps card interchange (at 0.3%, generally). So these reward schemes don’t exist, because there’s no money for them, so why would anyone use a credit card over a debit card or bank transfer unless they need the credit? Most people in the US presumably don’t start using credit cards thinking “I’ll get in debt, that’ll be great”; it’s the reward schemes.

6 days ago

I'm in Boston. I'll never earn enough to buy property here. I'll never have a mortgage.

frantathefranta

6 days ago

I'm in <other US city>. It's possible to earn enough to buy property here. I already have a mortgage (as an immigrant, building a credit score from credit cards which in turn qualifies you easily for a mortgage is pretty nice).

gblargg

5 days ago

Using a credit card isn't only about living on debt. Some people pay them off every month, and use them for the fraud protection and rewards.

croon

6 days ago

While I hate that it's like this, you're leaving money on the table.

Currently you're keeping money in the bank accruing the bank interest to occasionally pay for stuff.

With a credit card you would get various bonuses/cashback/gameified returns by owing them money, and it costs you nothing as long as you pay them back once a month interest free.

If you however slip up/miss a payment it will cost you a lot.

Both cases suck, but the latter saves you money if you play that game.

That's from a EU perspective. From a US perspective you also require it from a credit score perspective, which EU thankfully hasn't adopted... yet.

Aefiam

6 days ago

as far as I understand it, the creditcard rewards are from the creditcard fee, which is capped in the eu, so you are not missing out much.

croon

For some of my friends it's a hobby which is great for you if you enjoy such things! For me, it's just adding another chore to my life. Not worth the 1-2% or so marginal gain against my spending.

You can't opt out of the modern credit scoring system and if you fuck it up even once with a bad line item you're out of the running for quite a few things and become virtually poor.

ponector

5 days ago

If you are traveling and need to rent a car in the airport - sometimes it is not possible to do without credit card. Otherwise you don't need a credit card.

ButlerianJihad

5 days ago

Using a credit card makes it way, way easier to rent a car or book a hotel room, or do other transactions that require a significant preauth.

If you present a debit card to one of those desks, they may encourage you to swap for a credit card. Because a debit preauth ties up actual funds in your account. A credit preauth costs nothing but part of your credit limit. It really is a difference if you expect to spend money on vacation.

6 days ago

5% is a pretty high rate IMO. When I worked at retail 20 years ago we got around 2 or 3%, and that was a mom and pop shop, not big retail...

KellyCriterion

6 days ago

AMEX acceptance is super expensive, IIRC they are around on that level

dboreham

6 days ago

Vampire Squid. But this is only in one country. Go other places (e.g. New Zealand) and reality is different. There every single transaction has the credit card fee added explicitly.

tialaramex

6 days ago

The reason for a business to want to accept cards is that some fraction of your customers would choose not to buy whatever it is you sell if not for the convenience. Whether that's a guy who decides not to buy donuts because then he won't have even to buy more scratch-offs or the woman who doesn't get those bald tires replaced because if she did the family will be leaving on cheese sandwiches until payday.

For the consumer the reason is that this is revolving credit. If you pay next month you can have stuff today. That's a small relief, unless it turns into a carried balance and then it's an ongoing burden, but you don't think about that burden at first because you're naturally optimistic.

nickjj

6 days ago

> If you pay next month you can have stuff today.

There is value in this even if you always pay your full statement balance every month.

If you have a stable source of income knowing your credit card payment is due on the 7th of every month means you don't have to monitor your checking account's balance for every purchase. You only have to think "make sure you can cover $X by the 7th".

nutjob2

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

roenxi

6 days ago

Credit isn't negative sum, it is a positive sum game. "Negative sum" has a specific meaning here and just because wealth is being transferred isn't that significant; positive sum games also have wealth transfers.

It is risky and it is very easy to lose great amounts of money on a bad decision when credit is involved. Arguably that makes it bad. But still not negative sum.

mc32

6 days ago

Alternatively CC companies could cut off people over certain credit risk and then be able to charge interest in line with the lower overall credit risk…

The merchants think so, too, or they wouldn’t accept the processors that let their banks hand out these cards.

5 days ago

From what I understand, the card-issuing banks get a cut of the merchant fees, but they're required to provide premium benefits like lounge access.

tiffanyh

6 days ago

[dead]

vasco

6 days ago

It has no relation to paying interest, only to making transactions with the credit card.

turkey99

6 days ago

If you use a credit card, but can’t pay it immediately then you pay interest. It’s a trap the less wealthy fall into.

koolba

6 days ago

6 days ago

> similar to how taxes are added after the fact

That is not a positive. I'm fine with splitting up a price if you want to show how much tax gets added, but having to continuously do the mental math of "no this item is 10.99 it's 10.99 + tax" is very frustrating. When I pick up a $11 item, I want to spend $11.

tyrabound

5 days ago

I get your point, it's the argument of the disengaged pseudo-citizen that just doesn't want their convenience bothered. We have those here too even though it's a bit different here. A good case could be made for cash payments receiving a discount, i.e., less the payment processor fee. You may not pay $11 when you pick up a $11 item that way either, but it might place you to never know by how much it will be that way, i.e., maybe $10.75 instead.

I would even advocate that in the US we require taxation to be handled that way too because you are right, most of our citizens can't do basic math, let alone in their heads, or even really care; but if the price tag had to be the taxed price and you then get a discount if you pay cash, it would be a far better situation. There has never been a better time to do this with digital price tags.

The inherent problem is that the likes of the masses are hard to organize, let alone corral and focus on a single thing and everyone thinks they are smarter than the average.

rsynnott

6 days ago

> especially in places like Europe where they’ve foolishly and enthusiastically started forcing everyone into digital payment

In Europe (or at least the EEA, but the UK and I think Switzerland have their own capping) card interchange is capped at, generally, 0.3%.

tyrabound

5 days ago

That does not apply universally and it mostly for various domestic payment processors of the very kind that should have also been implemented in the USA a long time ago, if the US government weren't so dark rotten and corrupt and had actually been responsive or even just representative of the people for the last 150 or so years.

rsynnott

4 days ago

It applies to all card networks (ie Visa and Mastercard, and local schemes like Girocard and Cartes Bancaires, though in practice most local schemes had cheaper-than-cap fees anyway), for consumer cards only. About the only significant thing it does _not_ apply to is Amex, but in practice that's only issued in a couple of EU countries these days, and is not widely accepted.

Forgeties79

6 days ago

Not only would the 3% fee not make me blink, as my cards have 3% cash back for dining, I doubt I'd change my behavior even at a 5% discount. If anything it'd dissuade me slightly from patronizing the restaurant.

Credit cards are convenient and cash isn't. The genie is out of the bottle, no way to make people move back to cash.

aprilthird2021

6 days ago

You're not the avg person though. Most people are being squeezed by inflation and watching prices on everything and trying to claw an extra 2-3% back wherever they can.

If interchange fees were capped, people would go back to cash, imo. A lot of research shows you spend less when you pay with cash. And the lack of credit card rewards as a draw might lead people to carry it again

iso1631

6 days ago

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

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

zf00002

6 days ago

Car mechanics, dealerships, house fixing contractors, city (property taxes), these are the ones that I can think of in the past year I've come across charging a fee for credit card payments. What's most irritating is that most of them do not setup for and drop the fee if you pay by debit card.

5 days ago

I wasn’t questioning the number so much as saying I hadn’t considered the mechanics of what was happening

slicktux

6 days ago

I believe a similar thing happened with fast food and food delivery fees. It costs money to be listed on the food delivery app so fast food chains started charging everyone the same price to offset the cost of being listed on the apps.

user

6 days ago

[deleted]

paxys

6 days ago

Delivery apps don’t mandate that the price on their apps be the same as on the actual menu. If you walk in and order you’ll pretty much always get a lower price.

tialaramex

6 days ago

It also means stratifying card users, even if you actually make all the card users pay more than those with cash. The people who can just barely qualify for a card are paying to fund the "rewards" for the wealthy who pick the best options.

6 days ago

One factor that never seems to come up in these discussions is that while businesses might not like credit card fees, they also don’t like all the issues with cash: managing it, transporting it, losing it to employee theft, etc. The cost of cash transactions isn’t 0.

Same argument for people: managing cash is a pain, swiping a card is easy. Contesting a transaction or fraud is way easier (infinitely easier?) with a card than cash. Having day to day liquidity even without ever carrying a balance is nice.

Is all this worth $9.2B across the economy? Maybe not, but again, certainly worth more than 0.

gruez

6 days ago

>Is all this worth $9.2B across the economy? Maybe not, but again, certainly worth more than 0.

Nobody's arguing that credit card companies are proving zero value, only that they're charging more than what can be "justified" (whatever that means). That's why in europe the interchange rates are capped at some amount to reflect that.

alex43578

6 days ago

Europe is artificially capping the interchange rates - that doesn’t mean that’s the market price for that service.

As for America, there’s 4 card networks, and no explicit regulation preventing you from starting another (just the huge regulatory burdens involved with any money-processing business, PCI, etc).

If they were charging so much more than is “justified”, couldn’t one of the dozens of well-funded players in the fintech space swoop in? Couldn’t Walmart fall back to cash and a “Walmart card”?

Instead, we see even goliaths like Walmart spending money and time to support newer features like tap to pay because it reduces fraud losses and customers just prefer it.

The “justified” thing is silly - is Apple charging more than is justified because they make a profit?

bigjimmyk3

5 days ago

swed420

6 days ago

Discussion of patio11's article:

https://news.ycombinator.com/item?id=39928604

m101

5 days ago

The only way to solve this is to have the user of the credit/debit card pay the fee. Sure, you can do an EU thing of 0.2-0.3% or whatever it is, but this might still be 0.2-0.3% more than it could be in a competitive market.

6 days ago

While they’re probably right from a consumer perspective, the article skips over the fact that accepting and handling cash is a significant cost for businesses, way more than the credit card fees. Delays in checkout, making change, counterfeit bills, employee theft, external theft, safe transport, added accounting burden…all add up to an estimated 5-15% (https://plainscapital.com/blog/the-cost-of-accepting-cash/). In fact merchants can now legally pass through credit card surcharges to customers but very few choose to do so, because they’d prefer you pay by card.

DrScientist

6 days ago

It's cheaper to be rich, and expensive to be poor.

like_any_other

5 days ago

And they charge everyone the same price because credit cards contractually force them to. Merchants can either accept these terms, or forego credit cards entirely. This way credit cards prevent other payment methods from competing on price. Free markets for thee, contractually forbidding competition for me.

59percentmore

6 days ago

How hard is it for the wealthy to not smack everyone else around at every possible opportunity? What happened to noblesse oblige?

(This is not a rhetorical question, I would love to hear others' take on the psychology and history of the subject. Really, how hard is it?)

arjie

5 days ago

One thing that happened is The Copenhagen Interpretation of Ethics, right? Mark Zuckerberg is panned for having 'defunded' a school. What happened was he paid for it for a while and then stopped in a planned manner. Those who didn't ever pay were better off. In general, at the margin you move some guy who was ambivalent to opposed. Jordan Henderson spoke for gay rights, and got panned when he moved to Saudi Arabia, while many footballers did not speak out about gay rights ever and received no censure over this.

The general rule with many of these causes is that unless you're willing to be absolutely committed, it's better not to be involved. If you cannot prove to yourself absolute fidelity perpetually into the future, it's better to not do it at all. The punishment for the apostate far outweighs the punishment for the infidel.

So your commitment has to be at least high enough to be willing to bear the resulting punishment for your apostasy. And if it is any less than that, you are strongly encouraged to just stay out of it. It's not that anyone is mean or anything. It's just that on the margin not-participating costs nothing and participating incurs a massive liability. That causes a shift in the window.

snarf21

6 days ago

It becomes a scorecard. Success in life is strictly about making the number go up. It doesn't matter if they could spend $100K a day for life and never go broke. They must have a bigger number and be higher on the Forbes (e.g.) list. Some people are so obsessed with it they lie and make up things to claim their number is much higher than it actually is.

podgorniy

6 days ago

> everyone else around at every possible opportunity?

How exactly to become wealthy then?..

> What happened to noblesse oblige?

Some things made noblesse oblige way harder to manifest.

Meritocracy. "I deserve what I have", versus "I got lucky have what I have" made harder to share back.

Globalization. When you use one community to produce and another to consume, and third to register a company, and owner lives in fourth it's hard to associate yourself with the community. Where exactly to give back? You won't even see those people.

Secularizarion. Though USA is still significantly religious place comparing to europe.

Easiness to move. Today you're here, tomorrow you're there in new zealand bunker.

Culture. Somehow the rich are in the people who are heavily interconnected, spend time together at the khe khe pedoisland.

Natural selection. The ones who care less about others mathematically have more advantage than those who care enough to spend resources on non-resource-aggregation activities.

So. There is no intristic motivation to do so (with majority), there is no external motivation, and there is no repercussions of not giving back.

elmer2

6 days ago

I have several credit cards and pay them off at the end of the month. I get mostly free hotel stays when I take my family on vacation and have had many free airline tickets.

I also used a credit card to bootstrap my business 15 years ago. At it's height, I was brining in $1 million/year. The bank would have never given me a loan for the amount I was able to use on a credit card. I ended up shutting the business down a few years ago, with no debt.

Most people can't handle spending and rack up tons of debt. Credit cards can also be used to make money, instead of buying stupid things you can't afford.

wat10000

5 days ago

Ridiculous. I suppose I’m also making a wealth transfer when I buy in bulk while poor people can’t afford to, or I drive to a discount store while people with bad transportation options have to shop at an expensive local place, or I use a loyalty card.

The store still makes a profit on my purchase. My rewards are my own money coming back to me. I’m not sticking my hand in a poor person’s pocket just because I use a fancy card.

ilamont

6 days ago

Because merchants charge everyone the same price regardless of how they pay

Not at many gas stations. Cash gets a discount usually $.10 per gallon. I’ve also started to see restaurants either give a discount for cash, or charge extra for credit card purchases. Business suppliers from tiny shops to large national companies tack on 3% for people paying with credit cards, or like T-Mobile, a $5/line monthly fee in order to get people to pay by direct debit.

dmayle

6 days ago

It goes a step further... previously, card agreements (between merchants and the networks), required the prices to be the same between cash and credit (with the well known gas carve-out), but Durbin made that tying illegal, so now retailers are free to charge different prices for cash, credit, and debit.

The article has one thing mistaken, because it says that Durbin lowered costs for transactions, but credit owners got to keep their perks... That's not technically true (I worked at a supermarket when debit rails first went into effect, and I worked in payments when Durbin went into effect).

There are no benefits to credit users who use the debit rails, and the merchants would really rather you use the debit rails, because it is much cheaper for them. Durbin was mostly a win for the merchants, not a win for the customers.

However, if you take that to believe that the merchants lowered prices overall because they were paying less for transactions, than you might try to read into it that credit users kept their perks, while cash and debit users paid.

The true story, however, is that it's an equilibrium... When the costs go down, the saved money goes somewhere in between the two (supply and demand), and as long as there is competition, the savings are shared.

However, the real problem is that credit companies are allowed to invest interchange fees in perks at all. Credit card companies decided to take their low-risk pool, and offer them incentives, splitting the money they saved between themselves and their users, and using it as a way to pull more low-risk users. The more that happens, the more expensive it becomes for credit companies that serve mid-to-high-risk users... and since we can't stop offering credit to those users as well, those companies push for and get increases to interchange fees to cover the additional cost... which creates more room for benefits for the low-risk users, and the cycle begins anew. It's a vicious cycle that can't be fixed by changing amounts on the existing fee schedule... The only possible fixes would be in either disallowing these kinds of perks, or splitting the rail charges, and specifically charging less interchange for low-risk users (which dries out the benefit pool)

dukeofdoom

6 days ago

So if anyone is trying to picture what 9.2 would buy. The new bridge between US and Canada (Gordie Howe) was 4.6 billion. So that is 2 giant bridges + related infrastructure ... worth of wealth transfer. That bridge had some corruption / payoffs, so we should discount that by 10% wealth transfer as well.

Brendinooo

6 days ago

They mention "premium credit cards" in the article, is there a general understanding of which cards are premium? I clicked through to the study and the only example they cited in there was Chase Sapphire Reserve but I didn't see, like, a list or something.

diego_moita

6 days ago

Credit card fees is one of the main reasons why Brazil's Pix and India's UPI are destroying their market share in those countries.

For merchants, it just doesn't make sense to pay high fees to cater to a dwindling minority of consumers.

drewfax

6 days ago

Credit card usage has been increasing in India.

Source: https://bfsi.economictimes.indiatimes.com/articles/credit-ca...

6 days ago

> You are an economist, aren't you?

No. I do embedded software engineering for a living.

Your fun fact is wrong. Credit cards were always profitable. They were not in the beginning because scale is what makes them profitable. Anyone who uses their cards for a couple meals a month (which is what it was first started for) is going to cost money because of all the overhead to have you as a customer. In those days that was a stamp to send the bill, someone to open the payment and cash the check - now that everybody works electronically the overhead is lower, plus people are using it for more and so there is enough left over to pay for it.

camkego

5 days ago

Honestly, TL;DR

I wrote a summary for you...

"Because they receive a rebate, credit rewards-card users often effectively pay less than the posted or cash register price for equivalent goods or services."

Mamut3

6 days ago

Credit card systems are a Ponzi scheme that favors those who already hold a lot of capital, at the expense of those who weren't lucky enough to be born heirs.

6 days ago

Patio11 covered this exact topic: https://www.complexsystemspodcast.com/episodes/credit-card-r...

It's clearly more complex than the story these authors are telling, in particular the highest income consumers get the worst returns on their interchange payments. So stores and services catering to wealthy consumers are actually subsidizing an opportunity for savvy customers, many of whom are not wealthy

mchusma

6 days ago

One note on patio11’s opinion on this is that he really overweights the ongoing work and innovation required for electronic payment processing. It WAS a great novelty and deserves to have made a lot of money for 30 years. But the reason they make so much money today is monopolistic low behaviors to lock in their advantages. It’s not a free marlet because of deals over time, some of the most famous of which are their prohibition on charging different rates for cards or even disclosing the rates on cards.

I think the most simple piece of legislation to solve a lot of problems is to allow merchants to pass along the interchange rate to their customers. If they could do this legally and operationally, this would solve most issues here. If a credit card wants to be expensive, fine the consumer should pay for it. Because of contractual and operational limitations, credit card companies have gotten themselves into the current arms race.

If stripe implemented this, it would make me appreciate them as a force for good instead of being a part of the problem.

gruez

6 days ago

>in particular the highest income consumers get the worst returns on their interchange payments

That's not what the article says:

>High-income consumers with high FICO scores benefit the most from reward credit cards compared to mid- and low-income consumers with high FICO scores. At the lower end of the FICO distribution, however, this pattern is reversed. On average, net rewards are far more negative for high-income consumers with low FICO scores than for middle- and low-income consumers with low FICO scores.

>Or, to put that another way: if there is redistribution happening, it necessarily includes redistribution from unsophisticated high income customers to sophisticated low income customers.

While it's true that wealth customers with low FICO scores are getting hosed, it's not clear whether that is enough to cancel out the effect that richer people (presumably) have higher FICO scores on average

ngriffiths

6 days ago

To be clear though, the higher FICO scores get hosed the most, see the graph earlier on. Your quotes are conditional on FICO so they don't take that into account.

The only way I can put these things together is that at the high FICO end, both wealthier and poorer consumers get hosed a lot but wealthier consumers not quite as much. On the other hand, lower FICO band doesn't get as bad of a deal overall but it is worse for wealther people (plausibly because they have high interchange fees and don't use their rewards).

It's complicated, but... this is not a wealth transfer right? It is a transfer mostly just from consumers to credit card companies that provide them a service.

gruez

6 days ago

>To be clear though, the higher FICO scores get hosed the most, see the graph earlier on. Your quotes are conditional on FICO so they don't take that into account.

Are you talking about "Consumption by income decile" graph? That doesn't show them being hosed, unless you think everyone should pay a flat rate to access the credit card system.

ngriffiths

5 days ago

I'm talking about "Interchange income - rewards expenses," where the difference is 6x higher at the highest FICO scores. And of course interchange income is not the same as cost to the cardholder but they are linked

swed420

6 days ago

Discussion of patio11's article:

https://news.ycombinator.com/item?id=39928604