[HN Gopher] How credit cards make money
___________________________________________________________________
How credit cards make money
Author : grn
Score : 223 points
Date : 2021-11-05 16:17 UTC (6 hours ago)
(HTM) web link (bam.kalzumeus.com)
(TXT) w3m dump (bam.kalzumeus.com)
| askingpatio21 wrote:
| 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...
| bob229 wrote:
| They make money by taking advantage of fools. They are a shameful
| product
| patio11 wrote:
| 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.
| computator wrote:
| 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?
| toast0 wrote:
| > 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.
| leesalminen wrote:
| 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?
| throwawaaaaay17 wrote:
| Why not write on Substack? I'd love a comments section for your
| newsletter.
| patio11 wrote:
| I welcome comments in my inbox but, having long-ago had them
| on my blog, do not consider the lack of them a bug.
| fragmede wrote:
| 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.
| TorKlingberg wrote:
| 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?
| patio11 wrote:
| 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).
| TorKlingberg wrote:
| 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?
| patio11 wrote:
| "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."
| jasode wrote:
| _> 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_cred
| i...
| vineyardmike wrote:
| 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?
| amance wrote:
| 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?
| patio11 wrote:
| 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/pressre
| leases/yearly-2019/March/Su... It's an active area for them,
| according to their public statements.
| steveklabnik wrote:
| 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.
| avn2109 wrote:
| Semi-related: What happens with interchange and related fees,
| when an American credit card is used in Europe?
| fragmede wrote:
| 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.
| lotsofpulp wrote:
| 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.
| toast0 wrote:
| 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.
| brummm wrote:
| 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.
| darkwater wrote:
| > ("why are wire transfers free in Europe but not in the US")
|
| this applies only to a subset of Europe or european banks.
| bosie wrote:
| Do you want to expand where it isn't the case?
| jiqiren wrote:
| 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?
| amance wrote:
| 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.
| fragmede wrote:
| 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.
| morpheuskafka wrote:
| > 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.
| vel0city wrote:
| 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.
| bombcar wrote:
| 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).
| conductr wrote:
| 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.
| blacksmith_tb wrote:
| 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...
| bluedevil2k wrote:
| 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."
| zucked wrote:
| 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.
| dsizzle wrote:
| 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.
| toast0 wrote:
| 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.
| jkubicek wrote:
| 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.
| toast0 wrote:
| 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.
| ricardobayes wrote:
| 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.
| jjeaff wrote:
| 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).
| gregmac wrote:
| 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.
| adzm wrote:
| 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.
| nostromo wrote:
| 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.
| [deleted]
| ed_elliott_asc wrote:
| 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.
| clairity wrote:
| 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.
| bluedevil2k wrote:
| Privacy.com - I use it for any recurring payment or
| overseas purchase
| jopsen wrote:
| > 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.
| Fnoord wrote:
| 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.
| 101keyboard wrote:
| My Citi Dividend 1% Cash Back card allows me to create
| Virtual Cards for such things.
|
| Any other cards anybody can recommend?
| figassis wrote:
| 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.
| prepend wrote:
| How is this better than using a credit card?
| chemmail wrote:
| Some people can't control themselves.
| jacquesm wrote:
| 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.
| SilasX wrote:
| 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
|
| https://twitter.com/patio11/status/1443745867572277250
| jacquesm wrote:
| I've worked for a bank, let's just say that I can't agree
| with that. A US bank at that.
| [deleted]
| amelius wrote:
| > Credit cards offer consumers the widest fraud protection
|
| That's for consumers, but what protection do I get on my
| company credit card?
| phaedrus441 wrote:
| > _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...
| stefan_ wrote:
| 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?
| lotsofpulp wrote:
| 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.
| TheDong wrote:
| 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.
| mywittyname wrote:
| 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.
| revolvingocelot wrote:
| >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?
| lotsofpulp wrote:
| > 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.
| kasey_junk wrote:
| 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.
| mindslight wrote:
| 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.
| xivzgrev wrote:
| Credit cards are not a panacea. For subprime customers, debit
| cards are often more popular because they help ensure people
| spend within their limits.
| davchana wrote:
| 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.
| masklinn wrote:
| > 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?
| davchana wrote:
| 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).
| Asooka wrote:
| 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.
| vineyardmike wrote:
| > 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.
| ollien wrote:
| > 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.
| arcticbull wrote:
| Agreed, luckily RTP rollout is well under way, and it won't
| be long before ACH is a thing of the past. [1]
|
| [1] https://www.theclearinghouse.org/payment-systems/rtp
| toomuchtodo wrote:
| 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.
| jedberg wrote:
| 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.
| pdpi wrote:
| 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 PS10 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.
| jedberg wrote:
| 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.
| lotsofpulp wrote:
| 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.
| jedberg wrote:
| Zelle has a few thousand dollar per day/week/month limit,
| which, at least in the Bay Area, is too low for rent.
| reaperducer wrote:
| _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.
| Nextgrid wrote:
| 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.
| kelnos wrote:
| Unfortunately you often don't find out about this policy
| until you've signed the lease and set up your payment
| account.
| mindslight wrote:
| 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.
| reaperducer wrote:
| 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.
| mindslight wrote:
| 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 or something. I'm merely
| pointing out one avenue for fighting it, which if it
| matters to someone that much, they might want to explore.
|
| It might be important enough for you, next time. 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 less
| prospective tenants can be surprised later on in the
| process when such terms get sprung on them.
|
| [0] really having a single day window to pay should be a
| concern to anybody. That sounds like a shameless way of
| creating late fees.
| jackson1442 wrote:
| 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.
| lnwlebjel wrote:
| 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
| patio11 wrote:
| 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).
| fragmede wrote:
| 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?
| bradj wrote:
| 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.
| benatkin wrote:
| steal money
|
| FTFY
| mst wrote:
| 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.
| otterley wrote:
| Flagging to remove unnecessary author name in title.
| blyvocalfrylish wrote:
| 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.
| telotortium wrote:
| 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 _Philosophiae 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.
| spaetzleesser wrote:
| 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.
| patio11 wrote:
| 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.)
| jimbob45 wrote:
| 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.
| sokoloff wrote:
| 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.
| _trampeltier wrote:
| 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?
| pc86 wrote:
| Title should be "How credit cards make money"
| kentonv wrote:
| 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.
| sofixa wrote:
| 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.
| flerchin wrote:
| 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.
| thebean11 wrote:
| 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.
| kelnos wrote:
| 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.
| criddell wrote:
| I'm guessing your data is pretty valuable to them.
| mst wrote:
| The article disagrees with data sales being a relevant
| factor.
| ishjoh wrote:
| 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
| BenoitEssiambre wrote:
| 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.
| alexfrydl wrote:
| 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.
| jfk13 wrote:
| 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.
| stefan_ wrote:
| 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.
| lotsofpulp wrote:
| > 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.
| chrisseaton wrote:
| How do you square that with card issuers that require you to
| pay in full each month, like American Express?
| ceejayoz wrote:
| 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...
| brummm wrote:
| Not necessarily.
| alberth wrote:
| 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.
| adrr wrote:
| But the card issuer is issuing debt for 0% to these users.
| Upwards of 60 days. That cost money to the card issuer.
| drfuchs wrote:
| 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.
| adrr wrote:
| 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%
| WalterBright wrote:
| 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.
| lotsofpulp wrote:
| That seems like a lot of trouble compared to setting up
| auto pay for everything to save a few bucks.
| WalterBright wrote:
| 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.
| mandevil wrote:
| 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.
| vmception wrote:
| 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.
| quickthrowman wrote:
| > 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.
| TorKlingberg wrote:
| 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.
| pessimizer wrote:
| > 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.
| patio11 wrote:
| 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.
| polygotdomain wrote:
| 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.
| kipchak wrote:
| >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?
| jonas21 wrote:
| > _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.
| patio11 wrote:
| 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.
| sokoloff wrote:
| 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.)
| Jensson wrote:
| > 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.
| twic wrote:
| 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
| jonas21 wrote:
| 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."
| lotsofpulp wrote:
| 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.
| bradj wrote:
| That is definitely still a thing. I get AMEX offers
| regularly equivalent to $1200 in rewards.
| lotsofpulp wrote:
| 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.
| ValentineC wrote:
| > _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.)
| lotsofpulp wrote:
| 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.
| loeg wrote:
| Amex explicitly no longer offers me sign-up bonuses
| because I'm not a profitable customer for them.
| WalterBright wrote:
| The term for us, who pay off their entire balance every
| month, is "deadbeats".
| kgermino wrote:
| That's an interesting term for "profitable customer who
| pays their debts"
| WalterBright wrote:
| 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.
| downut wrote:
| 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.
| draw_down wrote:
| Thank goodness the "How" was automatically removed from the
| title. I was in danger of understanding it.
| newhouseb wrote:
| 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...
| teej wrote:
| > 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...
| amichal wrote:
| 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.
| edgyquant wrote:
| 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.)
| ishjoh wrote:
| 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.
| gowld wrote:
| The store gets money when customer pays the bank interest?
| jasode wrote:
| Yes, the retailer _gets a portion_ of the interest
| payment.
|
| Example story mentioning it: https://www.nytimes.com/2017
| /05/11/business/dealbook/retaile...
|
| https://archive.md/kuW2K
| jasode wrote:
| _> 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.
| lotsofpulp wrote:
| Another popular one people do not expect is Apple credit
| card's bank is Goldman Sachs.
| kayodelycaon wrote:
| Apple doesn't hide they partnered with Goldman Sachs.
|
| https://www.apple.com/newsroom/2021/08/apple-card-and-
| goldma...
| judge2020 wrote:
| 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.
| brendoelfrendo wrote:
| The physical card even has "Goldman Sachs" laser etched
| on the back.
| kristjansson wrote:
| It's pretty prominently branded on the physical card.
| snarf21 wrote:
| 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.
| Scoundreller wrote:
| 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.
| conductr wrote:
| 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)
| mattfrommars wrote:
| 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 ...
| somethoughts wrote:
| 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-...
| symlinkk wrote:
| You have to know people.
| Scoundreller wrote:
| > 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.
| graeme wrote:
| 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.
| nwatson wrote:
| Here's an SDK from Solid Finance you can use to put a bank, bank
| accounts, customer individuals and organizations, and credit
| cards (create cards and transact on behalf of your customers)
| inside your app: https://www.solidfi.com/dev ... complete with
| KYC and KYB and other regulatory concerns incorporated.
| alberth wrote:
| > "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...
| patio11 wrote:
| 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.
| fragmede wrote:
| That raises a question though: In your opinion, where/in what
| subjects would betting against you _not_ be a poor decision?
| patio11 wrote:
| 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.)
| the_pwner224 wrote:
| > 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.
| Bellamy wrote:
| Would be interesting to know if credit card companies sell data
| and which data exactly?
| gowld wrote:
| Turn on your ad blocker and then visit
|
| https://www.fastcompany.com/90490923/credit-card-companies-a...
| megablast wrote:
| Why was the title changes from "How credit cards make money"??
___________________________________________________________________
(page generated 2021-11-05 23:00 UTC)