What percentage of credit cards in the U.S. and Canada pay 1-2% in cash back or have reward points/miles? If the answer is most credit cards, then it seems to follow that merchants are being charged 2-3% for most transactions. Or am I missing something here?

Furthermore, I don't believe that merchants are allowed to pick and choose which credit cards they'll accept based on the fees. That is, if a merchant says that they take Mastercard, they have to take any brand of Mastercard. They can't refuse a Mastercard that gives cash back (and how could they even tell at the time of the transaction anyway?).

The class action lawsuit was settled in principle back in 2012 and approved by the district court in 2013, but was thrown out recently by the Second Circuit.[3] It would have been the largest class action settlement in history, but many large merchants objected to being bound by a settlement that they had no part in negotiating.

[1] http://www.lexology.com/library/detail.aspx?g=a2722e0c-e0a6-...

[2] http://www.reuters.com/article/us-american-express-antitrust...

[3]http://www.wsj.com/articles/visa-mastercard-class-action-set...

The typical workaround, which isn't against their rules, is to offer a discount for paying in cash - I can't recall the last gas station I saw that didn't do this (for gas at least), and a number of restaurants also offer cash discounts.

This is illegal in ten states: http://www.creditcards.com/credit-card-news/credit-card-conv...

But that's just interchange (the amount paid to the issuer); merchants also pay a network fee and usually additional fees to their acquirer.

Those differences in credit card fees between rewards and non-rewards often aren't being passed on to the merchant, though, especially small businesses who have little room to negotiate.

Merchant service providers have been pushing this "interchange-plus" pricing model to win over businesses from other providers with the old "tiered rates" pricing for many years now. Even "tiered rates" did pass on some of the price differences, just not as directly.

PayPal/Stripe's model of a single flat fee for all card types is pretty much exclusively an internet (card-not-present) thing, except for the rare coffee shop with one of those Square smartphone dongles. None of the B&M stores you shop in are likely paying flat rates. Different cards cost them different amounts of money.

The biggest merchant ripoff going on right now are processors that charge the same rate for debit and credit. If more merchants knew how cheap debit can be there might be more steering.

[1] https://usa.visa.com/dam/VCOM/download/merchants/Visa-USA-In...

This is exactly like subsidizing farm, ranch, and oil but then raising taxes to pay for the subsidies indirectly.

A clever application of game theory to leach wealth from the populous.

So the banks fight with each other offering more points/rewards/etc - meanwhile you pick up the tab.

I wish usgov would look deep into this criminal scheme.

>One of the most often cited studies is one conducted by Dun & Bradstreet, where the company found that people spend 12-18% more when using credit cards instead of cash. McDonald’s reports its average ticket is $7 when people use credit cards versus $4.50 for cash.

>Those who were told they would have to pay by credit card were willing to pay more than twice as much on average as those who were told that they would have to pay by cash.

It's well established that paying with plastic over paper makes you spend more.

http://nytimes.com/2014/10/11/your-money/the-slippery-plasti...

>But the most surprising thing about these studies? When I tracked down many of their authors this week, I found that they, too, can’t quite kick the credit card habit. Why doesn’t Joydeep Srivastava, co-author of the Monopoly money study, use a debit card or cash?

>“Mostly because my credit card is giving me lots of miles,” he said

>Once upon a time Mr. Prelec, a professor of economics at the Sloan School of Management at the Massachusetts Institute of Technology, refused to collect frequent-flier miles (or even coffeehouse stamp cards) because he thought they cluttered his decision making... Now, he doesn’t leave home without American Express card. Why not go debit-only? “The rational answer is, it’s the points,” he said, given that few debit cards offer reward points.

If this were true, why would merchants care about merchant fees?

It seems fraud is much worse in the US. That could be a factor too. https://www.google.com/search?q=credit+card+fraud+us+vs+euro...

Actual 2fa would be great. I was wondering about the enourmous amount of work that would enable websites to support contactless ..

I've been down and out... unemployed most of 2002, and saddled with a six figure hospital bill (after insurance max) about 7 years ago... I still have two rewards cards... I put everything day to day on them, and generally pay them off at payday. I try not to carry much of a balance, except for larger outlays that I'll do over time.

The bigger problem is that parents should talk to their kids about bills, the importance of paying them, and actually show them a spreadsheet with how much is coming in, and how much is going out just for bills, and then working with what's left. Parents don't do this, schools should as well, and even then, the stigma prevents parents from showing this to their kids, so they get to be adults with no understanding, prioritization or coping skills.

Online retailers (esp small ones) are paying ~2.5-3% in credit card fees, and compete heavily on price. I run a small online store - if my credit card fees suddenly dropped by 2% the first thing I would do is drop all my prices accordingly.

But your observation gave me an entirely unrelated idea: could a merchant, online or not, use deliberately random "##.74 instead of ##.99" prices to give the impression of really tight margins, even when they are actually wide?

It's not unique, there's a few Cashback checking accounts out there.

Other banks require a certain amount of debt card transactions a month to remain fee free.

I have yet to see a debit card do a 1% cash back, which is really common in credit. Here in Canada, the debit charge (handled via the interbank Interac "sort of coop") are really low, 6 cents per transactions is about par. There's nowhere to tack on even a 10 cents cash back.

Let's say that retailers' financial services costs drop by 1% of revenue, and they choose to raise their prices by 5%, because they're really greedy or mean. Their competitor across the street is also really mean, but only raises their prices by 4%. As a thought experiment, play that scenario through a few more turns.

The effect of lowering their costs for financial transactions is to lower retailers' minimum price for selling their products. They're "allowed" to charge as much as they like, though there are legal restrictions that make it illegal to collude with their competitors. And, even if they do collude there are motivations to defect from those illegal agreements that tend to undermine them.

A higher level view will appreciate that the higher sticker prices from higher transaction costs largely ended up being refunded to consumers through credit card reward programs, but probably distorted the prices for buyers paying with cash.

AFAIK EMV terminals are not required in the US, and the payment processor bears all the risk. This could explain why they must charge higher fees, too.

Pretty much all new US cards now have chips in them. Nearly the entire market has shifted over to that in the last year. The only cards remaining without chips are those that are running out their expiration date.

Merchants are now liable for fraudulent charges if they haven't switched to EMV terminals. The payment processor hasn't born that risk for nearly a year.

Chip ATMs are extremely rare in the US. Which sucks, because the chip in your debit card is only as good as the difficulty of finding a non-chip ATM.

They insert the card. Nothing happens. After a while they get confused and pull out the card. By then some infomercial is playing.

Eventually they figure out you're supposed to swipe your card in the ATM. There is nothing on the machine that tells them to do so. European ATMs tend to be wonders of usability in comparison.

It's an interesting UX lesson.

Yeah, but pretty much all chip readers in the field are disabled. It seems most merchants would rather eat the fraud then issue a configuration change (!!).

I'm surprised rent as a percentage of transaction volume is so low. We don't all live in the Bay Area, I suppose.

That's one reason some stores(like Winco) only accept debit cards: The processing fees are much cheaper. And it might be because they don't have to enforce chargebacks, by law.

Certainly it's possible to accept payments with low costs: Bank transfers are pretty cheap.

Neither Citi nor Capital One entertain "I made this charge but I don't want to pay it because I'm angry at the merchant for bad service" (or whatever) easily. At minimum you have to prove that you tried to remedy the problem with the merchant and they're refusing.

One silly example that happened to me. I bought a dishwasher and it had a problem. Under EU law, the retailer covers the warranty the first year and then the manufacturer warranty kicks in for years 2 and 3. Under the manufacturer's warranty they would dispatch a technician to my home. But the for the first year I would have to carry this big bulky appliance back to the store for them to look at and repair it.

In the end I sat on the problem for a few months until the "real" warranty kicked in and had a technician come out.

I don't think this was intentional but an oversight in the original consumer protection law.

http://europa.eu/youreurope/citizens/consumers/shopping/guar...

Thus, local legislation in an EU country may give better protection; for instance, here (Finland) there is an additional defect liability which says that if an item is supposed to last longer than 2 years (e.g. a dishwasher), then the liability "wears out" over the reasonably expectable lifetime of product. You won't get a refund if a 6 year old washing machine breaks (yes, I won't buy another LG), but you can get a partial refund if a 3 year old machine breaks down.

This liability falls on the retailer; importer/manufacturer has only secondary liability.

How can it be done and continue for years in the USA, you ask? here: https://en.wikipedia.org/wiki/Lobbying_in_the_United_States

In the US, debit card interchange fees are capped at 0.05% + $0.22, since 2010. That was in the Durbin amendment to the Dodd-Frank Wall Street Reform Act.

Credit card interchange runs up to about 2.9%, but that's only on the cards with the most benefits: those that pay the largest percentage back to the cardholder. That's up to 2% back in cash, reward points or miles... plus 90 day accidental damage protection on all purchases, 1 year extension on all product warranties, travel insurance, concierge service, etc.

Interchange fees for the credit cards without rewards programs start at 0.65%.

Repeating what I asked in another comment, it's important to know what percentage of cards have those benefits. If most credit cards in the U.S. and Canada have cash back, miles, or rewards, then it follows that merchants pay 2-3% on most transactions. In my experience in the U.S. and Canada, almost everyone seems to use a cash-back or reward-type credit card.

I'd be surprised if you could even find such a policy.

[1] And, of course, the same "we won't pay for this" cutoffs impose by e.g. UK's NICE board.

The idea that big pharma companies are happily scalping Americans just so they can provide drugs to countries that can't actually afford them is just... absurd.

For GSK: R&D was 15% of their budget, while 'selling, general and administration' was 39%.[1]

[1]http://www.bizjournals.com/triangle/news/2016/07/19/where-gs...

Even without this, drug development cost doesn't get anywhere close to accounting for the whole cost difference.