Some merchants like Amazon, Target, Home Depot etc do want the ability to refuse the "rewards cards" with higher fees but can't because of the current contracts they have for credit-card acceptance. If a merchant signs a contract to accept VISA cards, they must accept all VISA cards and therefore can't selectively choose to reject some VISA cards because of higher swipe fees.
https://thepointsguy.com/news/retailers-want-to-reject-rewar...
https://www.google.com/search?q=merchants+want+to+refuse+rew...
also milage reward points can hit as high as 2.3 cents per dollar so assuming i want to fly to japan with ANA i could in theory get 8.6c in value of MR points per 2.6c i charge myself. However i would not expect to get away with this and i'm sure square would figure this out.
It sure does, and then 45 seconds while the machine ... thinks about life, and then 15 seconds for it to say "chip read error, reinsert card" and then another 45 seconds for it to reconsider the nature of reality, and then listening to a fire alarm sound that they chose for the success alarm. Excellent UX, no notes
Aren't both of these just symptoms of unfamiliarity with the tech?
I resisted phone payments for a while, until one day I forgot my wallet and quickly added a few cards to my phone. Now I'm severely tempted to use it more often—my phone has a wallet button on the lock screen that jumps me straight there ready to pay with my default card. I've definitely experienced some friction the two times I've used it, but it seems pretty clear that that friction is temporary while I'm still becoming familiar with it.
For most people, there's the time to get their wallet or equivalent out of pockets or purses, fiddle to get the card, put it the correct way and swipe (but not too fast or too slow!). Vs a phone/watch tap which is usually much more convenient.
Maybe if I wore my Apple Watch more, I'd get used to using it but the card just seems more straightforward in general. Maybe I'll insert and maybe I'll tap. I'm pretty indifferent.
I've also had issues at Walmart where I know some lanes to flat out avoid because the chip readers will always reject my card for unable to read the chip. With my phone, this isn't an issue. Even if I get a new card, wait 8-12 months and its the same problem again.
But I am aware that the cards exist and I am not opposed to it. With contactless I am fine with it being on my phone or card. But I gotta have a card that has contactless to be able to use it.
Also at my current job, I am the WorldPay guy. I work at a point of sale company and my area of ownership is integration into World Pay for payment processing at brick and mortar stores. None of our clients have tap to pay devices. They are all running 15 year old Ingenicos and plan to run them till they stop working. So as of right now, that is at least 2,500 stores in the US that I know of that don't support any kind of contactless payments.
However, this is HN and not at all typical of the U.S. or world overall. Even though we frequently lose sight of that.
When you use them it is still a charge to one of those credit cards.
It might actually cost Walmart more in my case, because the card I have on file has larger rewards for online purchases than it does for in-store purchases, and the Walmart app processes purchases as online even when made in-store. If I pay with the physical card it is processed as in-store.
They’re just stubborn and want people to use their option (and card, if possible).
As it is you can load any credit card into the Walmart app and pay by pointing the “check price” barcode camera at the screen.
[Citation Needed].
On the other hand, stores like that probably already do facial recognition on customers, so it really is just intransigence to not allow contactless payments.
For example, our local bus company can quite happily offer capped daily and weekly fares when folk use the same device to pay.
Then you'd visit a lot of them and they'd claim to not accept Amex!
I ask because when I was in Germany (and, granted, this was a few decades ago) you got some percent off the price if you paid cash. Merchants there seemed pretty credit-card averse.
Big companies do a similar thing by offering you a store card. Costco likely makes more money from you when you pay with your Costco card than if you pay cash, because they get the interchange fee very very low and have to pay to handle cash. Rumor was AMEX was eating the interchange fee AND paying them … because they more than made it up by the customers who made the card Top Card.
Given what this article says, it sounds as though not only are cash buyers cross-subsidising card buyers, but non-rewards card buyers are cross subsidising rewards card buyers.
So much for free markets.
Credit card fees for small orgs are like 1-2% so for a small biz that could pinch. Cash also lets you, uh, "fudge" your numbers for tax purposes.
(I still use a card because life is short)
(If you pay cash, the business owner can just pocket the money without ever recording the transaction. For digital payments, this is much harder to do undetected.)
It’s usually motivated more by mom and pops skimming taxes than 3% credit card fees. If you do any kind of volume, there isn’t a ton of savings as cash management ain’t free.
The electronic equivalent is people who take personal Venmo at retail.
A bit hostile towards merchants, but very nice for consumers imo.
It's nice for consumers who prefer to pay by card. It's hostile towards consumers who prefer to pay in cash.
I would need a system that can display to the customer what fee they would be charged with their selected payment method, and be given an option to switch to a less expensive payment method.
Why not go even further? Itemize the marginal cost of maintaining your property's parking lot for those customers who visit your business by car? Charge customers a "store heating fee" in the winter? Customer support fee if they talk to anyone? Just as ridiculous. Processing credit cards is just one of many costs of doing business that you need to account for when you price your products.
Besides, I honestly would be sort of annoyed that you insist on making your dissatisfaction with your credit card processor my problem as a customer. I have my own problems to worry about, don’t make my saving 1-4% on groceries vs. 2-3% cash back on my credit card another thing I have to deal with. I’ve stopped shopping at certain grocery stores over less.
This isn't that uncommon, quite a few places in Europe do this actually.
Usually there's a barrier at the parking lot entrance. You get a ticket when entering, which you then have to put in a machine when leaving. The machine calculates your fee based on how long your car was parked. Modern systems are far more automated and use license plate readers instead.
If it happens to be a store-owned parking that charges per hour, it's to prevent abuse from drivers going to other stores nearby if it's in downtown. Charging for parking outside your store in a less dense district is equal to putting up a sign that you don't want customers.
Aka... charge for parking? I mean? This is pretty common? I've always found it annoying that stores will validate parking for motorists but if I choose to take public transit or bikeshare, I don't get any corresponding debate.
What's the fee for cash the requires quite a bit of change? What's the fee for cash that is composed of very small values (e.g. quarters and dimes for a tv)?
It's interesting that all of these complications are ignored entirely when pricing payment methods. Handling cash isn't free and carries risk.
What's the fee for credit card chargebacks from stolen cards, or chargeback fraud from customers who receive a product and then dispute the charge anyway?
> What's the fee for cash the requires quite a bit of change?
There are machines that count coins and issue exact change. If you do a lot of cash business, you buy one. For example, the self-checkout machines at Walmart do this.
The largest denomination still issued for US cash is $100, so no cash transaction will require more change than this, and some merchants don't accept large bills for small transactions.
> What's the fee for cash that is composed of very small values (e.g. quarters and dimes for a tv)?
How often do you think that actually happens?
Also, how are costs like this to be avoided unless you stop accepting cash whatsoever, and thereby lose business? Just eating the credit card fees instead of passing them on isn't going to stop someone with a jug full of nickels from wanting to spend them.
> Handling cash isn't free and carries risk.
Nothing is free. How about the time value of money for the time it takes for the credit card companies to pay you, as opposed to cash which you can immediately spend or deposit and begin collecting interest on?
The issue is that credit card companies have the usual set of costs and then on top of that charge significant transaction fees and shift the cost of various types of fraud to the merchant even though they're the ones who designed the system that makes it easy to carry out.
It’s an unsophisticated approach to business. That’s why it’s common in mom and pop places — mom didn’t go to business school and pop is tripping over dollars to save a nickle — they see the “expense” but they can’t see the revenue that aren’t getting.
There is a reason most small restaurants fail — they don’t know how to be more profitable. So they start to add on these little fees when they begin to struggle and don’t realize that they’re making the problem worse. In other words, most people that start restaurants don’t know what they’re doing in the back office even if they’re great in the kitchen. Restaurants fail for many reasons, but not controlling costs is the biggest — however, they’re naïvely choosing to control the wrong costs.
One of my good friends owns a chain of 30 Tex-Mex restaurants in Texas. After several burglaries of the safe at several locations, they went cashless at some locations. The cashless locations, without exception, saw sales increase by over 12%. He quickly made all of his stores cashless and sales increased among all stores. My anecdote isn’t data — but there is plenty of data out there.
The credit card surcharge scheme is endemic among small business owners who actually haven’t done the math. Or, more accurately, they’re doing the wrong math.
Credit card users spend more than cash users. So you make up for the “savings” with lower sales volume. And credit card users that have to pay higher prices will go elsewhere. Or, if they pull out cash, they’ll spend less of it.
It has the obvious benefit of discouraging people from increasing your costs with rewards cards. Keep in mind that businesses often have net margins in the vicinity of 5% of revenue. Paying 3% of revenue or more to the credit card company is heinous.
And what work is there to do? The calculation is done by a computer. If your attitude is "just price in the cost" well then there you go, you can pay the true cost of the card you have without even looking at the alternatives. Whereas if you want to get the lowest price then you have to figure out which card has the lowest price. Removing your option to do this is not going to save you money, it's just going to cause you to pay the higher price at all times, which you still have the choice to do.
> they see the “expense” but they can’t see the revenue that aren’t getting.
Increasing sales by e.g. 15% while decreasing net profit by up to 60% is often not a fantastic business decision.
> Credit card users spend more than cash users.
Which is why you accept them but provide a discount for the people who don't use them and thereby don't expose you to their fees.
> And credit card users that have to pay higher prices will go elsewhere.
But they're not higher prices. Restaurant A charges however much to everyone. Restaurant B charges exactly the same amount to people who use credit cards and a few percent less to people who pay cash. The people who insist on using credit cards can go to either place and pay the same amount, anyone willing to pay cash can get a discount at Restaurant B.
The first gives you a lower advertised price but then irks customers when they find out about the extra charge. The second gives you a higher advertised price, which could be worse depending on the nature of the business.
But the proposed alternative where you charge the same to everybody and incorporate it into the advertised price requires you to use the higher advertised price, which has no advantage over the second option regardless of whether or not the second option is better than the first.
In other words your point is pretty much moot because nobody is choosing a restaurant based on, veal parmigiana costs $25 at Villa Roma and $24.50 at Sicily Palace. But they very much might remember that Sicily Palace charges a credit card fee and boycott it in favor of somewhere else.
For example Braintree is 2.59% + $0.49/transaction, plus 1% if non-USD and 1% if the card was issued outside the US.
They used to split transactions into two tiers, based on how much the actual interchange and other fees were, and you monthly bill as a merchant would show charges for each tier. Within each tier the charge to the merchant was a fixed percentage and a fixed transaction fee. There was no good way for the merchant to know ahead of time which tier a given charge would fall under, although they could guess that a high rewards card was more likely to fall into the higher fee tier.
Donation platforms ought to do some analytics on this. If I’m giving money, I want it to be simple without requiring me to second guess.
If a donation platform takes Apple Pay, the friction is even less. I don’t want to fill out your stupid long form, create a password, share my address or whatever.
But, I’m one person — this might be an interesting Masters thesis topic to study the behavioral economics of donation platforms.
Found an example - https://donorbox.org/nonprofit-blog/donors-to-cover-processi...
I've seen signs that say stuff like "Prices listed are for cash, 3% surcharge for credit cards."
How many different fee tiers are you as a retailer really trying to charge?
How do i know you are being transparent with the surcharge? What if you add 2% for a card payment when your actual overhead is only 1%. I suspect this is the reason why EU made these type of schemes illegal many years back. It just creates bad incentives for stores to add random fees everywhere.
How do you even calculate the processing fee of cash on a single transaction? A lot of comment here seem to assume cash is free, when in fact you need a safe, take time to go to the bank, security transfers, counting it, and so on.
If I have a card that gives back 2% to me, back causes 5% fees to the vendor, both of us would be better off if I used a card with 1% fee, and the vendor gives me 2% discount. Unfortunately, not allowed.
The real reason that most merchants don’t charge surcharges is that they don’t want to lose the sale, calculating the actual interchange is wildly complex and in general they prefer cards to cash.
It’s a noticeable fee for them.
As far as I know they're also allowed to charge surcharges for non-capped cards (e.g. business/commercial cards, three-party schemes like Amex etc.)
What people forget about these fees is a credit card is cheaper to take for the merchant. The credit card is never counterfeit money. The clerk never takes money from the credit cards, nor does the manager counting it (I wasn't in retail long but I saw both). You never have a robber come in to take your credit card money. Even when all goes well, you don't pay the clerk and manager by the hour to count all the cash twice. You do have some risk of taking a stolen credit card, but overall it is cheaper for the merchant to take credit cards and that savings should be what pays for the card costs (I have no idea how to count the different costs to see if that is true)
(This is also the answer as to why in the absence of regulation, exchange fees aren’t higher than they already are.)
There's many rewards cards that require an annual fee (which encourages a high spend to recoup the fee with rewards). But there are plenty of 1.5%-2% cards with no annual fee. You just need a good credit score.
The second and third tier Delta cards come with a $250 and $650 Annual fee.
The second tier card (Delta Platinum) has an annual fee of $350. But it comes with a $150 Delta Stays credit for hotels and one round trip an economy companion pass - basically buy one get one free - for any place in the US, Mexico, Central America or the Caribbean.
The higher end Delta Reserve comes with similar benefits. But a first class companion pass. If you never use either card except for the credit, the benefits more than offset the annual fee. The Reserve also comes with airport lounge access
I have three Delta cards just for those benefits.
I could explain the Amex Platinum, Gold, Green, every cobranded hotel card, the high end Capital One cards the same way.
The credit card companies as the article says are betting that the typical customer will use credit cards in a suboptimal manner. They are banking on most credit card users not to be like the typical r/creditcards users who carry 6-8 credit cards including “sock drawer” cards that are just held for the outsized benefits to annual fees and aren’t their primary cards.
My wife and I travel a lot and yes I have nine cards and $2700 worth of annual fees. Most of those cards are “sock drawer” cards that are just used because the “coupons” make travel cheaper.
(I am not affiliated with this site in any way)
They know exactly how many do this. The people who churn are just free advertising for them.
Just from the cash savings of my card setup, I would say it’s worth $3500 that offsets the $2700 in annual fees.
Then take into account the points I earn from everyday spend is worth another $3000-$5000 depending on how I choose to redeem them (see r/awardtravel).
Then take into account sign up bonuses and churning, I’m planning on doing over the next year worth around $5000.
It’s the only way that I can balance our travel hobbies with my goals of maxing out my 401k including catch up contributions (I turn 50 this year), max out my HSA and not use it and “retire my wife” so she can enjoy her hobbies.
This hobby isn’t just for people with above average incomes. If you are steeped in the culture, you can lean more toward churning and legal manufactured spending
https://frequentmiler.com/manufactured-spending-complete-gui...
In the UK you can still cancel and re-apply after 24 months. It used to be 6 months but those good days are long gone...
But there is still Chase, CapitalOne and Citi. The Chase Ink Business cards you can churn as much as you want and most of the other cards have either a 24 or 48 month rule
All of these things were items I was already using or would have purchased anyway and the discounts stack on top of any available merchant coupons too since they are credits coming straight from AmEx.
Low risk is clear -- the lower the risk the more money is left, after handling problems, for the rebates and profits.
And salaries and pensions, etc.
Fwiw I don't really care what the technical reason is, it's a rhetorical question to add to the ways the credit system holds back the poor.
https://www.telegram.com/story/news/local/worcester/2007/03/...
The deduction on mortgage interest now mostly only affects the well-off because the standard deduction for married filing jointly is so high.
Many people didn't math the interest deduction correctly - only the amount over the standard deduction should be counted, as you'd get the standard deduction anyway. Can vary depending on SALT and charity donations.
For a long time I would read money saving tips articles and a tip that frequently came up in these and in pro real estate pieces was that paying a single extra mortgage payment per year would let you pay your mortgage off 12-15 years early.
When you did the math you realized it was bogus. As near as I can tell, this actually was true for one brief period in the 1980s when mortgage rates were at their zenith. Articles were written about this amazing tip well into the 1990s before the BS was transcribed to the internet and then repeated well into the super low interest rate era where it wasn't even close to being true.
Of course it wasn't even really true in the 1980s either. Once interest rates went down you'd have been wise to refinance at the newer lower rates instead of prepaying the mortgage as it would improve your cash flow and lock in the savings. So in reality, it would have only made sense if interest rates had stayed at that same high rate for the whole length of the mortgage!
Ironic in hindsight; every monetary and fiscal policy as of late seems to be designed to punish savers and reward debtors.
I guess Reagan's friends at that point wanted more money for Wall Street to gamble.
AFAIK it's a carve out specifically for houses. Car loan interest isn't deductible despite being "secured".
maybe you rent, but renters DGAF about the local community the way that homeowners do.
home (property) taxes also fund a lot local services, schools, etc. you want prices higher and stable, and not dominated too heavily by mega-corps that will weasel out of paying said taxes.
Renters absolutely care about the local community.
I wish the tax code had more a more positive slant per your point, but lobbying seems to be a bigger driver.
It would be good to understand this better. Doesn't everyone use a credit card? Not just the poor? Who are the poor in this case? Are tax deduction rules anything to do with the credit system?
My comment is to show another way this is perpetrated. People saddled with CC debt could dig themselves out faster if they could write off interest.
Well, some places add on a fee, but yes, agreed, some places apply a blanket charge. I don't see how this relates to the tax deduction.
> Even a cash paying poor person who cannot get a CC is paying for this
This is about a tax deduction. Are you saying someone who can't get a credit card is going to be meaningfully affected by a tax deduction?
> People saddled with CC debt could dig themselves out faster if they could write off interest.
This is true, but also the giant number of people who just chose to get into credit card debt would be paying less tax. If you want to make credit cards into effectively interest-free loans then that might cause issues.
Earlier you asked me to explain how credit cards harm the poor. I showed you, and now you complain that it doesn't pertain to a tax deduction. It's not about a singular thing. The singular thing was one token example of a larger theme that for some reason you refuse to acknowledge.
Same reason Medicare (old people) pays healthcare providers more than Medicaid (young and poor people).
Once rich people figured out how to get poor people to be angry about things like higher marginal tax rates for rich people and “death taxes”, we raised taxes on the suckers to benefit the richer people.
Only about 10% itemize.
https://www.taxpolicycenter.org/briefing-book/what-are-itemi....
I think it's reasonable to say that the folks with the largest mortgages are the ones most likely to itemize mortgage interest, even if they are capped.
HELOC interest is rarely deductible either. First, you now must be able to itemize deductions, which the recent tax changes have made very unlikely. Less than 12% of tax returns are able to itemize:
https://www.irs.gov/pub/irs-soi/soi-a-inpre-id2303.pdf
In addition, even if you are in that ~11% who can itemize, HELOC interest is only deductible if you use it to work on the same house being used to get the LOC. Any other use is not deductible.
Counterpoint: i will pay you $500 if any of the big retailers (>2k stores) lowers prices now and cites "lower credit card fees means we can charge less".
http://www.bloomberg.com/features/2015-how-amex-lost-costco/
If competitors can lower prices, whole market eventually ends up having to do that.
Zero, zero companies will discount the sales price when the rewards cards are gone.
There is a strong argument that discontinuing rewards cards actually helps the extremely wealthy by taking from the middle class and giving it to the Uber rich shareholders and big business owners.
That's 2/3s of capitalism. Hold enough MA and V -- directly or through just having enough net worth in an index -- and you'll start to see this as a feature, not a bug.
The simple reason why issuers don’t make every card a signature rewards card is that merchants would revolt.
The interchange fee schedule[1] is fascinating. Dozens of categories of merchants with different rates. There is no technical reason for this. Fraud costs are borne by merchants and to some extent processors, but not the issuer banks that receive the interchange fee.
The fee schedule reflects a kind of battle for customers. It’s worth repeating that most of interchange for these higher end cards is passed back to the customer in the form of rewards. Essentially, merchants are willing to pay higher fees to support the cards that higher spending customers prefer.
But there is a limit. We can observe that not all merchants accept AmEx, which has some of the highest interchange rates. If every visa/MC card were a signature card, more merchants would push back.
[1] https://usa.visa.com/content/dam/VCOM/download/merchants/vis...
Point in case, there's an interchange fee cap of 0.3% for credit and 0.2% for debit cards in the EU. And there are entire countries moving to cashless, so obviously everyone is happy with it.
A lot of times these regulations are pitched as helping consumers, but it’s really merchants pushing for them. You could make a similar observation about the EU regulatory fight with Apple et al right now. It’s actually Spotify fighting for it, and they have different interests than consumers.
Personally, I would disagree. I prefer no rewards and a simple landscape where I don't have to compare credit cards.
I lived in both EU and US, and didn't like the work needed to compare (and keep comparing) all the credit card offerings. In the EU, you just the credit card from your bank and don't feel like you're missing out.
(It's Finland btw, and you need a Finnish, not "anywhere-in-SEPA", bank account in order to practically function in society here with the strong online authentication service)
And for anyone getting less cash back the math is even worse, which from the same premise will be the majority of people or else the merchant's costs (and so the amount they pass on) would be even higher.
You're not picking realistic numbers. The fees range from around 1.5% to ~3%, and the 2.5%-3%+ fees are limited to ~10% of customers. An average fee of 3% doesn't make sense. Very basic napkin math would be 0.9((1.5+2.5)/2)+0.1((2.5+3)/2) = ~2.1% average. So only in the 100% passthrough case does the high end cardholder actually lose. That's not likely.
And if you look at the chart, if 740 is 10%, there are probably far fewer than 10% of transactions averaging 2.75%, so this is likely still way overestimating.
That's just the interchange fee, not what merchants are actually paying. Stripe charges a flat 2.9% + $0.30 and this is considered competitive:
For a $20 transaction, that's 4.4%, and that's for everybody, not just the people with rewards cards.
Stripe is hella expensive! But they are easy to get started with.
Competitive rates depend on the type of business, i.e. their volume and their fraud risk. The most transparent form of pricing is called “interchange plus” where it’s a flat markup on the interchange schedule. High volume merchants should be able to find a markup in the fractions of a percent.
It is my understanding that the big Stripe customers negotiate lower rates with them as they scale.
And this is why small businesses are more likely to offer cash discounts than larger ones.
If small businesses give discounts for cash it's because they're committing tax fraud, I presume.
https://www.nerdwallet.com/article/banking/business-checking...
And that's assuming you're depositing all of your revenue. If your business allows you to pay some of your suppliers in cash, you could have >50% of your revenue in cash and never pay a bank for cash handling because you're immediately spending it on business expenses rather than depositing it.
> If small businesses give discounts for cash it's because they're committing tax fraud, I presume.
I have seen governments charge a convenience fee for credit card processing. Is the government committing tax fraud?
This is not universal, and banks in different countries charge different cash collections fees. The cash collection fees are also structured, e.g. whether the daily collection is required, or every other day, or once a week.
It does not end there.
Many banks still require the business to sort collected coins into separate money bags according to the coin denomination, e.g $1 coins go into one bag, $0.50 coins go into their own bag. Coin bags have a weight limit, 2 or 3 kg, which means that the business has to weigh the money bag up before handing it over, or it will not be accepted.
Now that we are done with material things, we also have to consider all things immaterial that the cash handling entails.
Before the money bag is handed over, the collected cash has to be counted and reconciled against the cash register records on premises, otherwise it will create annoying and time consuming to fix discrepancies in the accounting system. If a staff has accidentally mislaid a note or a few coins, amounts won't reconcile and incur a cash collection delay as the armoured truck can't wait for the reconciliation to complete. Which may consequently increase the risk of leaving cash in the shop overnight with all expected consequences of a potential burglary and losing the cash.
That is just some of the peculiarities of how cash is handled, and I am not sure whether cash handling turns out to be cheaper for an average business with a substantial number of cash payments a day.
Electronic payments, on the other hand do not have any of those shortcomings, vastly reduce the margin for human errors, automate the reconciliation and accounting and reduce the risk (i.e. no money is kept in the shop overnight).
This would not seem to be relevant unless you're in one of those countries.
> Many banks still require the business to sort collected coins into separate money bags according to the coin denomination, e.g $1 coins go into one bag, $0.50 coins go into their own bag. Coin bags have a weight limit, 2 or 3 kg, which means that the business has to weigh the money bag up before handing it over, or it will not be accepted.
There are machines that sort and count coins. Coins have uniform weights, so the number of coins in a 3kg bag will always be the same and the machine's count tells you when you're at the weight limit.
Also, what kind of business are you in that you're accumulating small denomination coins? Typical behavior is the customer shows up with three $20 bills to buy something for $52.37 and then you need to disperse a $5, two $1s and some loose change. You don't bring coins to the bank, you bring them a stack of $20s and $50s and then withdraw more small denominations to make change with.
> Before the money bag is handed over, the collected cash has to be counted and reconciled against the cash register records on premises, otherwise it will create annoying and time consuming to fix discrepancies in the accounting system.
So you dump the cash into the counting machine at the end of shift. It's really not that complicated.
> If a staff has accidentally mislaid a note or a few coins, amounts won't reconcile and incur a cash collection delay as the armoured truck can't wait for the reconciliation to complete.
Why would you wait until the truck arrives to do the count? You count the money and put it in a safe. Also, why would you pay for armored car service? If you have $300,000 in annual revenue then your daily take is less than $1000.
> Which may consequently increase the risk of leaving cash in the shop overnight with all expected consequences of a potential burglary and losing the cash.
Shops typically have more value in inventory than they have in cash. Breaking into a safe to steal $1000 in cash isn't even worth the trouble when they can break the glass on the display case and walk away with $10,000 in electronics or tools or small appliances.
> Electronic payments, on the other hand do not have any of those shortcomings, vastly reduce the margin for human errors, automate the reconciliation and accounting and reduce the risk (i.e. no money is kept in the shop overnight).
And they'll be great as soon as we have a system to use them that has low transaction costs and preserves the buyer's privacy by not creating an electronic record of everything they buy tied to their government ID. Until then they can GTFO.
Cash handling is a fairly obscure process that is ridden with absurdities and edge cases that most people are oblivious of. The claim that accepting cash is cheaper for the business than taking card payments becomes false once the cash turnover exceeds a certain threshold.
> This would not seem to be relevant unless you're in one of those countries.
«Not happens in my backyard» is not helpful. Cash is handled in nearly all countries around the world, and the cash collection and handling process is more or less similar everywhere. The basics of the cash collection and accounting principles have not changed since the times of Sumerians.
> There are machines that sort and count coins. Coins have uniform weights, so the number of coins in a 3kg bag will always be the same and the machine's count tells you when you're at the weight limit.
Such machines exist in bank branches only, and the bank branches usually close before the business shuts the doors for the night. Most importantly, they do not scale. If it is a family run grocery store or an arts and craft shop, you do your banking yourself during business hours or send your eldest offpsring who is old enough to whack collected coins into a machine and bank the money.
It does not work with larger and big retailers, government agencies and alike with a substantial regular cash intake. Cash has to be collected, usually daily, and it comes with «processing» constraints, e.g. manual counting, receipting and bagging the cash.
A money bag has a weight limit that can't be exceeded, but it can be underfilled because there has been simply a smaller number of coins collected in a specific denomination. A money bag has to have a transaction receipt affixed to it stipulating the amount deposited into the bag – the bank requires it, and it also goes into an accounting system for reconcilliation. If amounts counted by the bank and by the business end up differing, there will be a reconcilliation problem in the transaction feed from the bank into the accounting system even if it is 1 cent off. This is why cash gets counted twice. If you make a mistake counting coins, you have to start over again.
> Also, what kind of business are you in that you're accumulating small denomination coins?
Any medium to large grocery chain that accepts cash for payments where by COB coins are overfilling cash registers. Schools on donation and charity days, e.g. the «gold coin donation» days, where each child brings a $1 or $2 gold coin with them. Service stations and small grocery stores in suburbs and in the country.
> Typical behavior is the customer shows up with three $20 bills to buy something for $52.37 and then you need to disperse a $5, two $1s and some loose change.
Yes, the 37 cents is the problem here. Please allow me to introduce you to the Australian (and previously in New Zealand, too) 50¢ coin that has a dodecagonal shape, has a mass of 15.55 g and a diameter of 31.5 mm, followed by the 20¢ coin with a diameter of 28.65 mm and a weight of 11.3 g. Five such 50¢ coins will burst most wallets and will warrant a purse to carry more.
Back to your example. The change for the $52.37 amount paid by $60 will entail:
1. A $5 note (almost weighless).
2. A $2 coin (6.60 g) or 2x $1 coins (2x 9.00 g == 18.0 g).
3. A 50¢ coin (15.55 g)
4. A 10¢ coin (5.65 g)
5. A 5¢ coin (2.83 g) – due to rounding rules because of 1¢ and 2¢ out of circulation.
And then you have a customer (in fact, many customers) who is fed up with lugging the metal scrap with them who will pay $7.58 in its entirety in coins (just to offload the burden), and that is how the business ends up with having to fill up money bags for coins at COB. This is ubiquitous, however, the bulk of the change still comes from a constant stream of small purchases in cash.
> Why would you wait until the truck arrives to do the count? You count the money and put it in a safe. Also, why would you pay for armored car service?
Because people still break in and moreso in low-socio areas where people with substance abuse problems will absolutely break in and take any money even if it is $5 in the safe – their conscience does not operate on the ROI level, and they take whatever they can get a hold of. And you would pay for the armoured service because most banks do not offer non-armoured services.
> Shops typically have more value in inventory than they have in cash. Breaking into a safe to steal $1000 […]
Stolen inventory has to be sold first, it can be traced (moreso so for high value inventory items), so there is no instant gain. Stealing even $10 is a net gain, the stolen note is untraceable and it is an instant net gain. Most breakins are small value ones, and the high value breakins are an entirely differen cattle of fish.
> And they'll be great as soon as we have a system to use them that has low transaction costs and preserves the buyer's privacy […]
The reason why we do not have them is because Visa and Mastercard colluded quite a while ago in their quest to eliminate cheap and low transaction fee national payments networks around the world (hello, Cirrus/Maestro, EFTPOS, Switch and similar) that were detrimental to their business. Technically, the national payment networks still do exist but are almost not seen anymore.
Initially, Visa and MC only had one product: credit cards. First, it was an exclusive product for affluent customers with a high net worth that later became a mainstream product for the masses, and the internet was a major driver for the credit cards to become mainstream.
Then Visa and MC figured that they could also tap into the cash payments and came up with the debit card product, approached national payment networks (granted, via connections in governments) to convince them first to co-brand the national payment networks with Visa/MC debit cards (a dual purpose card and the first fix is free) to later proceed to eliminate the national payment cards altogether, which has now successfully happened almost everywhere. Granted, Visa/MC debit card processesing and interchange fees are much higher than the corresponding national networks' ones and for a reason. Governments in many countries have had to intervene and cap the transaction and interchange fees in recent years.
So Visa/MC did not stop there, of course, and are now tapping into the transaction information to gain further from results of their collusion with each other, and they absolutely loathe any privacy related changes that will thwart their PII and behavioural information collection attempts.
The current trend seems to be national payment networks making a slow comeback by way of instant bank payments, payments to mobile numbers and similar ways, so Visa/MC are at odds and do not seem to have a strategy. At least not for now.
The next wave of instant/mobile payments is going to be exciting.
What you pay Stripe is for the combination of interchange fees + Stripe's own service fees. The Stripe service component of the fee would be charged regardless. Whatever markup a merchant makes for Stripe's fees are not recoverable and irrelevant to the comparison.
Identify a payment processor that a small business making e.g. $60,000/year in $20 credit card transactions can use that would charge lower fees, if you can.
We can take this from the other end though. A merchant who accepts ACH via Stripe pays 0.8%, one who accepts $20 on a credit card through Stripe pays 4.4%, so the merchant pays 3.6% more with a credit card than ACH, and 4.4% more than accepting physical cash. It doesn't matter how much of each is Stripe's profit unless there is some competitor a small business could use to process credit cards for less. Is there?
> You're also making broad oversimplified assumptions about the what merchants do in response to transaction fees.
In a competitive market, increasing every competitor's costs would cause them to pass on most/all of the costs, because the competition is keeping margins thin and their alternative is to go out of business. This is not an oversimplification, it's what actually happens in real commodity markets.
> Multiple implausible things need to be true for high end card users to be losing out on this scheme.
All that's required to happen is that the merchants are passing on more of the credit card processing fees than the amount of the rewards. Since the fees are higher than the rewards, this is not that implausible.
2. Commodity markets literally are an oversimplification.
3. You are conflating unassociated fees! See 1.
The combined fees are the cost of accepting credit card payments. The entire collection of them is avoided by accepting cash.
> Commodity markets literally are an oversimplification.
Only in the sense that everything is an oversimplification.
If OPEC cuts oil production, the price of gas goes up all over, because it's a commodity and the gas stations can't just eat the price increase. If the DRAM companies were colluding to constrain production and they get caught and have to stop, the price of DRAM goes down all over, because it's a commodity and buyers will take the lowest price. But if the price of DRAM goes down, that doesn't mean the price of iPhones go down, because iPhones are not a commodity -- only Apple makes them -- and then they don't necessarily have to lower their prices just because their costs went down.
Real competitive markets can actually behave like idealized commodity markets, or as close as makes no difference under reasonable sets of assumptions.
> You are conflating unassociated fees
If they're unassociated then how does a small business pay only the interchange fee and not the rest of them? If the answer is that you can't, they're not unassociated.
Sure sometimes, but transaction processing markets are not that simple. They are 2 sided markets, i.e. both the merchant and the merchant's customer are customers of the credit card company, who charges the merchant and the merchant customer varying fees based on how valuable the customer is to them. Then you have a merchant services layer on top of that. Then you have the variety of markets and goods that use all these services, all of whom may have different terms and fee structures with the credit card company and/or merchant services company. Merchants will pass on or absorb fees based on many factors, and possibly even varied within its goods and services. It's really complicated, and commodity markets are a gross oversimplification of how it works. Trying to model it would be a nightmare.
> If they're unassociated then how does a small business pay only the interchange fee and not the rest of them?
If interchange fees were 0 then you would still pay the other fees, which do not go to the credit card company. The fees are related, but not associated.
But now your argument is "it's complicated and there's no way to know" which isn't a strong claim that the status quo is to the advantage of the customer.
Meanwhile the portion of the fee that doesn't go directly to the cardholder is a deadweight economic loss, which, in general, is only to the advantage of the parasite extracting it and to the disadvantage of everyone else.
Notice also that the most likely alternative to "it actually harms even the 2% cash back customer" is "it's barely better than breakeven to even the 2% cash back customer and harms everybody else." Which is hardly a reason to keep it.
> If interchange fees were 0 then you would still pay the other fees, which do not go to the credit card company. The fees are related, but not associated.
Ah, but that's the issue. You wouldn't. Because the rewards programs are a monopolistic practice.
Suppose I want to start a competing payments network and my sales pitch is I charge low fees. I'm only charging 0.05%, and provide free code that does the basic thing Stripe does, and keep the costs down by using anti-fraud tech the existing networks don't care to invest in because they're shifting the cost of fraud to the merchants and payment processors. The merchants are immediately on board if I can get cardholders. But the cardholders won't use it because no rewards programs.
Take away the rewards programs and now the network with the lowest processing costs will be the most widely accepted, and then customers want those cards because they're more widely accepted and otherwise indistinguishable.
Yeah, Stripe is a bad example. Because Stripe is a payment service provider. They take all the various fees involved with managing payments and package it up, then put a pretty bow on top with some useful services, APIs, nice marketing. But this package deal is significantly marked up. Stripe absorbs the variable interchange fees and different rewards card markups because they are charging you 3% flat (more or less) and have a healthy margin in for themselves in the middle. Stripe makes a little less when you charge a Platinum AMEX, but they make a relative ton when you charge a secured mastercard. They know that less than 10% of the transactions are these higher cost cards, so they just absorb the lower profit on those transactions.
This is a wholly different game than lower level payment processors. For example at a company I worked for about a decade ago, we stuck a deal with WorldPay which is the largest payment provider in the world. We were paying interchange fees, a small fraud fee of a few cents, and then a worldpay fee of 20-40 basis points depending on the card. We were directly charged more on a premium rewards card, but the margin on WorldPay was a few basis points above cost. But they provided nothing really in terms of services. We had to find our own payment software, terminals, and everything else. They were just the raw service.
So imagine worldpay on one side, which is just brokering with the banks and requiring us to do everything else. On the other extreme, you have Stripe which is "turnkey" and you can sign up with zero sales volume on a pretty website. One is interchange + 30 basis points, the other extreme is a flat 3%+20¢.
Stripe is a great business. But not a good example here. They essentially abstract away all the complexity in this article by charging you more money (their raw negotiated cost with banks is probably 0.8-1.2% on 90% of their transactions), they are marking up 1-2% for themselves as a service provider. That is not to vilify Stripe. They serve a valuable role and the abstraction layers (SaaS subscriptions, free trials, etc) are well worth it for a lot of companies. But keep in mind, this is a service company on top of the credit card system. So its not a great example in this discussion.
That's the problem right there. Bank accounts should be free by force of law. A bank charging depositors for literally anything is just absurd. They should be paying you, not the other way around.
You have all the costs like KYC requirements, actual overhead of tracking and managing the balances and payments. And many of the payments options are free or low cost...
If it was such money maker, surely there would be lot of competition offering zero fee bank accounts.
The banks make money of the debit & credit card payments, savings accounts, having you as a customer for mortgages and other loans.
List of 30 free checking accounts in Belgium: https://www.spaargids.be/sparen/gratis-zichtrekeningen.html (NL/FR)
I do. In fact it is free in my country. Anyone can go to literally any bank and get a free account with support for basic operations, including a checking account. I set up my GitHub Sponsors thing with a free bank account. I'm not paying the bank to get paid by GitHub.
Just turn it into a basic human right and don't look back. They should be glad we're depositing our money in there. It's just completely absurd to be charged even a fraction of a cent for the privilege of having some bankers profiting off of your money. It'd make sense to pay them if they were safekeeping it for you in their vaults. They aren't. They're lending it all out to third parties, gambling in stock markets. You name it, they're doing it. These bankers actually crash the economy now and then with their irresponsibility and they face approximately zero consequences for it.
So why should anyone pay them a cent for this "privilege"? That's just clown world levels of insane. They should be competing to see who can pay depositors the most, not charging them. Managing balances? It's the computer's job. Overhead? Literally not our problem. Just make them eat all those costs. Maybe that'll even make them start lobbying for less government bureaucracy so as to reduce their "overhead". AML/KYC is just the financial arm of global mass surveillance anyway and should not even be legal to begin with.
In Czechia banks literally are competing like that, offering free bank accounts, sometimes even with bonuses on top if you pass enough money through it. So it seems like your model of banks' financials does not work.
What I'd expect instead, based on my having taken exactly one class in economics as an undergraduate, is subtler effects that play out over time. Maybe the general growth in prices over time slows down a titch until a new equilibrium point is met. Maybe wages rise a little bit because retailers can afford to pay their employees more. Maybe life gets easier for smaller businesses that have less negotiation power than the multinational behemoths. Maybe some bank executive somewhere decides not to buy that third luxury car at the same time as ten thousand restaurant owners decide that, just today, they will treat themselves to an espresso drink from the coffee shop instead of making drip coffee at home. That kind of thing.
I think maybe that last example is most interesting to me, because it calls attention to how merchant/consumer is a false dichotomy and things are always a bit more subtle than how the news likes to make us think they are.
Like I get what you are saying, but reality, in this case, trumps theory.
As a PhD student in Econ, I am glad to see that you learned something about how to actually apply this work. Thanks for making my day after some rough grading.
Yes! People forget that the many merchants in this country are also participants in this consumer economy as well. I think one's exposure to mom&pops/small businesses informs this view greatly. One can be forgiven of seeing merchants as faceless corporations if the entire shopping experience has happened at faceless multinationals (...of whom's profits contribute to many consumer's 401ks!)
And also Merchants are in many ways the "edge compute" of the long, very complex tangle of suppliers, wholesalers, service providers, and (of course) the bank. All which entail transactions that, in isolation, looks very similar to merchant-consumer.
To veer a little off-topic, this is why my biggest economic policy dream would be banning or severely restricting ads and marketing.
The fees you describe are a few percent points. The average B2C company spends 10-15% of their budget on what is, for the most part, a zero-sum game with their competitors. Even ignoring all the aesthetics and societal benefits, imagine the boon to overall productivity.
obviously gradually, and over many years, to make the transition manageable. e.g. increase taxation on marketing expenses by a few % a year so it is less and less financially viable.
The bitter pill to swallow is that consumer preferences played a role in evolving this system. Card networks are managing a two sided market, and that means offering value to both the merchant and the consumer. Reward programs are examples of consumer value. If Visa decided to kill its “signature” interchange tier, those customers would move to MasterCard.
Many rewards programs are also predatory in the way they want to sell your data so you are targeted by advertisers for products you wouldn't buy otherwise.
Granted, some slice of it is kept by the issuers, but it turns out issuers mostly make money on interest not interchange.[1]
[1] https://www.valuepenguin.com/how-do-credit-card-companies-ma...
Meanwhile in Europe the issuers are capable of running a profitable business on only 0.3% fees (and much lower for debit). So even though you may think rewards programs are nice, they are in the end costing you more, not giving you free money.
It’s just another cost of business. Sometimes you bump up the price to account for it, sometimes you take the hit in profit in exchange for more volume hand more profit).
Very rarely do businesses do “cost plus” pricing. They usually charge what they can.
Which is why prices are sticky.
For the businesses that price based on cost alone they usually reject credit cards all together. Long ago I shopped at a computer parts store that had the best prices and they were all focused on volume - no further discounts, no credit cards, no free delivery.
Honestly no. Price is relative. The sticker price might change, but the effective price depends on the customer. Largely generalized: Low-credit customers essentially subsidize the cost for high-credit customers. Let me explain:
So let's call the current price: p.
- The cash customer pays: p
- The rewards card user pays p - 1% (because they get cashback)
- The mid-level rewards customer pays p - 2%
- The premium reward users pay p - 5%
Now let's say that reward cards are banned. No more rewards cards. Let's call the new price (after rewards cards and their associated fees are removed) as 'n'. What would happen?
Scenario A: No Change
Now I believe if you got rid of rewards cards, then n = p. Merchants wouldn't lower prices, they would just keep them the same and pocket the difference. So now everyone loses, except for cash customers who are unchanged. But everyone pays p, which is at best the same as before, and at worse 5%+ more expensive by getting rid of rewards cards.
Scenario B: Utopia, the Merchants Care
Let's make the argument you are making, which is that maybe the merchants would be nice and give us a cut of the rewards card savings. This would save them maybe 1%. I suspect slightly less on average, but let's call it 1% to be generous.
So in scenario B: n = p - 1%
Yes cash customers win! They pay 1% less than before. But the majority of customers still lose. Cash customers are the only winners. Normal rewards card users are paying the same amount they were before. The bell curve of card users are probably paying 1% more, while the high-end premium card users are paying 4%+ more than before. The majority of consumer still lose, only cash customers come out ahead.
This scenario of course assumes that merchants are generous and pass on the savings. If this did happen, you would likely notice savings for a year or two at most, due to economics and market forces.
Eventually, like I said above. The price just becomes normalized and the price is the price once again. House or car prices go up slightly at first because of more money in customer pockets, employers are less pressured to give out high raises, so maybe income raises are 0.5% on average lower that year, and 0.3% lower the next year and 0.2% lower the year following (which actually makes it look like raises are increasing YoY other than the first year). This continues and 3 years later that 1% gain is normalized into the economy and becomes the new baseline and we are back where we started.
So no, everyone does not lose with rewards cards. There are winners and losers. You could argue that lower income customers (the ones most likely to pay with cash or low-end credit cards) pay the price for the higher-income customers (the ones most likely to have 800+ credit scores with premium cards).
So, largely generalized you could argue that low-credit customers subsidize the price of goods for high-credit customers. I think that's a more accurate argument. And to be clear, I'm not stating that it's fair, just that it's accurate.
If the average over all transactions was 1%, then the cash customers must have greatly outnumbered the 2-5% reward customers. In that case, the majority of consumers aren't losing. The majority benefits or sees no change.
If a majority of customers were in the 2-5% range, then the new prices must be more than 1% cheaper, maybe even 2% cheaper. So now all the cash customers and the 1% customers benefit. And the 2% customers might see no difference.
I believe that you believe. Rewards programs are ultimately bad for consumers and merchants, but great for rent-seeking banks. As a consumer I'd prefer an EU style cap and not have to spend my time working to scrape back some of that money.
https://www.wsj.com/articles/goldman-is-looking-for-a-way-ou... https://archive.is/bkoBG
So yes, the rewards are "automatic". But what's not "automatic" is you getting the maximum possible reward percentage on your spending. For that, you often need to optimize your spending along the guardrails put up by some random card issuer. Which takes effort and time. I don't know about you, but I've got better uses for my time, so I'd prefer just not having 2-3% of the price of all products I buy to go towards obscure rewards through which I need to claw back some of those 2-3% by gaming the system. If I want to play games, I buy a computer game and play that.
That's just my personal preference. It seems like a much fairer system. I just don't like that middlemen take an unfair share, even if that middleman is me.
Absolutely not. Fuck rewards programs. I don't want to waste a single second thinking about how to optimize my card usage and spending habits to get "rewards".
https://old.reddit.com/r/CreditCards/wiki/list_of_flat_cashb...
But credit card fees exist, and will exist regardless of what you choose. Just like filing for your tax return - you can either take the money or let the bank+merchant have it. But maybe you're just too busy to be bothered by reclaiming that money, too?
The amex "I pay $500/y for a 3% card with rotating quarterly 4% and 5% categories" shit though? Yeah, I agree, ain't nobody got time for that.
If you conceptualize it as "Annual fee minus reward credits" it's far more reasonable than that. For example, Amex Platinum is $695/year, but the Walmart+ and Digital Entertainment credits are $395 combined. Compared to the next highest card in Amex's line - Gold @ $250 - this makes more sense that you might originally think.
2% is about the most you’re going to get “no strings”.
1. Apple Card which is 2% back on all Apple Pay
2. Costco Visa that does 3% on restaurants and travel
3. Amazon prime visa, 5% back on Amazon and Whole Foods. (This is just saved to my Amazon account so I don’t have to think about it.)
It’s pretty easy to remember to use the Costco card at restaurants.
For me I just sign up for a new credit card twice a year and then shift my normal spending to the new card, canceling the old one.
I usually get a week’s hotel stay for free or $1000 cash back for nothing more than taking 30 minutes twice a year to find the best card.
I might be totally off base, but this seems like it can't end well.
If you go to r/churning back a few years, people were getting 24 new cards a year. Open the card, buy $4,000 worth of gift certificates, claim the reward, close the card, repeat. It was insane the amount of effort people put into it.
Banks creates these rewards to incentivize people to open the cards. Chase did eventually put a limit of 5 cards in 24 months (a limit I have hit), but they just reject you for the card off the bat.
In terms of the credit score hit, it's minor. I've never had my score change by more than 5-10 points. I wouldn't do it if I was applying for a mortgage in the near term, but otherwise, it doesn't really change my score as 5-10 points doesn't change the band you're in.
I'm well aware of 5/24 -- I might suggest that if people are shuffling things around that much, they deal with Chase *first*, before looking at other issuers, just to be sure those applications don't get denied.
Prices has already been raised, I don't think they'll ever drop back, so that doesn't seems like a reasonable data point to dispute the price raising claim.
Instead you need an app installed on your phone (alipay or wechat), where you transfer cash into the app in advance. All with Chinese as the only language. (From what i heard, there now is a tourist-version of alipay in English. Last time i tried it was mostly Chinese)
See also, subway stations in Japan, which IIRC operate under a similar model.
Free transit is a terrible idea because e.g. it means tourists don't contribute and anyone who passes a tax cut will have defunded it without the actual users being able to help.
This is literally how they get around - asking those who can pay the fare to subsidize them doesn't seem like that much to ask.
https://www.merriam-webster.com/wordplay/usage-of-case-in-po...
Credit card in EU is only for rental cars.
The lack of a high interchange in the EU has not made any positive impact on prices.
I live in Paris, France, one of the most expensive cities in the EU, and was recently on a roadtrip through the American Southwest and I disagree.
Subscriptions? Want to compare how much internet or phone bills cost in the US vs France (I pay 20€ (really 10 because it's the same provider) for unlimited phone calls, messages, internet and 30GB Internet in most of the world; and 50€ for 5Gbps down/1 up fiber which also includes a Netflix subscription and something like a hundred TV channels)? Even Netflix is more expensive in the US.
Goods? What goods? Food in restaurants is more expensive in bumfuck nowhere restaurants with Maga hat wearing clientele than mid end restaurants in Paris FFS! Clothing is way too variable to be a useful comparison (there's cheap shit and expensive luxury items in both countries).
Electronics... maybe? I compared Apple Mac Mini and Studio prices and it was pretty much the same.
Do you have anything concrete in mind or are you just imagining things?
There is one thing that is definitely less expensive in the US - fuel. But that's by policy in the EU, not due to credit card interchange fees.
Merchant fraud and merchant credit risk is borne by acquirers (although, if they went under the issuing baking is ultimately on the hook). But fraud by the cardholder and cardholder credit risk is borne by the issuer.
Yes there is the downside for businesses when the processors reverse charges but if this was big enough of a downside then people would stop accepting the card.
Yes sometimes people get their number stolen and are out the money for a while during an investigation, but again if this downside were big enough people wouldn’t use that card anymore.
Yes there are new types of fraud enabled by the technology.
The big benefit is you don’t have to have liquid cash sitting around where people can grab it and disappear.
Some merchants don’t accept some cards… they’ve decided that the cost outweighs the benefit. My grocery store fought against accepting Apple Pay and they do now. Walmart doesn’t.
One of the main benefits of credit cards over most other forms of payment is that that isn't the case. A fraudulent transaction on a credit card ties up some of your credit limit during resolution. A fraudulent debit card transaction or personal check takes money out of your account. Of course, if you wait long enough, you may have already paid the bill containing the credit card transaction and then you're in the same boat.
It would be impractical for merchants to accept some branded cards and not others. Imagine "we accept "Chase Premium One" card, but not "Chase American Airlines" card." Very confusing for consumers. If it's a whole category, like Amex, it's easier to refuse it (besides, low income consumers are unlikely to have an Amex card).
Also, even though Costco only accepts a single brand of card (used to be Amex, now Visa), despite their size and market power they accept any Visa card a customer presents.
That seems absolutely ridiculous. The FTC doesn't think this is a problem?
I didn't see any other comments actually answer the question, so I'll try my hand at this. (Caveat: I've never worked in the finance industry professionally, but I consider myself one of the Redditors mentioned in the article.)
From my layperson understanding, banks undertake not to issue more than a certain percentage of cards as "Signature Preferred" cards, and there is a minimum credit limit required to open such card accounts.
The Chase Sapphire Reserve mentioned in the article is a Visa Infinite card, and Chase requires a $10,000 credit limit to open it. Chase doesn't give $10,000 credit limits to just about anyone, and considering how flexible the US is with identity and income requirements, Chase needs to be more stringent with their underwriting and verification processes to avoid issuing such cards to people who are more likely to default.
From further research, it looks like the Visa Core Rules do offer guidelines [1], for anyone interested:
The bank would incur additional costs to satisfy the requirements to issue higher tier cards. For Visa Infinite, banks are required to offer benefits like "Priority assistance and convenience", "Exclusive privileges and rewards", and "Safety and security", and in some countries, concierge services. Visa Signature cards must have 24/7 customer support.
The PDF is a gold mine for anyone interested in learning more about the various tiers.
[1] https://usa.visa.com/content/dam/VCOM/download/about-visa/vi...
Presumably, for example, Starbucks is willing to pay higher interchange on the Chase sapphire series than on the Chase freedom series because they believe that the people carrying Chase sapphire cards spend more money. Starbucks would not be willing to pay that for less profitable customers.
The high fee for rewards cards can be justified to merchants because those are their best customers, i.e. rich people, people to travel a lot, etc.
It’s actually kind of messed up because rich people are getting a larger discount on goods than poor people who can’t get a rewards card.
The article goes on to ask the question "Why isn’t every card a rewards card?", meaning why doesn't every card pay cash back, but I think the more interesting question is why every card isn't branded in a way that makes the issuer more money. Why do they bother to issue cards where they get paid less? Why not brand every card as a "Signature Preferred" and then pocket the money instead of giving it to the less discerning customers?
And the most interesting question only gets a handwave: "The basic intuition underlying rewards cards as a product is that highly desirable customers have options in how they spend their money." But how far does this go in explaining why merchants "choose" to participate in this program. The obvious answer would seem to be that they get no benefit from the system as it exists but have no real choice, but maybe there is a better answer?
I liked the topic, but wished the author could have given more insight on what's happening behind the scenes to produce the outcome we see.