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Comment by randomacct3847 | Hacker News Reader

I have to say the best thing about credit cards in the U.S. is the massive point bonuses you get for signing up for cards. I have gamed the credit card bonus system for ~6 years and pay for 90%+ of my personal travel including international business and first class flights and high end hotels with points earned from opening multiple cards each year with almost no impact to my credit score (760+). Combined with the fact that points are not taxable it is probably the single most lucrative “side hustle” I have that requires almost no work.

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Money doesn't grow on trees. The "bonus" you get is actually paid by higher prices on the stuff people buy. Card fees are transferred to merchants, and merchants transfer it to customers via higher prices. I wrote about it some time ago: https://svedic.org/economy/indirect-razors-and-blades-busine...

But, you are right, if you careful you can game the model. In your case, if you are paying 90% of your travel expenses with bonuses you are probably getting back more than $400 a year, which is an average credit card cost per US household.

It’s much more than $400. If you optimize redemptions it is more like $25k+ back a year e.g. a single first class redemption (took Japan Airlines first class last month to Tokyo) was ~$12k one way.

Keep in mind the profit margin on first class seats is insane - their cost to provide a "$12k" trip was probably more like $1-2k. There's a reason you can get crazy amounts of miles via sign up bonuses, but you never see a cash back award much above $500 (and those are usually for business cards with high minimum spends).

Yes, I mean I don't personally value a first class trip at $12k (e.g. would never pay for it out of pocket), but it's fun to be able to experience the very best in air travel at almost no cost every one in awhile.

I do value business class, though, and happy that I can redeem points over paying for it out of pocket. There is a joy in actually being able to lie flat and sleep on a 11-14 hour flight to Asia or Europe and feel rested when you arrive vs feeling sore/cramped/and jet lagged for the first 2 days of your trip!

>The "bonus" you get is actually paid by higher prices on the stuff people buy. Card fees are transferred to merchants, and merchants transfer it to customers via higher prices.

Doesn't that mean people who don't engage in this 'hustle' are essentially losing money?

That is correct. Merchants and customers who aren’t gaming their credit cards lose money.

Credit card fees end up as a transaction tax on a huge part of the economy. The folks who have figured out how to insert themselves into the money flow (Visa et al.) are sucking a huge profit out by slightly taxing everyone else.

As a side benefit for the credit card companies, they also collect data about everyone’s purchases, and can earn extra money by selling that data to the highest bidder, compromising customer privacy.

The system is in need of some strict regulatory oversight, but card networks can afford expensive lobbying / campaign donations, so don’t hold your breath.

Calling it a tax belies the enormous benefit that the payment networks have for customers and merchants. The fact you can make a purchase from most of the merchants in the world, with a card issued from your local bank is an extraordinary convenience. I think a lot of the commentors here don’t know (or have forgotten) how tedious and slow international/online shopping or travel used to be when it came to money/payments. You don’t know slow and unreliable payments until you’ve had to mail somebody a cashiers check.

Everybody's paying for this, it doesn't matter if you hustle or if you don't, if you have a card or not. Contracts prohibit merchants to charge more than cash so they need to cover the processing fee by increasing the prices paid by all. It's not like they can refuse to accept cards.

It's one of the larger rackets in the economy today, whole percentage points of consumer spending is syphoned by the financial industry as pure rent.

"Contracts prohibit merchants to charge more than cash" - Interestingly, this is changing in New Zealand. More stores are passing on the fees (2.5%?) if you pay using a credit card.

Pure rent? I don't love them, but providing a worldwide payments network is not free or trivial.

I was talking about the rent part on top of the costs of those systems, nonetheless they are trivial compared to the revenues. If there was an international agreement on a single payment system with mandated interoperability, we could find out what those costs actually are in a competitive market, probably fractions of a cent per transaction.

Yes and no.

Essentially, card processing fees (paid by merchants), interest charges (paid by cardholders who carry a balance), and annual card fees (for some cards) are income to card issuers.

Points, cash back, and paying interest on purchases from cardholders who do not carry a balance are expenses to card issuers.

I expect income is rather static at scale. Which is why card issuers are always tweaking the expenses side. The numbers have to add up somehow, and if you go from all cardholders redeeming points for a real value of $100 to their doing so for a real value of $300... they won't.

Sign up bonuses (the easiest part of the hustle) are the hardest to gauge from the card issuer's side, as a hustler looks like a regular customer. There have been attempts by some issuers to track this in a more detailed way (e.g. Chase's 5/24), and I'd expect to see more issuers moving towards doing so. It's essentially the same problem Vegas has.

Yes. Exactly.

But remember, this is how credit cards work anyway. These companies rely on people not paying their bill in full each month, paying high rates of interest. That pays for all this "bonus" crap and more.

You've got no real evidence to support the idea that higher prices specifically are how credit card companies pay for their perks...

All you can say for sure is that credit card companies have revenue, and some of that revenue is spent on marketing, such as signup bonuses, and that's pretty obvious.

"Company sets prices to account for marketing budget" is hardly a revelation.

Actually, it's not entirely true. A few years back EU cut the interchange fees dramatically (to 0.3% on credit cards, 0.2% debit) but all the savings were pocketed by merchants

> The "bonus" you get is actually paid by higher prices on the stuff people buy.

In the EU, we pay VAT on practically everything, so, US prices are still cheaper with credit cards etc.

Are you sure you're not spending more than you otherwise would be? That's the real kicker with bonuses.

I pay my rent with my credit card when I need to meet a certain level of spend to get a sign up bonus e.g. I’m not actually buying things I otherwise wouldn’t buy just because I opened a new card

Are you using cash advances to pay for rent? How can you use a credit card to pay rent without getting hit hard with fees and special interest.

Some places just accept credit card payments. Even with a ~3% surcharge for paying with a credit card, it can easily be worth it, depending on the particular sign up bonus.

I pay a 2.5% fee but it’s not considered a cash advance just a regular purchase.

The math works for me since it’s the fastest and most convenient way to meet spend (usually around $3k)

For a $3k rent payment (mine is less than this but as ex to meet spend), you’d pay a $75 fee, but earn the signup bonus + 3075 points. Depending on the credit card, 3075 points is likely at least worth $30.75 if not more, so your net fee is $44.25 or 1.475%, which is not bad IMO.

Gotcha it was to meet the sign on bonus. I was thinking you were getting a net benefit for just the points alone not to meet the sign on bonus.

"Bonus" means the initial thing. The rewards are called rewards or points or cash back etc.

Your example sounds like you’re losing money. What am I missing?

The signup bonus is >>> the fee you pay.

There's a service called plastiq that charges a flat 2.5% fee that won't look like a cash advance on your statement.

Otherwise, some landlords might let you pay via credit card.

Unless the value of the points you're getting are worth at least 2.5% cash back (which I doubt is the case), this is a pretty bad deal.

I see offers for stuff like $150 cash back after spending $500. Even if your rent is like $2000 that's a $50 fee which earns you $100.

It is the case with sign-on bonuses through, which is which spawned this threads, and which was the use case mentioned (meeting minimum spend).

Also, if you use something like plastiq.com, you can use them to pay your rent and other places that typically do not accept credit cards. They do have a charge for their services, but frequently runs 0% charge sales.

Disclaimer: I have been a satisfied customer for them. I do not work for them or get any kickbacks.

There are services specifically for this. They charge a fee, from 2-4% (sometimes there are promos for lower fees).

If you are spending to earn a bonus, e.g. 50,000 points for spending $3,000 you are earning 16+ points per dollar (1 point is generally around 1%, sometimes better).

Making donations through services that waive processing fees for the merchant is another good way to do this. For example, PayPal's Giving Fund or Facebook Payments.

(But only for donations you're making anyway, and only when fees really are waived.)

All those bonuses are coming from somewhere, though. In this case, it mostly comes from higher fees on merchants, which leads to higher prices.

You're getting some points, sure, but everything you buy is a percent or two higher to pay for it.

That's all true, but as a consumer I think a percent or two is worth the conveniences that cards offer. I pay for virtually everything with cards. I rarely even carry cash. Cash is bulky, dirty, inconvenient to get, and has absolutely no loss protection.

I pay my balance in full every month, so I don't pay finance charges. If you can't do that, then don't use cards. They will eat you alive. Understand that most of the benefits/points that are offered are paid for by people who carry a balance.

If you can manage them and keep the balances paid, the points are just icing on the cake. I rarely pay for hotels anymore, for example.

> If you can't do that, then don't use cards. They will eat you alive.

I like to think as credit cards as tax on the poor to feed the rich.

I would call it a tax on those with poor financial planning skills.

Also, yes. But not only.

I recommend this wonderful essay into the trials of being poor, which isn't necessarily because you're bad at financial planning:

https://whatever.scalzi.com/2005/09/03/being-poor/

Also this recent HN posting and discussion, about the "Vimes [from Discworld] Boot Theory":

https://news.ycombinator.com/item?id=18793259

Read the "being poor" article.

Conclusion: I'm poor.

That would be great if it weren't a prisoner's dilemma at that point.

There is no getting away from the fees, so I must get a credit card, but that means that all of my purchases are tracked.

If you don't think this is important, you haven't been paying much attention.

> but as a consumer I think a percent or two is worth the conveniences that cards offer

Yes, but we're also paying for that guy's international flights. I don't care how little it is: I don't want to pay for that. Buy your own vacation.

For the record: good on him for taking the points. 100% his prerogative. My problem is purely with the eventual cost being amortised across other customers, even non-CC customers.

Sure, but very rarely can you pay less by not using credit cards. There are some exemptions like "cash discounts" but in my experience they're rare.

>Sure, but very rarely can you pay less by not using credit cards

Only if you pay the full dose immediately at the end of the billing period. Anytime you've haven't paid your cc bill in time, you're charged way more in interest. People have crushed under cc debt.

That's tangential at best to a discussion of credit cards as a payment processor.

The encouragement of the use of credit cards goes hand in hand with "spontaneous purchases" without the money, added interest, and cc debt.

So, it's only tangential in the NRA sense of "guns don't kill people, people do".

Hooking people to using credit cards for payments plays into this whole system.

In Germany and France, for example, the equivalent payment systems are still online, through cards, etc., but they involves debit cards almost exclusively.

I think it is a given that ironically you should never use credt cards for credit but like a debit card.

The point about paying less is that the merchants who often complain of the processing fees and delays seldom give a discount for paying in cash to offset the lack of fee surcharges bundled into sale prices.

Everything everyone buys is a percent or two higher. This behavior should really be considered antisocial. GP is taking advantage of the system for their own personal (moderate) gain to the (very small) detriment of everyone else.

Sadly, that pretty much describes most successful businesses on the internet today.

Seems like a good example of "concentrated benefits versus diffuse costs."

https://en.wikipedia.org/wiki/The_Logic_of_Collective_Action

The problem isn't the consumer who takes advantage of the system. the problem is the regulations that prevent consumers from choosing whether they want to pay that extra 2-3% that credit card companies charge the merchant. Right now, if i want to pay with cash, I still end up paying that extra 2-3%, even if the merchant wants to give me a 2-3% discount, they're not allowed, due to those regulations.

It's payment network agreements, not regulations in the government sense. E.G. If you accept Visa, you cannot mark up credit transactions & discount for cash per your agreement with them. It's nuanced (gas stations do it compliantly by advertising both prices next to each other).

More info: https://www.pymnts.com/visa/2018/non-compliant-cash-discount...

But that is a sign of a lack of regulation, as that is obviously anticompetetive behavior (demanding that a competing product cannot be sold cheaper).

It's the same product being sold, not a competing product. And as a merchant, you aren't required by any law to accept Visa, or credit cards of any kind. Many merchants don't accept Amex, for example, because their fees are a few points higher than competing networks.

Cash and Mastercard are competing products, and Mastercard requiring the merchant to sell payment with cash at the same price as payment with Mastercard is obviously anti-competetive. Whether the merchant has the choice to not offer a particular product is irrelevant.

Tragedy of the commons.

That assumes the cost of cash handling is zero (or close to it), which isn't true. When I worked retail around the turn of the century, here's an estimate of the time added by cash handling:

- 5-10 minutes at beginning and end of shift to count cash drawers in and out, and make deposit bags, per employee

- 10-15 seconds per cash transaction to count payment and make change

- 60 minutes to prepare daily cash bank deposit and restock change (once, done by a supervisor)

- Employee theft from cash drawers, while not a common issue, did happen probably at least once a year

Now, I couldn't say if that all adds up to an extra 1-2% overhead, but I think its disingenuous for people to suggest that merchant fees charged by credit cards have little to no benefit to retailers. I think we'll see way more businesses go to electronic payments only within 10 years or so.

Three of the four problems in your list of cash-handling downsides are solved in some places through self-service checkouts where the machine automatically counts the cash and dispenses change, so a human doesn’t have to. Sometimes there is an actual human at the checkout, but when you wish to pay with cash, you are directed to put the money into a machine placed there, so that the cashier does not have to actually handle cash.

In recent months I have seen the latter system (human cashier + cash-handling machine) in a Madrid airport restaurant and a Romanian hypermarket.

If the company servicing these cash machines charges 0%, sure. I'd bet they end up charging fees close to what credit cards charge, though.

You can look at it as interest that's not disclosed or as a service fee for handling transactions. It's not obvious that an explicit fee for either would be lower.

I think people have claimed that when the experiment was done by capping fees, things don't get cheaper, so your viewpoint may not be accurate.

A tax paid by those without the same strategy, presumably. For instance, I hate the idea of CC points and do not participate. I still use my card and pay the same prices.

Isn't this only true if you assume profits are constant (hence competition effectively not happening)? They could we be paying for some of it by sacrificing profits, and judging from the fact that some of the best deals get discontinued, I don't assume they all end up making money.

The money still came from somewhere.

Yes, I don't think anyone claimed money comes from nowhere.

Well, you kinda did when you implied that profits aren't paid by the customer. Just because a company "sacrifices profits", doesn't mean those profits would be the same at the same price in a market where there is no credit card quasi-monopoly.

I think the bonuses are primarily paid for by the interest charged to people who carry a balance, since the entire point of the rewards programs is to create customers who carry a balance.

At least some of the cost is borne by merchants - rewards cards have a higher interchange rate.

https://www.nerdwallet.com/blog/credit-cards/money-credit-ca...

Yes, if there were a law requiring the consumer pay all fees for their specific card, this form of freeloading wouldn't exist.

This is true. The fees pay to run the program including all the front-end companies that sell card products to the market; the banks financing it want those big, juicy 20% APRs

But everyone pays the higher prices while very few hustle CC rewards programs. Just like that superman movie plot or Office Space, the GP is gathering up all those fractional pennies and using them to buy first class air travel.

r/churning for those who are interested.

I wonder why this isn’t the case in Europe? Some cards offer small bonuses but peanuts compared to US ones.

That’s amazing. Do you have any tips? I was trying to do this and got completely overwhelmed with all the numbers.

Plus for the life of me I can figure out if a travel card is better than cash back.

The best thing about credit cards in the U.S. is the amount of transactional data credit card companies are able to sell to anyone with a dollar.

Your credit reward system comes at the cost of half of the world's businesses and the government knowing every single thing on your shopping list last week.

That is not how credit card processing works. Some companies store additional data on a store by store basis, but visa/MasterCard does not transmit that info. They deal with a lot of data, but it's transactional. To make the transaction happen.

So no they can't sell your shopping list, the system simply doesn't work that way. Terminals don't send that info.

In-store reward systems aggregate purchases under a common identifier, and chain stores will also attempt to cross-reference purchases and create identifiers for non-members through credit and debit cards. Even when individual items cannot be attained, these systems still can reveal a lot just through the purchase summaries. Store location, type of purchase, etc. All of this data ends up in the hands of tons of financial companies. Stores don't have to directly give up this data to competitors. The information market is simply too big and unregulated.

Cash is the only way to circumvent this process until we have anonymous credit systems.

Yes in store reward systems are completely different than credit card and debit card companies. I work in that industry and look at the raw data. You are definitely incorrect about how the various levels of a transaction works and how the various companies collect pieces of relevant information. Information is definitely collected but please don't spread misinformation. Your above sumnary is completely misguided to how it actually works.

Specifically, what am I wrong about? Always interested to improve my understanding of how this complex network of data trading works.

There certainly is a mechanism to send significantly more data, though I don't know how common it is:

https://dharmamerchantservices.com/faq/what-is-level-2-and-l...

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