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Comment by ZeljkoS | Hacker News Reader

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.

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>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.

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.

"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.

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.

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!

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.

> 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.

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

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