Hacker News Reader

Comment by _xnmw | Hacker News Reader

Huh. And all this time, as a person who uses credit cards heavily, but never paid a penny on interest for years, but used all my card benefits, I thought I was cheating the banks. This is the first time I learned that they make money on each transaction regardless of interest or late payment fees. That’s a revelation.

View on HN

That 3% is also baked into the price of goods at this point, so youre paying it even when using cash.

However, some people think the credit card companies are inflating the price of goods with rewards, without taking into account how expensive cash is to deal with. To count, to detect counterfeiting, to lock up, to trust employees, to move. Processing cash isnt cheap, and can involve considerable risk, including increased IRS scrutiny.

Handling money is a cost, like rent and electricity, built into everything we do. Credit card networks are much more efficient than existing alternatives.

> That 3% is also baked into the price of goods at this point, so youre paying it even when using cash.

Every once in a while, I'll run into places that do a cash discount, usually smaller businesses. It's super common at gas stations - even big chains.

I have to feel its misguided in some cases. Credit card transaction fees hit the hardest on small purchases, as they take a larger percent. A business thats lots of tiny transactions might come out slightly ahead with cash, but now youre losing customers, and maybe not book keeping accurately enough to be legally compliant.

I have noticed gas stations are more prone to this (along with very small business), although it happens on occasion at restaurants as well. I figure, with 3% restaurant rewards, I break even at 3% restaurant charge and or using cash.

> A business thats lots of tiny transactions might come out slightly ahead with cash, but now youre losing customers

Why would businesses that offers a cash discount (which means they also accept credit/debit) lose customers?

I think they meant a business that only takes cash.

Because card paying members may choose to shop the store where they don't feel like they're losing.

Ie; gas station 1 has a 3c cash discount. Gas station 2 has no discount, but you don't feel like you're not getting the discount. Gas station 3 can even compete by having a 1c credit discount.

Keep in mind that accepting cash isn't zero-cost. You need drop safes, daily pickups by secure courier, and you're at risk of robbery (especially for places open at night, like gas stations.) Depending on circumstances, it can cost more than 3%.

those are all things I put in my first comment above.

For me, even when buying things like new computers, it will cost 3%-5% more if I use a card.

The dominance of cards is mostly American or, at the very least, location-dependent.

where as I feel I pay 2-5% less when using a card. Target and Amazon are both 5% off using the right card, vs 2% on a generic cash back card. Gas is 4% off on the costco card.

The real savings are in not reporting the income for taxes, and even payroll taxes / insurance if you get to pay someone with cash with the cash you're given, and worth much more than saving a few % off credit card fees.

Actually a lot of cash only businesses are probably dodging taxes.

> Every once in a while, I'll run into places that do a cash discount, usually smaller businesses. It's super common at gas stations - even big chains.

That's generally prohibited by the credit card merchant agreement. Gas stations are one of the rare exceptions.

> That's generally prohibited by the credit card merchant agreement.

That is not true.

> Cash Discount programs are legal in all 50 states per the Durbin Amendment (part of the 2010 Dodd-Frank Law), which states that businesses are permitted to offer a discount to customers as an incentive for paying with cash.

https://www.quantumelectronicpayments.com/implement-legal-an...

You are missing the point. The credit cards companies have mandated that the "regular" (that is the main advertised) price is the one you pay by credit card. They don't object to having cash-discount prices, but they want to make sure that people do not perceive that credit card purchases are more expensive. It is all about perception.

Cash discounting is fine in all states. Surcharges are typically prohibited. Gas stations may be exceptional in that some will publicly advertise the dual pricing where allowable.

They aren't allowed to charge minimum checkout amounts for cards either. I reported a few businesses before when it was more widespread. Some of them (usually gas stations) put up $10 minimum credit card purchases. If they try to pull that on me I usually just say "you know that's against the terms of your merchant agreement" and they'll sometimes run it.

If you had to carry cash for small purchases that would remove the convenience of cards.

The minimums are annoying but understandable. You pay a flat transaction fee (15-30 cents) plus a percentage of the sale (roughly 1-4% depending on the card type). If you’re doing a lot of small transactions, that 15-30 cents is a huge hit to your margins.

Buying a single pack of gum on a rewards credit card might lose the merchant money. They’ll make up for it in aggregate, but that transaction has a negative return. I understand the desire to limit how frequently they sell at a loss.

Credit card agreements used to require parity with cash and no minimums (as Visa and MasterCard had to create new buying habits). But recent laws have placed restrictions on those restrictions.

I get that but sometimes u transact outside and then you decide to go inside and spend a few bucks but then they hit you with a minimum. It's annoying. That 30 cents isn't going to lose money unless you bought something for like 60 cents. Margins are big inside, even if you only spend a few bucks it covers the fee versus no sale. They're just trying to boost basket sizes for more profit.

Minimums are legal.

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 permits businesses to impose a minimum purchase amount of up to $10 for credit card use, but the minimum must be the same for all credit card issuers and payment card networks.

Surcharges were prohibited by merchant agreements until the big card networks settled a class action lawsuit. As of 2013 anybody can add a surcharge, provided they follow the card network rules. State laws prohibiting surcharges were struck down by the US Supreme Court in 2017.

https://usa.visa.com/dam/VCOM/download/merchants/surcharging...

https://www.mastercard.us/en-us/merchants/get-support/mercha...

https://www.clearent.com/insight/surcharging/

At gas stations, the cash price is shown on the signage to lure in customers. They can advertise a lower price (the cash price) than the actual price they charge (as people almost always pay by card, especially when they pay at the pump).

I don't think they expect or want customers to pay by cash.

That's a US thing. In a lot of countries, CC transactions have a surcharge. They also have independent debit networks (not Visa Debit or Cirrus, which uses the Visa/MC Networks) that offer substantially lower merchant fees (often a fixed fee per transaction of equivalent of 0.1-0.5%).

> Credit card networks are much more efficient than existing alternatives.

That, plus user transaction data is hugely valuable as its own product: tracking users and their spending habits and selling the signal. Cash takes away from that revenue stream.

There is also chargeback fraud and merchant equipment and maintenance. The owner of a chain of gas stations in Florida sued Visa for refusing to certify his new chip installation when chip transfers were coming around. Without being able to take chip cards he would be liable for every fraudulent card swipe where as liability for chip transactions are with Visa under their new rules.

But otherwise you are right. Plus register employees need cash bonds I believe for insurance.

Basically, the credit card networks are bribing customers to become complicit in extorting a sales tax from merchants.

Or sharing kickbacks to consumers to increase their buying power, which isn't extortion or illegal.

If their processing service is cheaper and better than cash services (Brinks etc), then the 2% cash back is more like paying customers for the aggregate data collection. Visa gets paid to replace cash processing, and pays out for consumers providing shopping data.

It also has the effect of forcing accurate payment of taxes due to an an indisputable record being created of sales:

https://www.youtube.com/watch?v=_Gsz7Gu6agA

The reason why some places don't accept AMEX is because their transaction fees are higher. I haven't paid a cent in interest in probably over a decade but AMEX incentivizes me to use my card for everything with rewards and make money off the fees.

It's also the reason why credit card benefits are worse in Europe, as I believe there are restrictions on what the card companies can charge for transaction fees.

Here's a typical case:

https://ec.europa.eu/commission/presscorner/detail/en/IP_19_...

In this example the fees capped were for outsiders who are buying things in the EEA. e.g. an American buying something from an Italian vineyard or an Australian buying some authentic British tableware (for now).

The EU also forbids hidden fees for most types of transaction. It wants the advertised price to match the price paid by consumers‡. If I have 25 EUR in my pocket and you advertise a product for 25 EUR I should be able to get that product. Whereas in the US if you see a product advertised for $25 you know they'll want maybe $30 or more as they add fees, taxes and charges on top of the supposed price. As a consequence this means the fee for a card ends up built in to most online prices in Europe, even if you actually transact in some other way that reduces or eliminates the fee for the seller. So ensuring the fee is low makes good sense here too.

‡ British supermarkets (used to?) use a trick to reduce taxes here - they charge you a fee for their backend card processing, but they subtract that fee from your checkout price. The cost to you doesn't change, and you'd never notice unless you read the small print, but they've successfully argued that this service fee should be taxed differently than your purchases, saving them money. Since it doesn't affect the headline price versus price paid the EU doesn't care.

How would the supermarket save money by charging a separate service fee? Many of the items sold in supermarkets (e.g. bread and milk) aren't subject to VAT, whereas (almost) all services attract VAT at 20%

I'm guessing it has something to do with claiming the VAT on processing fees as input tax: https://www.gov.uk/guidance/vat-guide-notice-700#section4

That's not true. The restrictions only came into force a few years ago. The benefits were never there (or at least much shittier - some banks even charge for credit cards!) in the first place.

This isn't necessarily true anymore. AMEX has lowered rates over the last few years, and also only charges one rate for all of their cards (from no annual fee up to Platinum & Centurion cards). Visa on the other hand charges different fees depending on the tier of card (Platinum, Signature, Infinite), with the higher tier fees being higher than AMEX IIRC. In fact, some retailers (Hello, Kroger) have gone to bat with Visa over the high fees and stopped accepting their cards (even if temporarily) recently.

They do. some places in United states and India you have to do a minimum amount of purchase for them to accept any kind of card

IIRC Visa (at least) has a rule stating that a business can’t charge more for Visa card transactions than cash transactions, nor can they have a minimum purchase for Visa card transactions (unless they also have the same minimum purchase for cash transactions.) If they find out a business is doing these things, they’ll stop allowing the business to accept Visa (even through intermediaries like payment processors).

It may be against Visa's ToS, but it's still a very common practice, especially among small businesses, probably because of enforcement challenges.

I've reported a few businesses and it was an easy process. I don't think it's an enforcement issue; more of consumers not being informed that the merchants shouldn't be forcing them to increase their basket size to a min amount and not knowing that it's easy to report.

This is no longer true as of ~2013.

See rules on surcharging: https://usa.visa.com/dam/VCOM/global/support-legal/documents...

And minimum transaction amounts (minimum can't exceed $10): https://usa.visa.com/dam/VCOM/download/merchants/minimum-tra...

Different cards have different business models. For example, high end premium credit cards (think Amex Platinum, Chase Sapphire Reserve, Citi Prestige, etc.) tend to make most of their money from betting that cardholders won't make back more than they pay annually in annual fees (which is possible considering the annual fees on high end premium cards can easily exceed $500).

Reply on news.ycombinator.com