I wish someone would make a real alternative credit processing network, but there are so may laws and regulations, I wonder if it is even possible to ever have something like a simple 1% transaction charge.
Thirty(ish) years later we have an insidious industry that has saturated US culture with the poison of unsecured credit. They set up stands at colleges, snaring college freshmen with offers of free tee-shirts. They sponsor educational curriculums in grade schools advocating the use of credit cards. They even kick money to toy makers to include a little "Visa" or "Mastercard" with their products. They lobby Congress to pass laws making it harder for people who've dug themselves into a hole to include credit card debt in bankruptcy.
Credit is not necessary for modern living, despite the propaganda that permeates every piece of media to which we have access. I know this because 18 years ago I was that ignorant kid that wanted a free teeshirt. Ten years ago I quit using credit as a means of purchase, and six years ago I made my last monthly payment (with the notable exception of student loans, which is a rant for another day).
I hear my friends talk about applying for multiple cards at the same time; cycling between cards so that a minimum spend is maintained and keeping and paying for cards that they don't need all so they can maintain a credit score. This is all guess work anyway, because no one really knows what contributes to this secret score.
The credit card companies must love the lack of transparency because instead of having to compete with each other and with other forms of payment we are now in a world where everyone believes they need to use multiple cards from multiple vendors. They use these cards even when they don't need or want to because of how much they fear their credit score dropping.
I am 29 years old. I thought the same thing as you until about age 25 when someone explained to me that CC's are a great way to build your credit rating. Since I avoided getting a credit card for so long...I had no credit and a very low credit rating! Whereas my wife who had had a CC for 10 years already had great credit. As a result, we had to utilize her credit rating when getting car loans/ home loans etc until my credit rating improved! Without good credit you can really get owned (bad loan rates) when pursuing a loan for any reason.
Why were you pursuing these loans in the first place?
Did you really need to get a car loan or did you just not have the cash to buy the car that you wanted. Could you have bought a little less car, paid cash, and have been payment free? Or could you have stayed in what you had, saved up, and then paid cash.
Same with a home. Did you need to buy a home? Or did you want to buy a home.
My point here isn't to indict your decision making, so please don't take my questioning as a personal attack.
My point is that this idea of borrowing money to make purchases has become so engrained in our thinking that very few people stop and question it.
There are cases where a clear need exists and sometimes the only way is to borrow money. I've been there. But the messages we hear on a daily basis don't talk about borrowing to satisfy needs; rather they serve to support the idea of borrowing to satisfy wants.
As much as I wish I had $250K in the bank....
"Did you need to buy a home? Or did you want to buy a home."
LOL - as a married father of 2 kids in the Midwest I find this quite a funny comment. After renting for many years and dealing with horrible landlords ex: coming home on a cold winter Friday night to find my apartment bedroom with no windows with a little note stating "Be Back on Monday" - sleeping in a sleeping bag as a result.
So yeah, we "needed" our own home.
Also, given it is a great time to buy home (great rates, low prices, we got a tax credit in 2009 too) it felt like we would be stupid not to capitalize on purchasing a piece of earth/dwelling etc. Now we have a fat veggie garden, doing a remodel etc. Sometimes we regret it but overall it was the right decision for us.
Unless mammy and pappy or granny and grampy have the dough, or you sold your last company to Google, I'm guessing if you choose to buy a home, you will be calling your local loan officer and after the meeting wishing you had established some credit.
> So yeah, we "needed" our own home.
This might be semantic wankery, but you didn't "need" to buy a house, you needed a place to live without a shitty landlord and - unfortunately, I would argue - the easiest, most feasible way to do that where you lived was buying a house.
Who can agree with me?
But for the majority of people it is simply not possible to buy a house without either making massive life changes or getting a loan. I don't think that becoming a life-long renter is a smart choice either.
As someone contemplating if not life-long then seriously long-term renting, serious question, why do you not think it's a smart choice?
The second reason is the fact that when I fully own a house I will feel more financially secure. I won't have to worry about making rent payments for the next X years of my life and I'll feel better prepared for unforeseen circumstances. I might be able to achieve the same security by investing my money in other areas; but I much prefer investing in something tangible.
A mortgage is essentially a huge long-term bet, renting is a smaller, shorter term bet. The owner is betting that everything lines up nicely: the value of his property stays put or rises, nothing bad unexpectedly happens to the property, undesirable people don't move in around it, a whole-sector bubble doesn't pop. As a renter, there is no commitment: if the house is outdated you can move to a newer one with far less hassle; you don't have to worry about cost of maintenance; if you move during a bubble you can move once again when the bubble pops and pay less. The owner may end up with a property in 20 years if everything goes well, but a renter will never be underwater.
A while back I interned with a company called Rapleaf that was trying to do the same thing for the internet, by tracking your social footprint (based on your email), figuring out information about you and, more interestingly, how long that information has been on the internet, as well as figuring out your social graph. I'm not quite sure if this is still the same stuff they're doing these days (they may be focused more on just providing data about people rather than providing "trustworthiness"), but at the time the idea was the longer someone's identity has been on the internet, and the more trusted friends they have, the more trustworthy they were. The example as to why this would be useful is a photo sharing site. If you build a new site that allows people to upload photos, you're going to need to impose a cap on the number/size of photos, or you'll very quickly end up being used as a storage provider for porn sites. But if you have a way of rating the trustworthiness of a new sign-up, you can offer them much more space because you're pretty sure they're not trying to use your site improperly. A blacklisting mechanism would be completely useless, because people would just create new accounts to get around it. But a whitelisting mechanism completely prevents that.
Like I said, I'm not sure if Rapleaf is interested in the trustworthiness thing anymore. I suspect they've found that simply selling information about people is a lot more lucrative. But the original idea was and still is a worthwhile concept.
This clearly still happens. It's a fundamental fact about how debts work and it's a central element in many confidence tricks (for example pyramid schemes). So credit ratings only benefit the lenders if the amount they save on loans to suboptimal players who default at random exceeds the amount they lose to organized people who exploit the system.
1. It's like having a proxy between your actual accounts and your purchasing. A stolen credit card is annoying and easy to rectify. A stolen debit card is terrifying.
2. Sometimes in life, an expense arises that exceeds both income and savings. When this happens, we either pay with credit (of some kind), we don't meet our financial responsibilities, or we go without. Sometimes the best option is to go without. When that is not possible, the credit card is a good answer. Pay off your balance responsibly and as quickly as possible and either save more in the future or be prepared to pay interest again.
For example, our business requires that I travel all over the US and I use a debit card exclusively. Never have a problem with the airlines, hotels, or renting cars, but that's because we've taken the time to know which businesses will accept debit cards without a hassle.
"Also most of the benefits from credit cards are travel related. Like rental car collision insurance, travel insurance, etc if you use the credit card."
I'm beginning to sound like a tin-foil-hatter here, I know, but things like travel insurance are fluff that the credit card companies throw out to induce people to use them.
That extra due diligence costs time and reduces flexibility. Did those rental places accept your debit card without a deposit? Did they notice it was a debit card?
And if you tell me a debit card then you are making a mistake.
There is nothing wrong with using a credit card for a short term loan, especially if you actually have enough money to cover that loan.
Additionally with a debit card you have to make sure to have enough to cover all your purchases.
With a credit card, you (hopefully) have a limit much greater than you need. Then once a month you go over your finances, pay the bills and you don't need to micromanage your account.
And http://news.ycombinator.com/item?id=3240408 brings up an additional point. Leave your money in savings, and transfer to checking only when it's time to pay the monthly bills.
It's true that some people need to purchase items on credit but the reason that they're so popular now is less to do with having a line of credit and more to do with the legacy of the technology.
Secondary reason is that CC offer easier charge back, customer protection etc.
I was specifying the reason that they came into existence in the first place (as opposed to debit cards), not why people use them now.
My opinion is that the reason credit cards remain so popular now is because of Visa's policy that forbids merchants from charging a different price for credit card transactions. As a consumer, when you pay by cash or debit then you are effectively subsidizing purchases by credit card. Credit cards wouldn't be so popular if the consumer was made to bear the true cost of their chosen transaction method.
I think many would prefer to use a debit card and be reimbursed the difference for the transaction fee (vs. credit card) but Visa's policies don't allow this and unfortunately it's not viable for most businesses to simply stop accepting credit cards.
Edit: I was wrong, while retailers can't add a surcharge for credit cards, they can offer a discount for cash/debit/cheque transactions: http://usa.visa.com/personal/using_visa/checkout_fees/index....
You will be charged a surcharge for using a credit card, or a fixed fee. Eg £4.50 for a CC, free for a debit card.
I don't know if that is true.
My wife and I make a fari bit of money but we use credit cards so we don't have to worry about cash flow. If I want a new mac I just go out and buy it.
I don't have to worry if I have enough money in my account at that exact moment or not because I know that at the end of the month when the credit card bill comes I"ll have enough to cover it.
We might be an exception because my wife divides our income into several buckets as it comes in and then pulls from those buckets to pay the credit card bill at the end of the month, so I know very well what my monthly budget is .
TL/DR we use credit cards as a line of credit to smooth over cash flow throughout the month as do most afluent people I know.
I appreciate that Dwolla is trying to remove this inefficiency from the system. Mass conversion to a more efficient system would, eventually, mean cheaper prices for everyone.
If you're still confused, people have their own pride and principles. Something being legal or otherwise doable does not mean that everyone considers it moral.
To me, it feels wrong to leverage a slimy Visa policy to bilk airfare from merchants who have to accept credit to compete and from customers who don't opt-in to the game.
http://help.dwolla.com/customer/portal/articles/225303-why-i...
One of the guys asking Dwolla questions on Twitter was a 4th generation jeweler, who regularly has $10k and up transactions. He was very eager to learn about the merchant APIs. He could probably save $500-$900 on a $30k ring if the transaction was made with their service. There are a million examples like that out there.
1) People buy $30k rings!? 2) People put $30k on a credit card!?
At that level you are not using the card for credit, but rather as a replacement for cash. And who wants to write a check when you can use a credit card instead?
It's faster and safer to use a credit card, plus the merchant doesn't have to worry that the check will actually clear.
And using a debit card when you have a lot of money in your account is not safe. So credit card wins.
And for that same reason dwolla will stay rare for such transactions - without the consumer protection laws that credit cards have people will just not use it with strangers.
It will be used exactly as the article describes: To send money between people who already have a relationship, but it will rarely be used for purchases.
Basically he's replacing checks, not credit cards.
Meanwhile, in large part of the developed world, banks do direct transfers nationwide and checks are dying rapidly. I'm 36 and Norwegian. Before I moved to the UK, the last time I'd seen a check in person was when I was 5-6 years old, and I'd never had a checking account as they're no longer offered as standard in Norway.
While checks are still more common in the UK, they are being phased out, and direct account to account transfers are now down to about 2-5 hours during the business day.
Dwolla faces a massive risk that the big banks will just wipe out their value proposition overnight by deciding to copy the European model.
Or the school wants the kids to send in a fee to cover some trip they are going on? How do you do it without a check?
1). You remember to take cash and if you forget, you always have your cards on you and an atm is usually no more than a few minutes away. You can also increasingly pay for these sorts of things via mobile phone.
2). The school sends their bank account details along with the trip information and I setup a same day wire transer online.