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Comment by fnordpiglet | Hacker News Reader

With cash back and points incentives, withholding the non trivial value of the insurance of which you speak, the only rational reason to not use a credit card is bad credit. Now, for the merchant….

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I'll finish your sentence for you. The merchant just raises prices so you can pretend like your points are saving you money.

Points are a way for people who buy with cash, debit cards and cards with lower fees to subsidise the travels of people who use points.

There is nothing stopping stores from offering a discount if you pay in cash or debit. Businesses most often choose not to, so they must feel like they are getting somthing out of the deal.

Humorously, there are laws against credit card surcharges but not against cash discounts.

Realistically, the price difference is probably not worth the hassle of needing two prices and card sales are probably affordable enough and common enough to not bother.

https://www.ca5.uscourts.gov/opinions/pub/15/15-50168-CV0.pd...

Strange, I've seen quite a few merchants that do the card surcharge thing, and no one seems to complain.

The Supreme Court settled it in 2017 actually - surcharges are fine now:

https://archive.is/eYB5W

They basically said a surcharge for credit is effectively the same thing as a discount for cash, and because of freedom of speech, merchants are free to communicate the difference to their customers either way.

But is a payment processor required to process charges from a vendor stating they have a surcharge?

only took them a few decades

I've seen cash stations offer a cash discount. It was always less than my credit card's gas reward and required me to go inside the station to pay.

Gas stations do the cash discount for a particular reason - to get you inside the building where you might buy profitable convenience-store items, which you won't if you just stay at the pump. (Though yes, the differential might be less than the kickback from a card rewards program.)

Ive seen restaurants do as much as 4% off for cash.

Several restaurants around me offer a cash 'discount'.

As a small merchant I can tell you: cash sucks to deal with and it costs money too. I went to cashless years ago. The 2.x% I eat in processing is more than made up for in not having to deal with shrinkage (either due to theft or inaccuracy or counterfiet bills), security, having to count money and go to the bank regularly, etc.

It's probably different when you're at a much larger scale than I am, but even Wal-Mart (who I was employed by in my late teens) has all sorts of cash-handling procedures to mitigate the risk of money just walking away. Even a their scale, they spend 1% on CC processing, but by the time they added up all of the labor and expenses of cash handling,it might be comparable. And for a small business it's likely more.

And then there's the data collection which has value too.

People act like accepting cash is free, it is not.

This is why we need a digital cash equivalent. Transferring value shouldn't have to cost 1-3% of the transaction value. It's an absurdly high tax.

It is especially because most of the fraud just gets passed onto the merchants anyway

Debit card transactions in the US are capped to 0.05% + 21c for non-exempt card issuers[0]. The problem is there are a lot of exempt issuers.

[0] https://en.wikipedia.org/wiki/Durbin_amendment

Thanks, this is an interesting opinion to read! I went through a period where I asked most small/local businesses I happened to be shopping at whether they preferred cash or card, as I had both to hand. It was a small sample size, but the vast majority said they didn't care either way, and a handful said they preferred cash. I never experienced card-only or a card-preference. That did surprise me, as I expected at least some to feel as you do.

somewhat true but the reality is far worse - points/rewards are mostly subsidised by the poorer folk who get caught paying the > 25% interest on their carried credit card balance.

you could just as well say that the mortgage interest payments the bank takes in are subsidizing credit card points, or HELOC origination fees, or account maintenance fees are subsidizing points. you could also say the bank's profits from trading securities, or their lucrative wealth managements services are subsidizing points. but none of that would be accurate. The banks have a range of services and some are big wins and some are marginal and some may even be losses, and of course the wins help balance out the losses, but unless you can show that points disappear if poor folks manage their credit better and pay more reasonable interest rates, it's not reasonable to frame points as being subsidized by the poor.

High-end rewards cards are quite profitable on their own, thanks to the annual fee, high volume of interchange fees, and the high probability of successful collection.

Low end cards aren’t expensive because they are subsidizing high-end cards; they are expensive because they need to cover the collection costs

Merchants don't automatically pass through all costs any more than they'd pass through all savings if all their customers moved to debit cards. It depends who has the pricing power.

Not really, because the "tax" applies to competitors as well. In an uncompetitive industry the merchant has pricing power and can just raise the price, true. But in a competitive industry, margins are thin and they have to raise the price or they go out of business, and so do their competitors, which is what allows them to.

There’s a lot more than fees that pass back to merchants FWIW. Fraud etc does too. That insurance is generally borne by the merchant.

Which means if you want to "pay less", you have to play the credit cards rewards game to its fullest. We don't get to set the prices, merchants do.

Some merchants offer cash discounts (or a credit card surcharge), and you can make use of that if you want to. Ultimately I use cards for the convenience, regardless.

Just get a Citi Double Cash 2% no annual fee cash back card. Nothing to play.

... Until the terms for that card change

more than some. pretty much every small biz in my town does so (around 3%). not to self: carry more cash. My B2B business charges a 3% surcharge for credit cards over ACH or checks.

> The merchant just raises prices so you can pretend like your points are saving you money.

No, you are saving money, because while the merchant raises the price to account for it, everyone gets the higher price regardless how you pay. At least with a card you can get some of it back.

(With rare exceptions, some vendors do give a cash discount. In which case I always pay cash.)

So, in other words, fraud insurance is a socialized cost paid by all consumers.

Where's the incentive to minimize fraud though...

The networks have a massive incentive to minimize fraud. That's not to say that they are wildly successful or anything, but I do know from first hand professional experience that card networks spend a lot of time, money, and research into detecting and preventing fraud.

- Payment networks drop accounts with a too-high fraud rate.

- They and similar businesses (e.g. Stripe) offer automated tools to deal with fraud… for a price.

Outcome: the incentive to minimize fraud, which is often a result of crap security from the payment network, is on merchants, who also get charged extra protection money to get payment networks to do stuff they ought to be doing in the first place.

Ultimately, that incentive is the legal system, which can legislate against allowing fraud and forcefully impose penalties for it. (And operating it is a socialized cost, such that your first sentence is still correct.)

Yes, because the merchants raise prices because people pay with credit cards (which take fees), you take back a little (though of course not all) of extra markup via points, assuming you use a 2% cashback card (at least) on your purchase (which assuredly many people don't).

I've encountered a couple businesses that charge an extra service fee for credit card payments but not debit card payments.

This is becoming more common now that the government broke the credit cartel - especially for larger ticket items like auto repairs.

That happened in 2010.

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

As they should. They credit card cartel should have never been allowed to make users of other, cheaper payment methods subsidize their benefits.

Not really, I've tried numerous times after negotiating the sale price of a vehicle to pay for it on a credit card. They won't do it. What they will do is allow a fraction of the payment to be made on a credit card and the rest via a wire transfer

Strange how people don't like giving money to valueless intermediaries.

Car dealers or payment network owners?

> the only rational reason to not use a credit card is bad credit.

I find it pretty damn rational to deliberately remove CONSUME MOAR incentives like points/miles/cash-back rewards from my life.

A cash back reward is a reward for not behaving badly enough that your account gets closed (or the bank shuts down). If you want to get rid of all ability to consume things, you could stop working so you don't get paid.

Actually, I think points are more like a savings account than a consumption reward, since the best deals are on international flights you have to save up a lot of points for…

I guess if you want to pay 100% for everything, rather than 98.5% (when there's no discounted cash option), you do you.

Credit card network operators brag that accepting their network means customers will spend more. If spend increases even 1.6%, you are on net spending more.

CC acceptance decreases "friction." Some part of it is unlinking paying with the feeling of depleting resources when you pull cash out of your purse or wallet. Maybe running low on $20 bills and having to go to an ATM makes you decide to put one item back on the shelf. Or one's bank account is nearing bottom. In younger generations the opposite ironically can happen. They feel digital numbers fully but cash is spent more freely.

Yeah, same. As a matter of policy, I don't take incentives, commissions, kickbacks, etc, for anything. My dad was super into points-related financial games, so I get it, but I don't need to give the professional manipulators of the world any more headspace than they already have.

You do you, but with self control, theres no MOAR, so if you're not using the system, you're leaving money on the table.

> I find it pretty damn rational to deliberately remove CONSUME MOAR incentives like points/miles/cash-back rewards from my life.

Can you explain why is it rational to willingly pay more for things when you could pay less?

I also wish we didn't have to play these games, but we don't get that choice. But we do have a choice to pay less (with a credit card) or pay more, so take the rational choice.

It’s rational because you see these gamification schemes as distractions that trick you into bending over to pick up pennies off the ground while the banks pick your pockets. The credit card system is ludicrous. The payments system is a natural monopoly, so it should be operated as a public utility (e.g. FedNow I guess) with much lower fees for all. No more points, but lower prices and simplicity for all (especially for merchants).

I think it’s certainly rational to not bother maximizing credit card rewards. However, it doesn’t seem rational to skip them entirely.

One can capture most of the upside, with little thought, by using a cashback card across the board.

> while the banks pick your pockets

Can you expand on how is this happening?

> The credit card system is ludicrous.

We can call it ludicrous, I'm not going to disagree with you!

But what are you doing about it?

Being what it is right now, you can either pay and get nothing back, or pay the same and get something back.

In the absence of me having any influence to change the system, I'll choose to get some money back.

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