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Comment by brookst | Hacker News Reader

> without a credit card company in the middle extracting rents.

This is way too reductive. In the US, credit cards are complicated. For instance, I get about 2.5% of every purchase back, either in cash or kind. Yes, the merchant pays 4%, and VISA/matercard take a bit, and my issuing bank takes a bit, but calling that "extracting rents" feels like pure rhetoric.

FedNow is awesome and will make the market more efficient, but merchants aren't going to lower prices due to lower fees, especially while there's a mix of fee-less transactions and credit card transactions. At least in the short term, adopting FedNow is just giving money to the places you buy from (for retail transactions).

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That you are getting a kickback does not mean they aren’t extracting monopoly rent. The rents, and your kickback, is in fact supported by slightly higher prices, which for you will roughly cancel out, but which are paid in full by people not using credit cards.

One can certainly argue that this system is net positive due, e.g., to greater credit availability for people who need it, chargeback discipline, etc. It’s a very complicated system that impacts a bunch of stuff. But it being merely a ~3% surcharge (on most retail transactions nationwide!) does not deflect the monopoly charge.

> but calling that "extracting rents" feels like pure rhetoric.

How? Because you just spelled out oligopolistic rent seeking behavior to a T...?

Oh but you like it because you get a kickback. Jeez. Credit cards are literally a tax on the poor but people don't want to hear that. Don't get me wrong, I use the hell out of my credit card, and feel guilty knowing that system specifically means less well off folks are paying higher prices to subsidize card usage.

I see you edited your comment.

How is credit a tax on the poor? My very poor family members all are able to access credit cards. They have lower limits, and higher interest because of their credit scores. But they can use them exactly how I do for gas and groceries.

How?

Because when you have decent savings. It's easy to never pay a credit card late fee in your life.

When you are living paycheck to paycheck, it's a lot harder to avoid going over. Then, even a small amount over can incur late fees, and if you can't pay it off for even a month, it results in a decent amount of interest.

I don't think that is getting at the main confusion. It is pretty clear how, if someone can't pay their debt back, they're worse off. The confusion is that a credit card is a short-term smoothing tool. The point is to let merchants assume customers are good for it instead of going through the whole process of checking with a specific bank or expecting people to carry physical proof that they have the money. Using a card can't get someone ahead, the bank is expecting to charge the customers more than they give them.

So why is it necessary for these people to be using a credit card if they can't pay it back? Especially if they have an average income that is sufficient to cover their lifestyle. If they're going to be strictly worse off after engaging with a system, why are they engaging with it?

>The point is to let merchants assume customers are good for it instead of going through the whole process of checking with a specific bank or expecting people to carry physical proof that they have the money

I lost you there a bit. Why can't debit card serve the same purpose?

It can and does in my experience. I suppose my question is me basically asking for a reminder of why rational poor people are using credit cards. I've always assumed they were a tax on people with no impulse control and/or poor mathematical understanding.

It is easy to see how someone with no money would take out a loan via a credit card and be unable to pay it back at all. But if they can pay it back, then outside of very rare instances why can't they arrange their affairs so they have the equivalent amount of savings up front? Their income is at least equal to their expenses on average in the short term, they can't be using credits cards to cover long-term imbalances because the interest is too punishing. If their expenses are experiencing variances then there must be opportunities to put aside an emergency fund.

I don't see how the math checks out that they need and can afford a credit card if they can afford to pay some sort of "poor tax". If you can afford the extra cost of credit card interest, you can afford not to have one. Otherwise where are the bank's profits going to come from?

Do they get 4% back on dining? Do they take advantage of the 3x rewards on flights and hotels?

Every advantage of credit cards is designed to attract credit-rich customers and ward off liabilities.

Did I? I sure don't remember it and there's no edit marker.

I'm not going to explain how credit cards work in this thread, more than I already did and was ignored.

https://www.nytimes.com/2023/03/04/opinion/credit-card-rewar...

That was kind of a whirlwind. You seem to be saying 1) "rent seeking" is specifically about passing savings on to third parties, 2) credit cards are bad because they're a tax on the poor, 3) you use them because (like me) you are incentivized to, but 4) you "feel bad".

I don't think I can unpack all of the social good / feel bad stuff, but there is no way credit cards are the definition of "rent seeking" unless we combine the HN dogma that "rent seeking = bad" and your opinion that "credit cards = bad" to get "credit cards = rent seeking". Which I don't buy.

Sure if you ignore what I wrote, and push your own understanding, it doesn't make sense.

Interchange fees are absolutely rent seeking. Them being variable just makes them even more insidious.

Here: https://www.nytimes.com/2023/03/04/opinion/credit-card-rewar...

> This is way too reductive. In the US, credit cards are complicated. For instance, I get about 2.5% of every purchase back, either in cash or kind. Yes, the merchant pays 4%, and VISA/matercard take a bit, and my issuing bank takes a bit, but calling that "extracting rents" feels like pure rhetoric.

You just described "extracting rents".

For people like me who treat a credit card as a debit card, I see no reason for vendors to pay that "tax" if there are almost free alternatives. I'm ok losing the cashback which you and I are paying for anyway.

>For people like me who treat a credit card as a debit card

What do you mean here? Do you mean you overpay your credit card so there is always a negative balance?

Or, do you mean you treat your credit card like a charge card, and pay it off every month?

The latter.

As in, I don't actually need credit that lasts longer than a month.

Almost no retailers offer a discount for using cash or a debit card. You're paying the retailer either way. Whether they pay a transaction fee or pocket it isn't much of a difference to you.

That's changing in my corner of the US (suburbs of a large city). Most of the local businesses I've gone to in the past couple of months are adding a 3% surcharge if you pay with a credit card. Haven't seen a larger company do this, but restaurants, coffee shops, and some other local stores are doing this now.

Retailers compete with each other. In the long run, credit card fees will lead to higher prices, and (basically non-existent) FedNow fees to lower prices.

I don’t disagree, but I also don’t trust that retailers will pass on the savings. Many higher priced items sell based on MSRP anyway.

Retailers don't "pass on the savings". One retailer will lower the price if they don't have to pay as high a Visa fee - to attract more customers. Other retailers will then follow suit.

Free shipping wasn't much of a thing until one retailer decided to make it one :-)

Or they will increase prices later than they would have. Which I think is most realistic scenario that will happen if cap is set. Prices don't go down, but they will go up slightly less over next few years.

Isn't that the point of the lawsuit - that because they have a monopoly there's a floor on the price that consumers see?

And anyone that ever uses cash for anything is overpaying, because prices everywhere have been jacked up to include headroom for "give back 2.5% as credit card rewards"

Processing cash might cost retailers even more than cards (miscalculations, keeping change, counterfeit bills, cash collection every day) unless it allows them to evade taxes.

Unless there were some sort of government-provided zero fee digital system for money transfer. Oh well, surely such a thing will never exist.

Not sure if people who prefer to use cash will consider that an adequate substitute.

Well for corporate stores yes. Still a good number of rural area small businesses that give a discount for cash, or only accept cash.

> [...] 2.5% of every purchase back, either in cash or kind. Yes, the merchant pays 4% [...]

Who doesn't love a good negative-sum game!

You should look up railroad vouchers and why they became illegal. This is basically the same shit, different century.

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