How credit card rewards became a $9.2B wealth transfer
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So in US card processing is x5-x10 more expensive.
Some weird crypto stuff can give more cashback, but it mostly for scheming nerds.
E.g. for now I have the most premium card offered by my bank (50€/mo), and it gets me extra product insurance, rental car insurance, travel insurance, free lounge access, and some other things like that, but no cashback or similar.
I think some premium cards do offer cashback nowadays, but they are in the minority. Some cards also offer airline reward points. My experience is limited to Finland, though.
There are some specific discounts and benefits but not cash rewards.
It is illegal (not banks will not let you, actual legislation) here to charge more for card payments or discount for cash or bank transfer.
No one wants to accept amex here.
Debit card fees are capped in the US, yet I’ve never received a discount from a merchant for paying with debit instead of credit.
As such, I just pay with credit and have never understood this argument.
Managing cash for a merchant also brings real costs as well.
You have to take it to the bank or pay a service to pick up cash. You’re way more likely to have “leakage” when any cashier can pocket cash. Etc
Because the merchant pass the higher processing cost to all customers.
I know this because I used to work on a US military base. There was a sole merchant on a particular installation that was doing this, but it was extreme. They'd force you to buy over 10 USD if you wanted to use a card, and it was the only place to grab a snack. One day there terminal was shut down, and for a period they only went to cash payments. Once they took credit again they removed the minimum purchase. Turns out somebody got pissed, and reported them.
Regarding the article, the ~390 USR sounds about right to me. I only use a credit card, pay it completely off at the end of the month. I've never once paid interest since in the 8 years I have used this card. Every few years I buy a plan ticket with the rewards.
This also varies by country, but I think Visa/Mastercard relented on it in many jurisdictions.
In Australia, for example, merchants have been allowed to add on credit card fees everywhere, and their card readers automatically tack on the fee when they detect a credit card.
It used to be true, but this changed many years ago.
This feels like a potential arbitrage opportunity... I live in Sweden, but if I can use a US credit card I can get high rewards?
You will probably not see rates that are even competitive with a dodgy FX cash place at an airport, let alone with the numbers you've seen on financial networks for what FX transactions by banks cost, but you feel happy because there was "no fee".
No, the rate is set by the card network, eg https://usa.visa.com/support/consumer/travel-support/exchang...
>> Your bank may or may not use the rate indicated by this calculator to bill you
---
(As a side note: the fine print follows up with this:
>> If your transaction is converted by the merchant or ATM operator, the exchange rate indicated by this calculator will not apply.
Don't ever let a merchant or ATM do foreign currency conversion for you. They charge astronomically high fees without exception. Pay in the foreign currency and let your card do the conversion.)
Where the banks do get their pound of flesh, though, is the foreign transaction surcharge, which is often around 3%. No-fee cards exist but you need to look for them. And a whole new set of charges applies to doing a foreign cash advance on a credit card.
You're crazy.
I have a Capital One account because they advertised "no foreign transaction fees". I checked on my foreign-currency payments and was always charged an amount that looked eerily similar to "1% more than you would have paid at the published exchange rate", so it's not clear to me why they say "no fee" and not "1% fee".
But the 1% fee that they actually have is very reasonable. An airport stall is in an entirely different league.
The card companies always add a margin to FX conversions, usually in the 0.5% range. This is fairly benign since the market rate can move between the transaction and the settlement, so sometimes you save money.
You see at the bottom of restaurant menus a note stating this.
It also applies to Danish business credit cards, as those aren't covered by the consumer credit card fee limits.
Healthcare
Internet access
College
At least we have cheap gas? farts
But, a quick search indicates you can get similar broadband in Glasgow, Scotland for ~15 GBP/month. And Rome, Italy looks like ~25EUR/month.
But this is a pretty common setup for condos in Swedish cities. Rentals usually have access to the same infrastructure but at higher prices due to kickbacks demanded by the landlords from the ISPs.
The backbone of it all is a state owned fiber connecting the cities together with municipal fiber.
But even outside of the cities FTTP is quite common. There are companies which specialize in finding rural areas where there’s enough interest to justify the cost of connecting them and then coordinating getting an economic association setup to own and manage the local infrastructure.
Some kind of city(iirc) managed fiber and he can switch commercial operators (And speeds/prices) by contacting them to get new terms, that's an actually free market.
Otherwise the same system.
That does even begin to touch on crazy laws banning people from setting up their own ISP to compete: https://www.techdirt.com/2024/11/07/16-u-s-states-still-ban-....
There is ample historical evidence that this is a poor excuse.
Long ago, leaders in the US understood the value of universality. You'll likely recognize this as the Network Effect, Metcalfe's Law, etc. Back in the day, they called this "universal service." That thinking was central to the policies established for both electrification and phone service in the US: it wasn't then, and isn't now, truly universal, but what could be feasibly accommodated was, even when costs were/are quite high.
It wasn't lost on the people of those times that such policies inherently meant the cost of including sparsely populated, distant areas would be subsidized by concentrated areas. Before those systems appeared, the founders welded the same thinking into the US constitution in the form of the US postal service, with exactly the same knowledge and concerns.
We've lost that. The change happened prior to the advent of the internet. You're free to attribute this to whatever you wish; I won't offer my view on that, except to say there are no innocents: every argument that fingers ebil capitalists can be countered by examples of urban leaders damning government policies that subsidize non-urbanites. What I know with certainty is, if packet switched networking was somehow a thing in the 19th century, availability would be a given for almost any structure more significant than a hunting cabin in the US today, complete with common carrier, service baselines and rates established with clarity.
Sure is funny how FDR had us spend a little cash 100 years ago to ensure even the remotest farm gets electricity, and we already gave ISPs a shitload of cash to do the same, but now "We can't" build telephone poles to rural places. Even though those same places already have telephone poles for power and telephone.
AT&T was able to leverage it's monopoly position and defense industry relationship to basically invent everything that runs the modern world (and were compelled to license those advancements out) while modern monopolies can't even dig some holes.
Sounds like we need some more "Consent Decrees" and a DoJ that makes large companies scared.
We damned every single river in the nation. We built so much railroad that it crashed the industry. We built those railroads purposely in places where nobody lived and then willed towns into existence around them. We built the interstate highway system.
Why can we suddenly not build anything? Maybe it's because people keep insisting, against all historical evidence, that we can't, and they don't even try.
Healthcare, education, and housing are expensive in the US for the same primary reason: political interventions that simultaneously subsidize demand and restrict supply.
e.g. https://documentscontractuels.orange.fr/les-offres-orange-mo...
The good news is that modern fiber systems blow cable internet out of the water. It is far cheaper to supply symmetric gigabit internet to every customer over fiber than over cable. Fiber just has more bandwidth to go around. And because it’s a different technology it is not subject to the same local monopolies that cable is encumbered with. This means that the free market is correcting the problem and has been for a decade. In many parts of the country it is now possible to get internet that is faster and cheaper than what is available in the even the best built parts of Europe. The main obstacle to that build–out is probably local permitting. Many large cities require new permits, with public comment periods for each and every one of them, for every single block that an ISP lays fiber for. Cities like San Francisco have imposed a glacial pace on their ISPs.
Exclusive francise agreements between municipalities and cable operators have been outlawed since 1992. But it's generally uneconomic to overbuild a new network with the potential to touch every home unless a large portion will subscribe.
Fiber internet is typically much better than cable internet, but cable internet is good enough for most people, so they're unlikely to switch unless it's significantly cheaper, which it often isn't -- especially since local incumbents tend to lower prices or rollout better service when a new entrant is entering the market (or announces they will ... Google Fiber city selection announcements drove lots of competing rollouts even though Google didn't install anything in those cities).
Regulation requiring wholesale access / line sharing / or strict separation of first mile and service infrastructure would allow for competition in service and routing, without having to build a 3rd last mile network. Congress did this in 1996, but the FCC walked it back for cable, the courts said if it doesn't apply to cable, it doesn't apply to telephone, and the FCC said internet over power lines exists and provides competition despite the lack of providers. Congress never came back to make clear that it wanted line sharing, so it disappeared from the mainstream.
I have municipal fiber where the municipality handles last mile only and I have a choice of IP service providers. But installation was very expensive and monthly service is also expensive relative to the ILEC and the cable company, although the cable company service on my street ends before it reaches me.
The cable and telephone companies have a major cost advantage that they can rebuild their networks with a good expectation of customer uptake; and they're allowed to manage the finances of build out however they see fit. The muni fiber (in my state anyway) has to bill customers for the costs of install and even if it could self-finance a build out to service all homes, wouldn't see a lot of uptake because most people find their current service to be good enough.
Where we are is very much not a function of the free market.
And that competition is definitely a good thing. Xfinity’s offering was far worse before they had competition because there was no incentive to offer anything better. They’ve even introduced a new idea to the market in order to win people back away from fiber: guaranteed fixed prices for five years. No surprises when promotional rates expire, no price increases, no shenanigans at all for five whole years. That alone is a breath of fresh air compared to their own business practices of just a year or two ago. Ziply had to respond by lowering their prices and ending promotional rates because they were losing customers. You know the old saying: as iron sharpens iron, so too does man sharpen man.
It would be better, of course, if the government were not mismanaging things. Switzerland’s solution is the better way to go than what we have today. Their government paid to build a nation–wide fiber network, and any ISP can service any customer on that network. That allows ISPs to compete on price and features without worrying about having to build their own competing and overlapping network. This is already how electric service works in many states, so it’s not even like we can’t make it work.
>Their government paid to build a nation–wide fiber network
So did we. The last step is nationalizing that network and finishing the build-out in-house.
When we paid for national broadband access here in the US, it was not for fiber to the home. It was for DSL. Worse, the FCC measured coverage not by service address as it does today, but by census district. The phone companies merely had to assert that they could provide service to an address in the district and the FCC would count the whole district as covered. The districts aren’t very big, so in dense areas that was not a bad estimation. In less dense areas it was just a giant loophole. They could provide service to one house on the edge of the district and not bother with the hundreds of homes miles away out in the countryside. Officially we got exactly what we paid for.
As you say we could still nationalize these fiber networks and stitch them together into a real national network. Of course they don’t all use exactly the same technology, and it would be a huge political fight, but in principle I could see a government agency gradually buying networks from the ISPs and integrating them. Of course you know that if Trump proposes it then the Democrats will immediately oppose it on the general principle that Trump proposed it.
Municipal fiber is not outlawed here in Oregon, so there are quite a few municipal networks here. But they are not expanding as fast as even a single ISP like Ziply Fiber. None of them have expanded beyond their small town to serve unincorporated areas near by. All of them are funded more by taxes than by subscribers.
I have never seen anyone articulate this so crisply.
The government has created a situation with the student loans thing where basically anyone can borrow 500k to get an obviously useless degree.
Are the colleges going to ensure they collect that money? Obviously yes.
The point applies even to the useful degrees, and more broadly to the universities irrespective of any particular degree program. Student loans and scholarships make demand almost completely inelastic -- totally insensitive to price increases. Universities compete to attract the best students, and a major mechanism for doing that is to invest in non-academic amenities, such that tuition prices are funding much more than literal tuition. Combine these two factors together, and you have a feedback loop of continuous price inflation.
Similar factors are at work in the healthcare and housing sectors, with the most important element being that external subsidies eliminate price elasticity on the demand side of the equation, and completely obliterate the dynamics that ensure downward price pressure in normal markets.
Canadians like myself have ~40% of our provincial taxes spent on healthcare, so in my case about ~8% of my gross income. Somewhere in the tune of $20k/yr. While I was living in Seattle and filing American, quite a bit less of my gross income went to healthcare. Just food for thought.
Well, maybe I spoke too soon, because my private American healthcare turns out to also be about 8% of my gross income (of $60k)(before copays and my deductible)(and also it's crap). Twinsies!
But yes I agree that it would be awful to have my health needs taken care of and a mere ~160k USD left to spend on everything else.
I think either way both of us are in really good shape. In my experience the quality of American care is better in nearly every regard (having experienced both pretty intimately), but the simplicity and the peace of mind of the Canadian system has its benefits too. In either case you end up paying.
> But yes I agree that it would be awful to have my health needs taken care of and a mere ~160k USD left to spend on everything else.
I’m confused - do you actually think it’s awful?
>I think either way both of us are in really good shape.
I'm lying in bed with non-specific upper abdominal discomfort that I'm hoping isn't related to digestive issues (pancreatic) that I've had for years, but which I can't get treated for because my insurance-related circumstances have made it very difficult to get consistent access to, and then to be taken seriously by, relevant specialists. These issues have combined with chronic injuries that were poorly managed in their acute phase and poor access to quality nutrition to make it difficult for me to exercise consistently. Contrarily and consequently, I'm quite out-of-shape.
The best and most consistent care I've ever gotten was while I was on Medicaid (which was still yet hampered by the professional stigma against accepting Medicaid and treating Medicid patients well).
>In my experience the quality of American care is better in nearly every regard (having experienced both pretty intimately
You experienced the quality of care available to rich people. That quality of care is not widely available, not for lack of institutional capacity, but primarily due to lack of profit.
>I’m confused
I really don't think you are.
Worth noting that taxes in the US are a lot lower than they should be because a large portion of government expenses are financed with debt. Canada owns over 400B in US debt, so that's Canada "subsidizing" US taxes.
Also, yes, that's how healthcare works: when you're young and less sick, you tend to pay more than you get out of it, and then it reverses as you get older.
(+) there still seems to be a massive wage premium for "being physically in a San Francisco office" even if most of the work is being done by an AI, which cannot be sustainable
This is not the case.
Their education was not 10x ours and their economy was only a few % over ours per capita.
Second thing: interchange fees are not the only fees that your typical store has to pay, the total fees are much higher. I think the EU essentially capped Visa/Mastercard profit in the EU, more than they capped small business fees for card payment.
We're a business in the UK and the charges for accepting Business credit cards is much higher.
I don't have current charges to hand, but in 2023 Personal Credit Cards were 1.97% whilst for Business Credit Cards we were charged 3.43%. That's probably how they afford such high cashback/loyalty schemes.
I think we're paying about half those rates now. I know Amex is somewhere between Personal and Business charges.
Although we are a B2B business, most of our card transactions are from business owners personal cards so it's not really an issue. We occasionally monitor the split and if it became significant we'd need to look at addressing it, probably by increasing prices for those customers.
If 1% is huge, that's a lot better. 2% cashback is my baseline for normal in the US and I currently use a 4% on everything card (no longer available for new customers).
I don't like the cashback system, but the economics insist I use it while it's available.
That used to be the case, but it's not current. Merchants can charge a credit card fee, and many do. Many merchants near me (washington state) don't, but those that do add a fixed fee of 1-3% for credit.
There is a lot that goes into it, and it is interesting how customers like me who literally never have carried interest and have to made thousands of $ in rewards over the years still make the banks money....
https://www.bitsaboutmoney.com/archive/anatomy-of-credit-car...
They are a way for airlines to create value out of thin air with their own fiat currency. For the average consumer the miles create less of a pure economic efficient benefit and more of a psychic benefit - funny money bucket that accumulates to defray some trip expenses. Economically they'd be best off with an outright 2% back card.
For the minority of customers who are flexible on dates/locations and willing to plan in advance - most airline/hotel programs have sweet spots at the more premium level.
I use them to fly overseas business class refundable fares at discount. It's not free, but the taxes paid + foregone $ I could have gotten with a cash-back card ends up being 2-3x economy non-refundable fare instead of the 5-7x listed cash price if I bought the business class ticket outright.
It's generally a time-vs-money thing though in that to maximize airline/hotel programs you need to pay attention to various limited time offers for signup bonuses, spending bonuses, conversion bonuses, redemption bonuses, etc. Without those it's a very uphill battle.
Credit card hotel booking portals are often much worse than what's available too.
For example, you might end up paying 30-100% more for a hotel booked through Chase Travel. At the very least you'll have way less selection. Even if price matching exists, you could still end up paying more.
I am traveling to Mexico next month and I do have a Chase Sapphire Preferred card (the one with the $95 annual fee). You get $100 in hotel credits per year if you book through Chase Travel.
In one of the spots I'll be at, there was (1) selection. It was $92 for 2 nights in a pretty low populated town that I'll be passing through. That hotel was rated 3.2 stars on Google.
If I use Google search or any hotel aggregator site, there were over 10 hotels available for half the price with much better ratings.
In this case it cost me about $50 extra to use the card's benefits.
Many people don't understand how rewards work when it's marketed towards your annual fee. The $100 credit doesn't offset the $95 annual fee. You pay $95 out of pocket for the fee. As soon as you book that hotel for $100 you've now paid $195 total out of pocket of which $100 gets credited back, so you're still out $95. If you instead didn't have the card and got the hotel at the cheaper rate, you'd only be out $45 or whatever you paid.
I mainly got the card because it had a really good sign up bonus, 0% international exchange fees and reasonable rental car coverage. Other cards can cover these benefits without an annual fee.
Supposedly the free Chase cards have comparable rental insurance. The main difference is Sapphire is always primary insurance, but Flex and Unlimited become primary when traveling internationally and if you happen to live in a place that requires no car in the US and you don't have insurance, it becomes primary in the US too.
Not sure what the differences are when filing claims though.
I will say this, it seems like more and more countries are starting to require Third-Party Liability (TPL) insurance and the Chase cards don't cover that so you still end up having to pay out of pocket for partial coverage (Chase for CDW, TPL from the rental agency). Some rental places don't make it easy to split these out.
What does this mean? I'm not clear what the sweet spot is - are you talking about buying points/miles/etc outright with cash rather than earning them as credit card rewards? Everything I've read is that these are almost always bad deals.
There is no one-size-fits-all answer.
If you do not have time to look into it, plan trips 6-12 months in advance, or have flexibility (will go anywhere thats a deal), then they aren't worth it.
“Saving” airline miles is definitely suboptimal, like you said, getting 2% cash back and redeeming it immediately is the optimal strategy. Money is fungible and cash depreciates.
Plus, the “deals” you have access to with airline miles are not slanted in your favor.
At least cash has the option of earning interest in a bank account, or getting invested in other instruments.
Miles can always be devalued by the airline. Some airlines like Singapore, Qatar, and United, even practise stealth devaluation by controlling the number of cheap "saver" seats released.
Robin hood is pushing a 3% card right now. Not holding my breath for the rate to last more than a year though.
1. Merchant sells for price X
2. Credit card is invented
3. Merchant has to sell for price > X (say, 1.02 X) to cover some buyers using CC
4. Credit card offers 2-3% rewards on some goods
5. Merchant has to sell for prices even > X (say 1.04 X) to cover nearly all customers using cards. Customers who do not use the cards pay 1.04X and do not get rewards to compensate.
6. Merchant loses because they're beholden to processors, Customers lose because they're getting 2-3% of semi-currency for the cost of ~4% cash currency.
7. Processors get their profit
[1] - Employees deserve good wages for good work, tipping is just a bad algorithm to accomplish that
First, businesses are increasingly differentiating pricing between cash and credit card - this is most obvious in gas stations where the price you see on the big sign is the cash price and not what you practically end up paying. Or the various restaurants and other businesses that offer cash discounts. While this is relatively new, the earlier manifestation of this is the credit card fee - eg try paying your tuition or utilities using a CC and you'll immediately find this option costs more.
Interestingly all the above usually hover around 3% so it's tellingly the rate the merchants themselves perceived CC use and infrastructure cost them.
Second, credit cards are clearly good for business volume. Most people have had the experience of wanting to buy something unplanned and not having the cash on them, but buying it anyway via credit card. On a larger scale, hard to imagine on-line shopping without a credit card.
Third, I don't find cash-only businesses cheaper. In my town there's a cash-only barber, pizza place, and ice cream shop and they cost just as much as the credit card taking ones. In every case the dynamic is there are long running businesses with sufficient clientele that they never bothered, but they don't use absence off CC fees/infrastructure to generate a consumer savings.
Fourth, poor people can play the point game too. As a broke college student I was very fond of my Exxon Mobil card that gave me cheaper gas. Now I don't really care about an extra ten cents on a gallon as much.
I believe you, but this experience is totally alien to me and I don’t know of anybody who has done this. I wonder if it’s a generational thing.
You are, apparently, well-off enough to have enough money in your venmo/checking where you don't think about it too much but I think the OP was referring to the less well-off but common situation where you are spending a little over your current ability - be it physical cash on hand (not your situation) or the amount available in your account.
Imagine everything you bought in the past 3 decades from grocery to hotel room and air travel. Now imagine having 2% of it in your pocket.
that's eaey to understand right?
additional benetit like purchase protection, vendor disputes, etc.
It's literally the opposite. The credit card lends you money for free - if you pay your bill every month.
That's the "credit" in "credit card" - they are extending a line of credit to you, not the other way around.
If you pay the balance on time, you are getting free liquidity from the bank. But they get if you don’t pay off the balance.
I basically never use my debit card for anything but ATM transactions, and the only time I have any cash in my wallet is when I have recently gone to a cash-only bar or to Las Vegas.
It’s hard to put a real world number on what the cost to the consumer is for losing this data ownership, but it is not zero: these data are increasingly used for targeted pricing practices which extort additional margins from the consumer at a later date.
Would be very curious to see studies on this if anyone finds one!
Oh it very much is, (at least in Australia the major 4 banks have agreements with data brokers)
And I don't mean "politicians can use it" - but instead, as corporations are more and more involved in the politics, you get targetted and directed based on their needs
Presumably, the same is being done in Ukraine and Russia too.
Frequently sited investigative video journalism on grocery delivery prices (and more): https://youtu.be/osxr7xSxsGo
Airlines: https://fortune.com/2025/07/16/delta-moves-toward-eliminatin...
Insurance: https://www.insurancebusinessmag.com/us/news/technology/gm-l...
Frankly, it’s everywhere— if a company is large enough, they will leverage consumer data to increase profits as much as the consumer will bear. There are many other examples, but I’ll just link you this as a jumping off point if you want to go further: https://epic.org/krogers-surveillance-pricing-harms-consumer...
Ongoing US house oversight committee investigation http://pallone.house.gov/media/press-releases/pallone-launch... https://oversight.house.gov/wp-content/uploads/2026/03/Lette...
See also: https://lpeproject.org/blog/surveillance-pricing-exploiting-... https://en.wikipedia.org/wiki/Surveillance_pricing
> these data are increasingly used for targeted pricing practices
The others are all about companies that seem to want to use this technique. And of course they want to. But several states either outlaw this outright or will do so soon. The Trump FTC has a draft rule which would prohibit it nationwide: https://www.ftc.gov/news-events/news/press-releases/2026/08/...
This is such a toxic idea that I’m not particularly worried about it happening much in the real world.
It's not zero sum game, that either I have it or seller have value out of it. Just like with garbage - for me old broken furniture might be a garbage, while for other it's a burning fuel.
However, it doesn't need to be exclusively negative. The data will both show where you can price gouge but also simply where demand is.
Put your coffee shop near a metro stop and sell sourdough bread and people will buy that because they want it isn't exactly negative.
It's not a scientific discovery.
That seems unlikely, since I don’t see how many of them could be profitable if they were paying Google more than their own revenue.
Those numbers don’t make any sense. Alphabet had 403 billion in revenue in 2025. The UK’s population is around 69,000,000. This amounts to $5,840.57 per person, which is nowhere near a lifetime of retirement savings.
THIS data has no value to the people collecting it except for the power it gives them to predict and/or manipulate you.
I'm generally a pretty frugal person, I have a good handle on my personal finances and I don't really buy much stuff at all. Maybe for someone else, shopping can be similar to an addiction where they see an ad and they know they shouldn't buy it but they can't resist. Women with a closet full of shoes come to mind. For those people I can see how this might be problematic but personally I largely ignore ads altogether. If I need a small thing I just go to the nearest store and buy the first best thing I find, if I'm making a more significant purchase I generally do some research and look at tests, user reviews etc. Sure there's some opportunity for manipulating me with fake/biased tests and reviews etc but I'm not really seeing how my spending info helps with that.
If you don't have time, you can find brief but less compelling argument here: https://www.privacyguides.org/en/basics/why-privacy-matters/
There's no advertising here, there's just aggressively trying to drain each person's wallet as much as possible and seeing how far you can get before they change behaviour.
One example: my friend and I both requested rides using the same app, standing next to each other to the same street in the same neighborhood 3-4 miles away. He owns a car and rarely uses car services, I do not and it's my primary transportation. The quoted cost of his ride was half mine. It was shocking.
And I'm sure there would be competitors simply not doing this where I could shop instead.
If Uber does this and you don't like it then don't use Uber. Regular taxis still exist and I'm sure they'd love to have your business back. Or you could get a car, low-end used EVs are quite affordable and fuel is almost literally free. They seem to hold good resale value too.
What incentive is there for them to not do that? Laws? I'm asking sincerely, not rhetorically.
Sure, take any slice of a vast number, and you get a big number.
It's not a "wealth transfer" when everyone gets what they bargained for and can opt in or out.
Most importantly, the transaction value of using credit cards or rewards systems - what the user actually gets - is not enumerated.
Beyond what others have noted (mainly deferred payment), credit cards offer legal transaction protections: my legal liability for fraud is limited (unlike debit or Zelle transfers), and I can challenge any transaction even later, which gives the vendor an incentive to ensure I'm happy even after they have my money. While reputation provides some incentive for repeat customers, the ability to retract a transaction governs even non-repeats. I would submit this alone has improves quality of service for everyone anywhere credit cards are accepted.
Rewards vary by type. Cash-back rewards reflect the fact that interchange fees were set to recapture initial investments, but servicing costs have plummeting (thanks to computing); governance-wise, it's almost impossible for a "representative" political system to extract a large cost from a small number of powerful agents with vested interests to provide a tiny amount of benefit to a very large numbers of other people. But that's a much more extensive governance issue.
So where does the benefit go? To competition between credit providers, initially as cash-back, and then to tying rebates to future purchases within controlled channels. For airline point systems that give free flights or upgrades, it improves retention, but other forms of rewards would seem to verge on tying, where power in one market is extended into another.
Politically-mediated wealth transfers are a political issue. Economically-mediated wealth transfers should raise market-regulation policy issues, in particular whether the law is inducing or protecting them, and then whether they are good or bad. Tallying that requires not just seeing the money flow, but seeing all the value received or cost exported.
Just the 150 billion from "interchange" (merchant fees) would be enough reason to fund the 15 billion (estimated) rewards.
1) https://a2apaymentsaustralia.com.au/wp-content/uploads/2026/...
2) https://www.rba.gov.au/payments-and-infrastructure/review-of...
Cards that redeem to cash or payment credit are readily available. You only get miles or flooz if that's what you want.
The system is bad, but if I'm buying stuff within the system, a rewards card is usually the least cost out of pocket.
>When merchants raise prices for all consumers in response to these costs, users of low-cost payment methods (e.g., cash and debit) cross-subsidize high-reward credit card users who shop at the same merchant"
Cash handling is not a low-cost payment method, Cash handling can cost businesses between 4% and 15% of each transaction, when factoring in labor, security, bank fees, and risks like theft and counterfeit bills.
One could argue that credit card users have been lowering prices for cash payers as business avoid cash handling pitfalls and get their funds safer and faster.
Otherwise, you're giving up 1-3% discount.
Set auto-pay on your credit card to pay in full every month. I've never once paid for credit card interest. I think there's a term inside credit card companies for people like me: leeches or something like that.
Even as someone who is a credit card optimizer, I also ignore numerous 1-3% choices a day.
Many people also spend more than they can cover on it.
I would be curious what percentage of people actually qualifies for a card with over 2% cashback especially without a monthly fee. My guess is that that percentage is very low.
High earner/spender, sure but that's not most people
If you combine that with a card that gives 2% on everything than it wouldn't be hard to average over 2% cashback as long as you were mindful about using the discover card for qualifying purchases and the 2% card for everything else.
And that's the rub. Credit card companies know most people won't be too mindful most of the time about their spending habits.
Ever since then, I wondered how much of the "not qualifying" is due to misinformation like this.
1. People with proven bad credit.
2. People asking for a lot of money without proven good credit.
3. People asking for more specialized credit, such as lines for businesses or lines for high earners.
My instinct says hell no, not even close.
No affiliation; just a happy user.
If I pay cash for everything and my cash level fluctuates down to $0 temporarily, how do I buy something right then?
confidence of sufficient funds when that auto payment hits
Frankly these questions astound me, do y'all really know no low income folks?
With card: you can set the cash aside at the time of purchase to pay when the card bill is due.
How does the card give you less flexibility or make it harder to pay for?
To me, it's like claiming "black people like chocolate!". They do. So do most people. Why single out black people?
Can you explain the process or idea?
My lawn mower asks me to write "gift" on checks when I can't pay in cash.
At one time, credit card companies forced vendors to charge the same, whether cash or credit, but that seems to have fallen by the wayside.
The problem is, is that cash is becoming less and less acceptable.
In a nearby town, you can't pay for parking, with cash. I have seen credit-card-only vending machines. A lot of restaurants have iPads at the table, and you never see anyone but the bus[boy|girl|whatever], bringing you your food.
Huh. I always thought it was the opposite. I know several restaurants that refuse to accept credit cards. They are great places to eat, but I won't go there. I don't think they miss my custom, though. Refusing to accept credit seems to be a signal of excellence, around here.
The cost of a credit card is very obvious. The cost of cash is many small things that are very hard to see and thus very hard to account for correctly.
For the same reason those food establishments had to get a government approved White Cash Register, because there was so much money disappearing.
* As long as you don’t raise any red flags in your accounting, which can be difficult.
I miss that. I really dislike that it is allowed to charge extra for a credit card. It shows that the company doesn't understand the cost of cash.
There is no situation in which interchange fees get slashed and prices go down across the board by 3% to make it worth it for card users.
Well, there was that time in the 1930s.
Long term average? Sure, it goes up, that's inflation. But do you know what causes inflationary pressure? Visa and MasterCard adding unjustified fees because they're a duopoly and control most of the payments market, and your government won't regulate them and cap fees.
The UK and the EU both cap debit card fees at 0.2% and credit card fees at 0.3%. When the UK left the EU, Visa and Mastercard jacked up their fees over 5x for UK-EEA payments. Not because they had to, but because they could, and they love sucking money out of other peoples' businesses. https://www.psr.org.uk/our-work/market-reviews/market-review...
Retailers in competitive industries absolutely do use a reduction in card fees to lower their prices. Maybe not all the way, but they definitely don't give it all to themselves as margin; their competitors don't.
An economy that relies on growth, yep.
People who don't pay their card off also are on the look out for lower interest rate cards and switch all the time. they in reality are not paying the very high rates on cards, they are paying the lower introductory rates (which is still a lot of money). These people are also more likely to default and stop paying leaving the bank to write everything off. Combine that with the fact that they typically don't spend as much over several years (they hit their credit limit and their income won't allow an increase so they have to stop spending), and they are not as profitable as it seems.
Really helped us float the moving company and also some DIY renovations on our house that we didn't have all the cash on hand to pay for outright. And we didn't pay a thin dime for the privilege.
I like this. It means that I can earn a bit more bank interest on what I've spent.
I think of it like alcoholics who can't be near alcohol. It's some deep seated degeneracy or fear.
and once debt is spent you cannot get it back. you get scammed you can dispute the credit card, and if the CC gets stolen you can fight any charges.
debit means the money is gone and that's it.
Credit card? I file a charge-back which is a forcing mechanism for the vendor. Credit card skimmed? I get a new one, and I don't need to wait for my $ to be re-imbursed.
Another reason is that credit card companies sell your purchase data to aggregators and advertisers, and cash affords more privacy.
I always ask for a discount but for some reason I almost never get it.
The rational move then is to pay in as many installments as I can get without any additional interest. Then time itself gives me the discount. My actual money stays invested and I only pay later. My credit card gives me 1.1% cashback on all purchases. Inflation too does some of the work.
Maybe, but "should" has nothing to do with it. Either I get one or I use my credit card.
> cash costs the merchant MORE than credit card fees
That's not my problem.
I have a little lookup table for this. Interest free installments mapped to cash discount necessary to beat the credit card. I just look it up.
1x -> ~1.9%
2x -> ~2.3%
3x -> ~2.8%
4x -> ~3.2%
6x -> ~4.0%
8x -> ~4.9%
10x -> ~5.7%
12x -> ~6.6%
18x -> ~9%
24x -> ~11-12%
1x -> 4%
2x -> 5%
3x -> 5%
4x -> 6%
6x -> 7%
8x -> 7%
10x -> 8%
12x -> 9%
18x -> 12%
24x -> 14%So, about 4-8 cents, for 30$/hour if we talk about grocery store.
Restaurant might take more time to process cash, but pays lower salary.
I do not think it's a higher cost than current credit card fees
that's some odd classism there.
credit card companies love your data. they can package it, sell it, analyze it.
this is real data of actual behavior, not whatever people say or click -- money where the mouth is.
even if they never make a cent off of you from an interest perspective they 1) still get fees from the merchants, and 2) get all of that juicy juicy transaction info -- and that info alone might be worth the costs.
They genuinely don't care because they offer different products for different groups of people.
Poorer people typically use credit cards to borrow money. The amount they spend in a month is typically much lower than the balance on the card. This means that the company makes most of their money from interest payments. Cards meant for this audience typically have few or no rewards, and instead use the interchange fees to allow for a lower APR.
Meanwhile, wealthier people typically use credit cards as a payment instrument. They pay off the balance in full each month like you do. This group of people is responsible for the majority of credit card spending, and the credit card company makes most of their money from interchange fees. Cards meant for this market have higher APRs, and use some of the interchange to pay for the rewards. The cards meant for the top end of the market with the best rewards (i.e. Chase Sapphire) even charge retailers more in interchange, with the argument being that it's worth it because you get to bring in wealthy people who will buy more stuff.
It’s a silly system, where everyone has to invest their time (optimizing for rewards, avoiding interest) in an ultimately negative sum game. I hate it so much.
Of course there’s going to be a a cost to spending beyond your means.
I don’t have any data, but my intuition is that overall high-fee, high-reward cards increase propensity for consumer spending by at least a few % beyond the fees/rewards.
The merchants think so, too, or they wouldn’t accept the processors that let their banks hand out these cards.
Visa / Mastercard / American Express all have lines of premium credit cards (Visa Infinite, World Elite Mastercard, Amex Platinum), and they're very much too big to ban. You'd just be left with one processor in the US (Discover, now owned by Capital One).
If they’re truly too big to give up no matter the fees they charge, they’re leaving money on the table.
Of course, they can’t. If Chase started handing college students a 3% card, the merchants would riot.
In recent years, all of my utilities have added 3%+ credit card surcharges, so I pay most of my household expenses with debit cards/ACH now.
Tmobile, Comcast, Verizon, ATT, Target, grocery store, electric utility and water utility (government), annual vehicle tax (government), auto body shop, daycare, and any home repair contractors all charge 3%+ (or give a discount, same thing), so I basically only use credit cards for other retail stores and travel and restaurants.
I love it. As someone who never carries a balance I get paid by banks for doing pretty much nothing at all.
And I don't worry about US retailers, I don't live there.
I should add that rewards are not the best benefits. Sign up bonuses are much more lucrative, running to hundreds of dollars per card, and can often be repeated. Same applies to bank accounts.
And it may not work the way you expect. Retailers may favor credit card users if they tend to spend more. There are substantial costs associated with handling cash, so cash users may end up paying more.
But of course banks make huge amounts of money from poor customers via various fees and interest payments. It warms my heart that I get some of those ill gotten gains insead of the evil banks.
Borrowers can also keep from overextending their credit and go on debit cards instead…
Obviously these things can have an impact on people but before the 80s credit cards were not widely available to people with high credit risk and the world still functioned.
It is risky and it is very easy to lose great amounts of money on a bad decision when credit is involved. Arguably that makes it bad. But still not negative sum.
The intuition being: people who carry balances and pay interest don't actually spend very much; they are not wealthy.
2023: 79.5%
2024: 79.8%
2025: 80.2%
Capital One also is supposedly huge on car loans; I'd imagine the interest from those would comprise a big chunk of that revenue.
That's the interchange income corresponding to wealthy people. Interchange is paid by the card-accepting business, not by the buyer. The buyer pays interest and other fees and that graph looks very different.
From that original study the full picture table says in % of ADB that the "poorest" (below 620 FICO) pay ~45% interest and fees but bring only 2% additionally in interchange income. The wealthy (at 800+) pay ~10% interest and fees but bring another almost 10% interchange income, on 4 times higher spending, and 3 times higher rewards (so the wealthy get ~12 times higher rewards in $ value than the "poor").
Just the percentages paid by each group more than offset the difference in spending. There are also way more "poor" accounts than wealthy accounts. Intuitively you can tell that the banks are effectively subsidizing the fees and interest for the wealthy with the income from the poor, for the sake of the interchange income which is mostly generated by the wealthy but doesn't come from their pocket.
Those poorest of people (<620 FICO) pay more interest and fees (percentage and absolute terms) than any other group. There's a range in the middle on the wealth scale where the customers are actually a net loss for the banks (the 660-760 FICO range).
Agreed, which makes the picture even worse for those low income people. Even poor people are guaranteed to occasionally pay the "rich person tax" included in the prices of some of the products and services. At least until some AI pricing starts changing the price real-time based on the buyer's estimated wealth (sort of already real).
> So they are essentially is paid by the consumer.
Not from a bank's perspective. Only in the sense that prices are higher between the seller and buyer.
> If we outlawed rewards credit cards (by capping interchange fees), everything would likely be slightly cheaper.
I don't agree on the second point as a blanket statement. When Epic game store lowered its fee not a single game got cheaper for the buyers.
Credit card fees are baked into the price of everything that can be purchased with credit card, excluding merchants that offer a cash price and a credit price.
Any time someone pays the (credit card) price with cash or a debit card is paying more than someone that earns CC rewards, it’s virtually every transaction.
At least one reason for this is that Valve has language in their agreements to prevent you from selling your game cheaper on other storefronts. Unambiguously anti-competitive.
If I know I'm paying for my own rewards, I'd choose a card that keeps more money in my pocket. I'd go as low as the PITA factor of cash.
It's not clear to me what the net benefit is of a credit card over a debit card.
But for sure the confusion ensuing from allowing debit cards to be charged as credit cards should be illegal. The merchant account providers are probably the ones reaping the free money on the racket.
Credit is the POS default, for whatever reason. Not all POS are the same. e.g. US Post Office consistently knows if I am using a debit card, and it prompts for a PIN when I do. Every restaurant, bar, service does not ask for PIN, and the handful of merchants I've inquired with say their debit card fees changed by the merchant account providers are the same as credit. Scammy.
At least in Colorado it's legal for businesses regardless of the TOS contract with a merchant account supplier to pass on the transaction and processing fees of credit cards. It's not legal to pass on cost/fees for debit cards, ACH, or cash.
>It's not clear to me what the net benefit is of a credit card over a debit card.
In a fair scheme, the net benefit to the purchaser is having a rolling line of credit for whatever they want to use that for, like managing cashflow. It's also a benefit in that it puts a behemoth with immense contractual power between you and the merchant. It doesn't matter how a merchant fucks you over, the credit card company WILL give you your money back and punish the merchant.
To the merchant, the benefits are that credit cards unlock significant consumption that humans normally would not do. It literally causes induced demand. As a consumer, you will spend more money using a credit card, and you will purchase things you otherwise wouldn't. The disconnect in your brain is known. It can also, in very specific contexts, reduce the cost of managing payments and cash. It can reduce employee theft. But this improvement is overstated.
The reason merchants put up with giving away 3% of all revenue and eating $20 per fraudulent transaction plus whatever the cost of the transaction was is entirely about the fact that a consumer using a credit card buys more than one not using a credit card. It's a big boost to your revenue.
But there is absolutely nothing about a payment network that requires such transaction fees. Certainly not "Risk", as the credit card payment network itself carries zero risk on each transaction. Every dollar fraudulently spent comes out of the pocket of merchants, not the payment network. Their only risk is consumer default, but the entire "Credit Score" system exists to nearly eliminate that risk.
The structure of the system is built to get consumers to spend more money than they normally would, and incentivize everyone to play along to get a kickback. Everything in payment infrastructure in America is designed around this. Even gift card companies are built around getting you to spend money you were not intending to and kicking a portion of that back to the brand name on the card.
The most recent I've seen otherwise is this Federal Reserve study[0] from 2022. It finds that the marginal return on swipes is actually slightly negative because of how juicy rewards have gotten, and 80% of their profitability comes from interest (with most of the rest fees):
> we find that, on average, the credit function makes up approximately 80 percent of the credit card profitability, whereas the contribution of the transaction function is slightly negative, as rewards and other expenses on credit card transactions outpace banks' interchange revenues.5 In addition, fees—in particular late fees—comprise approximately 15 percent of credit card profitability.
[0] https://www.federalreserve.gov/econres/notes/feds-notes/cred...
You can just opt out of using credit cards.
I never understood why whole nation wants to live in debt just to have one extra month of cash flow (which they’ll probably squander soon).
Rational if you want a mortgage in the US at least.
Currently you're keeping money in the bank accruing the bank interest to occasionally pay for stuff.
With a credit card you would get various bonuses/cashback/gameified returns by owing them money, and it costs you nothing as long as you pay them back once a month interest free.
If you however slip up/miss a payment it will cost you a lot.
Both cases suck, but the latter saves you money if you play that game.
That's from a EU perspective. From a US perspective you also require it from a credit score perspective, which EU thankfully hasn't adopted... yet.
https://en.wikipedia.org/wiki/List_of_countries_by_household...
After 30 years, people generally speaking own their home and that's their biggest chunk of wealth. So basically, yes a high debt to income ratio, but it's building towards wealth and its not high interest debt either.
It is not, thus, free money, at all.
It can be done. The UK and the EU capped fees at 0.3% for credit cards and 0.2% for debit cards
I instead chose to live somewhere it's capped at 0.3% and then I don't have to fuck around to get my money back after the fact. As an added bonus, I don't even know what a medical bill looks like.
If I could get a debit card that gave me 2% cash back on all transactions, I'd use that instead!
For the consumer the reason is that this is revolving credit. If you pay next month you can have stuff today. That's a small relief, unless it turns into a carried balance and then it's an ongoing burden, but you don't think about that burden at first because you're naturally optimistic.
There is value in this even if you always pay your full statement balance every month.
If you have a stable source of income knowing your credit card payment is due on the 7th of every month means you don't have to monitor your checking account's balance for every purchase. You only have to think "make sure you can cover $X by the 7th".
That’s why businesses eat the credit card fees.
The reason is rather obvious, people spend more money with credit than they would’ve with cash. Accepting 95 cents on the dollar to get a sale with credit that you wouldn’t have got with cash still earns the seller money, money they wouldn’t have earned without accepting credit.
The entire credit card industry is set up to squeeze out as much profit from people as possible. They offer discounts as an incentive, but it is a huge trap that many, many people fall into. I'm not interested in risk. I'm interested in simplicity.
It's participating in the credit card industry that is foolish.
there is none. some people are just ideologically opposed to credit cards, like the parent appears to be.
their loss, really. they end up paying a portion of the cost but reap none of the benefits (rewards, additional legal protections)
Second, never use a card with an annual fee.
Third, which I already said, but bears repeating: pay off the full balance every month.
Fourth, look out for one good rewards card and funnel expenses through it, so you can get the rewards.
My parents taught me all of this 40 years ago, and it was exceptional advice, and has served me (and my family) very well.
Credit cards are not about carrying debt. They are the worst tool for that.
This is overselling it. You can come out 2% ahead or so. 4-5% if you are an extremely high spender who enjoys mentally managing 5 or 6 credit cards to max out category bonuses and other benefits and all that.
You come out marginally ahead at the expense of mental overhead. Good tradeoff for some, not for others.
I use a credit card, I dropped from 3-4 different cards trying to max out those 4-5% spending categories and just have a straight 2% cashback on everything card now. Plus one backup on a different payment network in case one goes down. It got to be exhausting trying to remember to manage so many cards plus remember to use the points, make sure to use the right card for the right thing, and all the other BS.
For some of my friends it's a hobby which is great for you if you enjoy such things! For me, it's just adding another chore to my life. Not worth the 1-2% or so marginal gain against my spending.
The super easy stuff is long gone these days too. You get far larger discounts paying via ACH for utility bills/cell phone bills/etc. vs. what credit card rewards give you so all the "autopilot" stuff is largely gone.
I do remember the days where we paid our Equinix bill via the company Amex. That was pretty fun while the party lasted!
Opting out doesn't save you from those costs.
I see many commercials for local banking up here that pulls out 30-40+ year members of the banks boasting about the prosperity the bank provided them, but at the same time, when they'd walked into the bank back in the day A Guy just said "yeah he's good for it" and wrote out the loans they needed.
You can't opt out of the modern credit scoring system and if you fuck it up even once with a bad line item you're out of the running for quite a few things and become virtually poor.
You can still implement “if I can’t afford something, I don’t buy it” with a cc. I pay mine off every month so it’s financially the same s a debit card but use a premium card for its purchase benefits.
I always get my money back when this happens with a credit card purchase. I've also had to dispute things occasionally, and I almost always get refunded.
https://commonslibrary.parliament.uk/research-briefings/cbp-...
> Industry body, UK Finance, estimates that criminals successfully stole £1.28 billion through banking fraud and scams in 2025. Of this, £703 million was unauthorised and £576 million was authorised.
> Unauthorised fraud is where the fraudulent transaction is carried out by a third party, not the victim. Authorised fraud involves the victim being tricked into paying money into another account that is controlled by a criminal. This is also known as Authorised Push Payment (APP) fraud.
https://www.psr.org.uk/news-and-updates/latest-news/news/pay...
> Frontier found that APP fraud losses have fallen by an estimated £73 million per year and the number of APP scams have fallen by nearly 35,000 due to the policy. Reimbursement rates for all claims have risen from 54% to 65%, and for claims in-scope of the policy, firms are now reimbursing 97%.
Anyway, the credit card companies (Diner’s Club and Bank Americard, now Visa but still retaining the original color scheme and logo) lobbied Congress in the late 60s to get these protections enshrined in law so that consumers would get a benefit over using cash as a positive incentive to switch.
These are available to Visa and Mastercard debit cards too.
But yeah, the UK has section 75 of the Consumer Credit Act.
actually it's better than a debit card, your purchases "float" for half a month on average you get to pay later. if you, as you should, maintain a regimen of always adding to your investment portfolio, this is a non negligible amount.
If you present a debit card to one of those desks, they may encourage you to swap for a credit card. Because a debit preauth ties up actual funds in your account. A credit preauth costs nothing but part of your credit limit. It really is a difference if you expect to spend money on vacation.
One of the most corrupting yet hidden forces in America today are the payment networks MC/Visa etc. due to their bribing and corruption of the government in order to prevent things like making payment processor fees separate/independent of the cost, i.e., similar to how taxes are added after the fact, not included in the price; and also preventing merchants from having two different prices, cash vs card.
I’m a bit surprised that HBR does not seem to even really have an accurate mental model if the matter, unless they’re making an editorial choice to speak in vernacular turns to relate it to the audience.
The problem is not really the cards, it even credit cards, it’s actually the payment processing networks that are the corrupting force.
If America has a legitimate government, there would have been a federal alternative payment processor that charges nothing as an accompaniment and based on the authority to mint the currency, which is what a payment processor today is, a digital currency mint.
To put it into perspective, when you purchase something by credit card, a merchant may have to l pay a little under 3% on a $100 purchase. When you purchase something cheaper let’s say $5, a merchant may pay 6.5%. And no, they don’t just say “awe shucks, I guess I’ll lose that money”, They increase the prices by some averaged amount.
Some may say that they can’t do that because competition, well, because there is no real competition and because the payment processor de facto monopoly/cartel has basically every single company in lockdown and you have no real alternatives, especially in places like Europe where they’ve foolishly and enthusiastically started forcing everyone into digital payment, all the merchants simply roll what is effectively a kind of organized crime/mob extortion into the prices of the goods and services the common person pays and never knows is paying.
That is not a positive. I'm fine with splitting up a price if you want to show how much tax gets added, but having to continuously do the mental math of "no this item is 10.99 it's 10.99 + tax" is very frustrating. When I pick up a $11 item, I want to spend $11.
I would even advocate that in the US we require taxation to be handled that way too because you are right, most of our citizens can't do basic math, let alone in their heads, or even really care; but if the price tag had to be the taxed price and you then get a discount if you pay cash, it would be a far better situation. There has never been a better time to do this with digital price tags.
The inherent problem is that the likes of the masses are hard to organize, let alone corral and focus on a single thing and everyone thinks they are smarter than the average.
In Europe (or at least the EEA, but the UK and I think Switzerland have their own capping) card interchange is capped at, generally, 0.3%.
Now I just use my apple card everywhere, pay it off every month and get whatever rewards I get.
It feels like a weird situation, those that stand to gain the most from credit cards are also the ones that should feel a difference of under $100 in rewards the least.
The one exception I see is bonus sign up rewards since those can be fairly significant, or making sure you use an airline card at the airline since those bonuses can be fairly significant (with sometimes other benefits). But outside of those exceptions, just choose a card with good rewards and stick with that and pay it off every month.
On the one hand, relative to our income it's not so important, but on the other it feels bad leaving $3k on the table.
So like, I have a card that's 6% on groceries, another that's 3% on gas and restaurants, Apple Card does 2% on Apple Pay transactions, and I have a 1.5% card for everything else.
The gain of a few thousand per annum is not worth the mental distraction.
It’s expensive to be poor. Higher interest rates, no credit card rewards, higher unit prices at places like Dollar General, etc.
>The result: People paying cash face the equivalent of a 26% higher sales tax than premium credit card users shopping at the same store.
I am surprised this never occurred to me or has come up at all in discussions with people (in the context of rising costs/inflation specifically). I’ve literally never considered this compounding effect until now. It’s so obvious of course, it just never even crossed my mind.
US FedNow instant payments went live three years ago, and can move $10M per transaction for a few pennies per transaction.
FedNow Is Live - https://news.ycombinator.com/item?id=36801491 - July 2023 (1022 comments)
(A gap in legislation was not mandating offering FedNow capabilities to your customers as a condition of your banking license as a bank; I expect this to be patched eventually)
If my credit card number gets stolen, zero money ever leaves my account. It simply gets contested before the monthly bill is even due, and cancelled. I have probably had number stolen 5 times in 20 years, and its never cost me a cent. Zero dollars every left my accounts even temporarily.
If my debit card number gets stolen, the money is out of my checking account immediately. Mortgage payments and other bill payments might fail, and the onus is on my to chase up the bank to get charges reversed and money returned to my account.
T-Mobile, AT&T follow Verizon on discouraging credit cards for bill-pay - https://www.paymentsdive.com/news/tmobile-att-verizon-incent... - August 10th, 2023
Xfinity Automatic payments and paperless billing discount (APPD) - https://www.xfinity.com/support/articles/automatic-payment-p...
> You can get a $10 discount on your monthly bill if you: Have Xfinity Internet and sign up for automatic payments and paperless billing with a stored bank account
Walmart was one of the larger supporters of FedNow during public comment period, as they experience billions in interchange costs per year, and are building instant payment support into the Walmart Pay component of their app to avoid these costs.
Walmart Plans Instant Bank Payments, Cutting Out Card Networks - https://news.ycombinator.com/item?id=41593450 - September 2024
Walmart FedNow instant payment public comments: https://www.federalreserve.gov/SECRS/2019/December/20191227/... [pdf; 2019]
> “It surprised me,” Henry said of adoption of Walmart’s first iteration of pay-by-bank, which is available online but hasn’t been marketed to customers. “It’s certainly surpassed our expectations of the amount of customers that have registered and actually use the payment type.”
> Walmart’s upgraded pay-by-bank offering will be rolled out in 2025. The transactions will occur over bank technology provider Fiserv’s NOW Network, which integrates with The Clearing House’s Real Time Payments network and the Federal Reserve’s FedNow. Until now, large retailers hesitated to launch real time payment options because many banks were not connected to an instant settlement system, meaning their customers would not be able to use the product. NOW Network aims to connect to as many banks as possible to reach 100% of deposit accounts by combining its own network with RTP and FedNow.
My understanding is that Meta is also pushing ad buyers to invoicing vs credit card payment.
Meta Ends Credit Card Payments for High-Spend Ad Accounts: Mandatory Monthly Invoicing Starts April 1, 2026 - https://www.auditsocials.com/blog/meta-ends-credit-card-paym... - March 31st, 2026
Like the slow decline of check volume, I see the same here. Credit card rails will exist for some time, perhaps another 10-15 years, but they have likely peaked from a volume perspective. If you're a merchant, surcharge when you can, and work towards on boarding and offering customers cheaper payment rails (imho). If folks want to pay the ~3-4% surcharge, enable them to, that is a choice if they want the benefits of using a credit card. But we should not all have to eat the cost for their benefit when less expensive options are available.
https://www.visualcapitalist.com/sp/cb03-charted-the-end-of-...
https://www.federalreserve.gov/paymentsystems/check_commchec...
(I work in financial services adjacent to payment systems, thoughts and opinions always my own, this is behavioral economics at scale, as always think in systems)
Credit cards are convenient and cash isn't. The genie is out of the bottle, no way to make people move back to cash.
If interchange fees were capped, people would go back to cash, imo. A lot of research shows you spend less when you pay with cash. And the lack of credit card rewards as a draw might lead people to carry it again
And this is based off evidence from countries where interchange fees are capped?
Credit cards have a really high ROI. The 3% drives 10-20% more spend, sometimes even more. When I was on the board of a small private school, we bought a square terminal and used QRs for flyers. That drove 30% increases in fundraiser expenses and helped us reduce mailings and nags. We would cross-sell stuff - could buy your youth soccer registration at the fall fest or whatever.
The things where ach, check, cash make sense are where there’s no discretionary spend at point of sale or recurring payments. If you pay 75 bucks a week that have your apartment cleaned dog groomed or whatever. You’re not getting value beyond taking the payment in advance with a credit card. Those are the areas where Venmo and Cash app have really dominated.
It’s a variation on a theme we are all very familiar with. It’s expensive to be poor. But this is another angle I hadn’t really considered. It’s a little more complicated than just “I can have better cards with better benefits.”
TL;DR: The actual cost per item for me is, in very literal and quantifiable terms, lower as a result - and the more expensive things get, the steeper my discount gets while the person next to me paying cash is paying a little more than I am every transaction for the same items.
Put another way: As price/inflation increases, the real number I am saving increases as well. So we aren’t just paying different prices, but their increase is also higher the higher prices get.
> equivalent of a 26% higher sales tax than premium credit card users shopping at the same store.
I do not think the sale price is increased by 26% - which doesn’t square with a 1% to 3% fee - I think they pay approximately 26% more in “sales tax” so you’re paying 26% more than the 7% tax.
"It's expensive to be poor" is a more or less universal experience under capitalism and it's amazing how many novel ways we've come up with to make it more expensive for poor people.
"Means testing" is one of the fun ones. The wealthy will often justify this as "People like me shouldn't get this help" which sounds even generous, and then you realise, oh, because we're testing if you're worthy to receive help now to get help you need to expend some time and effort to pass the test. When this "I shouldn't get benefits" is offered to you as a reason to means test, ask them why they're taking a benefit they don't think they should have and why they can't pay society back in other ways rather than inflict more misery on the poor...
Same argument for people: managing cash is a pain, swiping a card is easy. Contesting a transaction or fraud is way easier (infinitely easier?) with a card than cash. Having day to day liquidity even without ever carrying a balance is nice.
Is all this worth $9.2B across the economy? Maybe not, but again, certainly worth more than 0.
Nobody's arguing that credit card companies are proving zero value, only that they're charging more than what can be "justified" (whatever that means). That's why in europe the interchange rates are capped at some amount to reflect that.
As for America, there’s 4 card networks, and no explicit regulation preventing you from starting another (just the huge regulatory burdens involved with any money-processing business, PCI, etc).
If they were charging so much more than is “justified”, couldn’t one of the dozens of well-funded players in the fintech space swoop in? Couldn’t Walmart fall back to cash and a “Walmart card”?
Instead, we see even goliaths like Walmart spending money and time to support newer features like tap to pay because it reduces fraud losses and customers just prefer it.
The “justified” thing is silly - is Apple charging more than is justified because they make a profit?
Starbucks also pushes their app and paying via app, which has the side-effect of bundling 5 $5 transactions into one $25 transaction (a "card reload"), thus reducing their fee overhead.
[1] of course, this doesn't need to rely on some principle that people are entitled to discounts if they buy more, because in reality discounts arise from complex market dynamics such as competition and price discrimination.
(This is not a rhetorical question, I would love to hear others' take on the psychology and history of the subject. Really, how hard is it?)
How exactly to become wealthy then?..
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> What happened to noblesse oblige?
Some things made noblesse oblige way harder to manifest.
Meritocracy. "I deserve what I have", versus "I got lucky have what I have" made harder to share back.
Globalization. When you use one community to produce and another to consume, and third to register a company, and owner lives in fourth it's hard to associate yourself with the community. Where exactly to give back? You won't even see those people.
Secularizarion. Though USA is still significantly religious place comparing to europe.
Easiness to move. Today you're here, tomorrow you're there in new zealand bunker.
Culture. Somehow the rich are in the people who are heavily interconnected, spend time together at the khe khe pedoisland.
Natural selection. The ones who care less about others mathematically have more advantage than those who care enough to spend resources on non-resource-aggregation activities.
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So. There is no intristic motivation to do so (with majority), there is no external motivation, and there is no repercussions of not giving back.
The general rule with many of these causes is that unless you're willing to be absolutely committed, it's better not to be involved. If you cannot prove to yourself absolute fidelity perpetually into the future, it's better to not do it at all. The punishment for the apostate far outweighs the punishment for the infidel.
So your commitment has to be at least high enough to be willing to bear the resulting punishment for your apostasy. And if it is any less than that, you are strongly encouraged to just stay out of it. It's not that anyone is mean or anything. It's just that on the margin not-participating costs nothing and participating incurs a massive liability. That causes a shift in the window.
I wonder if true transaction cost even reaches the 0.2-0.3% or could be further lowered.
Perhaps forcing everyone to just implement free payments between any bank accounts, like pix, is actually the only viable solution here (and i just accept that this is one of those market failure things).
And they charge everyone the same price because credit cards contractually force them to. Merchants can either accept these terms, or forego credit cards entirely. This way credit cards prevent other payment methods from competing on price. Free markets for thee, contractually forbidding competition for me.
I also used a credit card to bootstrap my business 15 years ago. At it's height, I was brining in $1 million/year. The bank would have never given me a loan for the amount I was able to use on a credit card. I ended up shutting the business down a few years ago, with no debt.
Most people can't handle spending and rack up tons of debt. Credit cards can also be used to make money, instead of buying stupid things you can't afford.
The store still makes a profit on my purchase. My rewards are my own money coming back to me. I’m not sticking my hand in a poor person’s pocket just because I use a fancy card.
Not at many gas stations. Cash gets a discount usually $.10 per gallon. I’ve also started to see restaurants either give a discount for cash, or charge extra for credit card purchases. Business suppliers from tiny shops to large national companies tack on 3% for people paying with credit cards, or like T-Mobile, a $5/line monthly fee in order to get people to pay by direct debit.
The article has one thing mistaken, because it says that Durbin lowered costs for transactions, but credit owners got to keep their perks... That's not technically true (I worked at a supermarket when debit rails first went into effect, and I worked in payments when Durbin went into effect).
There are no benefits to credit users who use the debit rails, and the merchants would really rather you use the debit rails, because it is much cheaper for them. Durbin was mostly a win for the merchants, not a win for the customers.
However, if you take that to believe that the merchants lowered prices overall because they were paying less for transactions, than you might try to read into it that credit users kept their perks, while cash and debit users paid.
The true story, however, is that it's an equilibrium... When the costs go down, the saved money goes somewhere in between the two (supply and demand), and as long as there is competition, the savings are shared.
However, the real problem is that credit companies are allowed to invest interchange fees in perks at all. Credit card companies decided to take their low-risk pool, and offer them incentives, splitting the money they saved between themselves and their users, and using it as a way to pull more low-risk users. The more that happens, the more expensive it becomes for credit companies that serve mid-to-high-risk users... and since we can't stop offering credit to those users as well, those companies push for and get increases to interchange fees to cover the additional cost... which creates more room for benefits for the low-risk users, and the cycle begins anew. It's a vicious cycle that can't be fixed by changing amounts on the existing fee schedule... The only possible fixes would be in either disallowing these kinds of perks, or splitting the rail charges, and specifically charging less interchange for low-risk users (which dries out the benefit pool)
For merchants, it just doesn't make sense to pay high fees to cater to a dwindling minority of consumers.
Source: https://bfsi.economictimes.indiatimes.com/articles/credit-ca...
Besides, NPCI has introduced merchant transaction fee for UPI now causing decline in UPI transactions.
Credit card rewards are not a mechanism to shift wealth towards premium card holders (this is a negligible distraction), they exist purely to increase revenue/conversion rate, by decreasing customer price sensitivity (compared to cash payments) and encouraging financially irresponsible spending. If this did not actually work in practice, every merchant would just insist on cash and pocket the difference.
"Poor people" are hurt much more from the changes in spending behavior induced by credit card use than by paying for card rewards.
I suspect that because I didn't understand what you wrote.
You used a lot of passive voice and complex jargon. That is economists favorite writing style: they write to confuse, not to explain.
No. I do embedded software engineering for a living.
I use (in my view) HN appropriate levels of jargon (because lots of people here are involved with getting people to pay for some newfangled cloud thing or other, so I use their terminology).
In simple words: People pay more for the same (and spend more recklessly) when you let them pay by credit card, and this causes much more economical "damage" to poor peolpe than any "wealth transfer from card rewards".
One consequence of this system is the large merchants have more bargaining power and can negotiate lower fees. So large retailers, gas station chains, etc. are able to reduce the overhead of accepting CC payment. While smaller merchants have the same higher cost.
From a capitalism perspective, this is the most egregious example of "you have capital, so you can make more capital". Banks holding the capital in this case.
Fun fact: when credit cards were first introduced only to people with good credit, which paid the balance in full. this was not profitable. Only after opening the pool to other credit levels did CC start printing money for banks.
This applies to cash as well. It takes a lot of time to count change for everyone. Plus all the ways there are to steal cash.
Your fun fact is wrong. Credit cards were always profitable. They were not in the beginning because scale is what makes them profitable. Anyone who uses their cards for a couple meals a month (which is what it was first started for) is going to cost money because of all the overhead to have you as a customer. In those days that was a stamp to send the bill, someone to open the payment and cash the check - now that everybody works electronically the overhead is lower, plus people are using it for more and so there is enough left over to pay for it.
I wrote a summary for you...
"Because they receive a rebate, credit rewards-card users often effectively pay less than the posted or cash register price for equivalent goods or services."
This is even more true of the American brands that are getting Trump to attack modern, open, cost-free systems from other countries—like Brazil's PIX, maintained by the Central Bank of Brazil.
I call it 21st-century American usury.
It's clearly more complex than the story these authors are telling, in particular the highest income consumers get the worst returns on their interchange payments. So stores and services catering to wealthy consumers are actually subsidizing an opportunity for savvy customers, many of whom are not wealthy
I think the most simple piece of legislation to solve a lot of problems is to allow merchants to pass along the interchange rate to their customers. If they could do this legally and operationally, this would solve most issues here. If a credit card wants to be expensive, fine the consumer should pay for it. Because of contractual and operational limitations, credit card companies have gotten themselves into the current arms race.
If stripe implemented this, it would make me appreciate them as a force for good instead of being a part of the problem.
That's not what the article says:
>High-income consumers with high FICO scores benefit the most from reward credit cards compared to mid- and low-income consumers with high FICO scores. At the lower end of the FICO distribution, however, this pattern is reversed. On average, net rewards are far more negative for high-income consumers with low FICO scores than for middle- and low-income consumers with low FICO scores.
>Or, to put that another way: if there is redistribution happening, it necessarily includes redistribution from unsophisticated high income customers to sophisticated low income customers.
While it's true that wealth customers with low FICO scores are getting hosed, it's not clear whether that is enough to cancel out the effect that richer people (presumably) have higher FICO scores on average
The only way I can put these things together is that at the high FICO end, both wealthier and poorer consumers get hosed a lot but wealthier consumers not quite as much. On the other hand, lower FICO band doesn't get as bad of a deal overall but it is worse for wealther people (plausibly because they have high interchange fees and don't use their rewards).
It's complicated, but... this is not a wealth transfer right? It is a transfer mostly just from consumers to credit card companies that provide them a service.
Are you talking about "Consumption by income decile" graph? That doesn't show them being hosed, unless you think everyone should pay a flat rate to access the credit card system.