Considering how much of a rip off they already are on the financial system. Simple rent seeking at 23% interest, 20% + 3% processing. There should be legislation to combat this shit.
If you struck down the rules about providing different prices based on payment type and did a 10% discount by paying in cash, you'd be surprised how quickly things would change.
I remember being shocked when my local pizza place put a sign on the register saying there was now a 3% fee on card usage (which became legal to do as of ~September 2017). Absolutely wild that Visa/Mastercard would raise prices further. It's already hard enough to find a place that accepts my Discover card, let alone an independent joint that will accept Amex (accept for all the places in and around Chinatown who only accept Amex, never will understand how _that_ happened).
It might be to accommodate business diners and really rich people who have those black cards. I've personally never had an Amex except for corporate cards.
It has a bit of popularity for unbanked folks with the Bluebird Card from AmEx / Walmart. Free reloads at Walmart unlike the Walmart MoneyCard (Visa / Mastercard) which has a $3 fee.
American Express also launched a discount prpgram for merchants, to make pricing comparable to Visa/Mastercard. If you have little volume, its easy to qualify.
Before the law changed discounts for cash were pretty common especially at gas stations. In my part of the world (Fla) I don't see them anymore, anywhere.
Conversely, we could regulate and treat card networks as utilities (allowing them to recoup reasonable operations costs) instead of for-profit concerns siphoning unnecessarily off of the flows of capitalism. It works for Europe.
Customers regulating through voting with their wallet isn't going to work with how much power large financial firms wield. I contacted Elizabeth Warren's office (she's on the Senate Banking Committee); if this matters to you, I suggest you do too!
> I contacted Elizabeth Warren's office (she's on the Senate Banking Committee); if this matters to you, I suggest you do too!
Unless you've also got a plan to get a Democratic majority in the Senate, your plan probably needs to extend beyond Warren if you are relying on her role in the Banking Committee (if you are expecting her to win the Presidency in 2020, that's perhaps another story.)
> your plan probably needs to extend beyond Warren if you are relying on her role in the Banking Committee (if you are expecting her to win the Presidency in 2020, that's perhaps another story.)
It does. No need to pollute this thread, email me if you want to chat about it.
What's hypothetically supposed to happen is the payment vendors compete with eachother for traffic, and businesses negotiate deals and use the ones that give a good deal.
Whether it's actually working that way in practice, of course, is a valid question.
The problem is network effects. If you accept Visa or Mastercard then you lose business, because many customers have only one or the other. So you need both, which means you can't play them off each other for a better deal and they aren't actually competing with each other.
Combine this with contract terms in many places preventing merchants from passing on fees and it gets even worse, because card networks can gain customers and increase their network size by offering rewards and then use the network effect to raise fees. If the merchant can't charge more to customers whose card network charges them higher fees, the cardholder has the incentive to use the card with the highest rewards (and thus the highest fees), so you get a ratchet of increasing processing fees despite an overall trend of falling underlying processing costs due to automation.
Speaking purely hypothetically, it's easy for a customer to carry both a Visa & MC, so if stores more frequently took only one or the other, customers would respond accordingly. Like they already do with AmEx, or when traveling internationally (where MC has a big leg up).
But that's chicken and egg. Collective action problem. You can't stop accepting one or the other until the large majority of customers carry both, which they won't do while most vendors continue to accept both thereby allowing the cardholder to only need one.
True, although Visa card circulation far eclipses MC, so you could take the gamble that they'll have a Visa. Last I checked, Visa actually had more cards in circulation than all three of the other major brands combined.
Slightly old info, but:
SEC filings for end of 2016 had Visa circulation at 335 million, MC at 200 million, Discover at 51.4 and Amex at 47.5.
The problem is it's not a gamble, it's a percentage. Even if 75% of your customers have a Visa, then 25% of them won't and you risk losing that amount of business by not taking what they do have.
Moreover, that still wouldn't give you competition, because then what incentive does Visa have to give you a good rate if they're the only network you could plausibly attempt exclusivity with? It's like trying to solve a lack of competition by creating a monopoly.
I agree that there isn't much of a way to get lower interchange fees, but many, many businesses overpay at the processor level, where there IS a way to get lower total costs.
>contract terms in many places preventing merchants from passing on fees a
This is not a thing anymore, the card brands allow surcharging. It's prohibited by state law in something like 7 states, but those are rapidly losing court battles about it.
I don't know if its true or not but heard that Costco with this new deal with Visa is only paying a flat 40bps in interchange cost. Now that's a deal!!
Companies should feel free to not accept credit cards, but if they do accept them, it becomes a cost of doing business, and I, as a card user, expect to not be penalized for using one.
Providing parking is also a cost of doing business. I don't see any arguments in favor of merchants charging car-driving customers more than walk-ins.
> Those transaction fees were originally prohibited by credit card merchant agreements, but eventually they relented.
They were prohibited by federal law until a few years ago. That was repealed, but now they're still prohibited by state law in a number of states. In addition, some merchant agreements still prohibit it, particularly if the merchant accepts American Express.
With all the talk about "free markets" and stuff it seems very un-american that the restrictions the credit card companies are imposing are legal. These companies have enormous power and they are allowed to use it.
For this reason, I don't understand how Amex keeps attracting customers - you can't count on it being accepted everywhere, so you need to carry a MC/Visa backup card.
I used to tell myself that it was superior customer service, but I once disputed a charge at an overseas hotel and was sure it would be a fast/easy process - I paid for the room through Expedia and the merchant charged me for the room after I checked out. I contacted the merchant and they agreed and said they'd refund the charge. They never did.
I sent all of the information to Amex including the Expedia booking and the email from the merchant saying they'd refund me. It took them 3 weeks to "investigate" the charge and then they came back and determined that the charge was legitimate and I was not due any refund.
I spend an hour on the phone with them and got escalated to a supervisor who said she would re-open the investigation and 20 days later, they decided that I was due a refund and a week later they refunded it.
That's when I realized that there's no reason to have an Amex, so I replaced my Amex Gold Card with a Chase Sapphire card - I had to dispute one charge on the Sapphire and I didn't even have to talk to anyone, just did an online dispute and had my money back in less than a week.
I think it's as simple as - twenty years ago, there was no CSP/CSR, Amex was just a different experience. People's views/frame gets ingrained deeply. Younger people go Chase, in my experience.
Amex lowered their fees in 2015 through their Optblue program. They're still a little bit higher than Visa/MC, but much closer than they were. If you're still getting high Amex (3.5% or more) your processor is pocketing the difference between that and the lower costs.
It's been a while (~10 years) since I've had to deal with credit processing, but at least back then, discovers terms were pretty abusive for small businesses. In any month where we processed 1 or more discover transactions we had to pay a minimum fee of (iirc) $50. Given how relatively unpopular discover is the risk was just too high.
It's really annoying when trying to buy guns. They tack that 3% fee on there, and then say you can pay for cash or check. Ever bought anything online with a check? It's annoying, doubt anyone does it. Any site that is selling a gun I want that tries to pull that I avoid.
They shouldn't charge extra but offer discounts. It is bait and switch if they are charging arbitrary fees. Ryan air is notorious is for this practice. Advertise a low-cost flight but after you go through the sales funnel, unless you have Visa Electron. You pay an extra 5%.
Which is at least more favourable to the customer than Easyjet's approach which is to tack a £16 ( $20 ) 'administration fee' onto each booking regardless of how one pays.
I don't have any love for Ryanair but recently booked with them because the ticket cost less than Easyjet's fixed fee.
IMO, If surcharging really takes off, I think it will make Visa and MasterCard more accountable for their rate increase or at least think twice about it. I say this because with surcharging the merchants will pass the rate increases on to the customers and point the finger at Visa/MC. You might see the consumers then going to his or her Congress people both state an federal saying WTF! That's when the shit might hit the fan. That's why Visa and MC fought surcharging in courts they don't want to be held accountable. Stay tuned
This means a price increase for everyone.
The stores will just increase their prices across the board, even for cash, because most of their transactions are credit cards now.
This is the cost of wanting a cashless society, mastercard and visa get a tax on everything. A tax not subject to voting, but one controlled by unconstrained capitalism.
Yep, I am sure that this will be the turning point for "blockchain" and "cryptocurrency" and "machine learning" and "artificial intelligence" and "self-driving cars." /s
The problem is that merchants don't directly pass the transaction costs onto users. If I spend bitcoin, I pay a small fee (a few cents). If I spend with a credit card, I get 1% cash back and pay no fee. Why would I pay with Bitcoin?
A coworker and I were just playing with this, and were able to send the ~$100 worth of BTC back and forth, and paid $0.00002 in fees (and no, we weren't directly connected). The actual send took less than a second.
>Researchers at the University of Bologna in Italy created two simple reinforcement-learning-based pricing algorithms and set them loose in a controlled environment. They discovered that the two completely autonomous algorithms learned to respond to one another’s behavior and quickly pulled the price of goods above where it would have been had either operated alone.
>“What is most worrying is that the algorithms leave no trace of concerted action,” the researchers wrote. “They learn to collude purely by trial and error, with no prior knowledge of the environment in which they operate, without communicating with one another, and without being specifically designed or instructed to collude.” This risks driving up the price of goods and ultimately harming consumers.
I don't think it's out of the realm of possibility that two companies could arrive at such a move without conscious collusion. I also don't think it should be treated differently.
Long term, I think Visa an MC could shoot themselves in the foot. Merchants are now allowed to charge fees for using CCs IIRC in at least some areas.
You could easily end up with a situation like Europe where people mostly use debit cards for in person purchases since the processing fees are lower.
Consumers lose the protection of a buffer from their bank account, issuers lose out on revenue. Not a good outcome IMHO.
Of course. They also share most of their customers. Their business model is the same. A lot of their metrics probably trend similarly. Each would definitely know what the other is up to without talking directly.
The prisoners dilemma is ultimately just a demonstration of game theory.
That is there is more than you win/I lose or I win/you lose but there is win/win.
It’s definately conceivable two algorithms or two ai would be capable of concluding the same. In fact it may be even easier because what’s the actual dilemma/self interest of such a system without the selfishness of human nature?
Nah, they still can come after you if you prevent new firms to enter the market. (But if you just do the usual regulatory capture the gov. will be just happy for you, as you gave them a lot of busywork for nothing.)
My pet peeve is how "The Prisoner's dilemma" is the most commonly used example of game theory while being one of the worse examples (because it involves no information exchange and a skewed payback)
2-factor auth is typically mandatory when using a chip and PIN card to buy things online. Rather than physically entering the PIN on a keypad, you're doing something through a flow using your user account with the bank. So not only would the random retailer need to be compromised, but the bank would have to be as well.
In practice, here in Europe credit cards are often worse because the seller can add additional charges after the transaction using just the CC number (even with chip+pin CCs) whereas this is impossible with a chip+pin debit card.
And the CC "protection policies" aren't that useful here, in my experience it's near impossible to do a successful chargeback and there are few cards with high cashback.
India probably has the same number of users (or maybe more) of debit card users as the whole of Europe.
In India, banks have transferred the liability of debit card frauds directly to the card holder. As far as they are concerned, the cards have EMV chips, and you have to provide a PIN to use the card on every transaction (merchant or ATM). Further, everytime a transaction occurs, the user gets an email and SMS message on their mobile informing them of the same. So ultimately it is presumed to be your fault if your debit card is "misused" in any manner.
In fact, there was recently an interesting and controversial indian court case and ruling on debit card usage -
A spouse used his wife's card at an ATM to try and withdraw money to pay her medical bills (she had just given birth). The transaction failed (i.e. he didn't get the money) but the amount was debited from the account. They informed the bank and the bank told them that there might be an issue with the ATM and in such cases the amount would be credited back to the account in 24-48 hours. When that didn't they filed a complaint, and the ATM's CCTV footage confirmed that the ATM had not disbursed the money. But since the footage also showed the spouse using the card, and not the card holder, they closed the case stating that since debit card PIN has been shared, the bank is not liable as debit cards are non-transferable. After appealing in various forums, and finally in court, even the court sided with the bank. They further added that if the account holder wanted her husband to withdraw money, she should have given him a self-cheque for the amount, and not her debit card.
India probably has the same number of users (or maybe more) of debit card users as the whole of Europe.
In India, banks have transferred the liability of debit card frauds directly to the card holder.
As far as they are concerned, the cards have EMV chips, and you have to provide a PIN to use the card on every transaction (merchant or ATM). Further, everytime a transaction occurs, the user gets an email and SMS message on their mobile informing them of the same. So ultimately it is presumed to be your fault if your debit card is "misused" in any manner.
If you lose your card or suspect fraud, you can always block it through your online net banking account or by calling the bank.
In fact, there was recently an interesting and controversial indian court case and ruling on debit card usage -
A spouse used his wife's card at an ATM to try and withdraw money to pay her medical bills (she had just given birth). The transaction failed (i.e. he didn't get the money) but the amount was debited from the account. They informed the bank and the bank told them that there might be an issue with the ATM and in such cases the amount would be credited back to the account in 24-48 hours. When that didn't happen, they filed further complaints with the bank and the ATM's CCTV footage confirmed that the ATM had not disbursed the money. But since the footage also showed the spouse using the card, and not the card holder, they closed the case stating that since debit card PIN has been shared, the bank is not liable as debit cards are non-transferable. After appealing in various forums, and finally in court, even the court sided with the bank. They further added that if the account holder wanted her husband to withdraw money, she should have given him a self-cheque for the amount, and not her debit card.
I once did not receive my cash at an ATM at a bank. At the end of the day they cash out the machines and could verify that I didn't receive my cash and credited my account.
If the bank didn't disperse the cash after cashing out the machine, then that is theft.
Look at AMEX, which has been rebuked by many merchants due to higher fees. The biggest risk for Visa & MC in doing this is that AMEX might begin to seem more swallowable for merchants.
Amex actually lowered their fees to be more in line with Visa/MC through its Optblue program back in 2015. The fact that many businesses don't know that is just a testament to the complexity and confusion in the industry.
We don't know which rates Visa/MC are actually raising yet, but probably not. It has a lot to do with how/what processors charge.
Along with lowering costs, Optblue let processors add a markup to Amex transactions. (Previously they couldn't. That meant no incentive for processors to suggest or push Amex acceptance, as they didn't make money on Amex transactions.)
Now they can, and those markups tend to be higher than for Visa/MC. In egregious cases, the processor simply continues charging the business the old Amex rate (~3.5%) and pockets the entire difference between 3.5% and the new lower rates.
They aren’t competitors? Well, they definately aren’t complimentary services (ie peanut butter and jelly).
Well merchants and consumers aren’t the competitors of visa/MC. Maybe they should cooperate by lowering the fees. If cooperation is the way to maximize profits...or does that only work when two companies collude to price fix?
Several forces would contribute to both VISA and MC changing fees at the same time.
- the typical open and transparent "price signaling" where competitors can "see" others' price changes. Similar to one airline immediately changing (matching) a ticket price in response to another airline lowering or raising its price. Same mechanism as Amazon bots constantly web scraping Best Buy and Walmart and Best Buy in turn scrapes Amazon. Everybody is constantly monitoring everybody's prices.
- Visa and MC have overlap of owners[1][2]. 4 out of the top 5 owners are the same for both: Vanguard, Blackrock, FMR, State Street
- Visa and MC have overlap of member banks that also have minority ownership
Yes, you were being sarcastic about the coincidence but it seems like the natural economic equilibrium is for both to have near identical network fees.
It seems relevant - if company leadership is attempting to act in the best interests of the shareholders, the fact that the shareholders also own their competitors would tend to bias them against engaging in a price war (even one that they would have a good shot at winning).
These mutual funds and ETFs actively participate in corporate governance, and the overlapping ownership of most stocks in the market is a very underrated problem.
Economists have found evidence that as ownership concentration increases, firms act more like a monopoly.
Participating in corporate governance and actively forming corporate strategy is a very different issue. And to my knowledge, ETFs and mutual funds do not participate in any meaningful way in management, i.e. they do not act as activist investors.
IMHO, the Card Brands are an Oligopoly Industry so they have pricing power and therefore raise prices because they can. Add on the fact they are public companies with their investors ( your list) hounding them for better returns leads to price increase abuses.
Company A 'mulls' something, company B and C follows, X gets done.
If company A mulled something and no one else piped up, they could still of course go it alone, or they could decide that they want to help save their customers even more money, and not raise prices.
Capitalism has failed in a way. The free market was supposed to facilitate competition. But what we've seen is increasing consolidation, not competition. Most industries are dominated by a handful of players who gobble up smaller rivals, who, after raising millions in funding, are too happy for the exit.
All data shows the same: competition is being trumped by consolidation and its eventual end, cartelization
That's not to say that capitalism is thus refuted as an economic model. All it means is that someone hasn't been doing an adequate enough job (probably regulators or lawmakers, in this case).
Capitalism's success is always a function of adequate rule of law, economic regulation, social trust, and personal generosity. Where those are present, it absolutely trounces other models.
Capitalism is astable and requires a negative feedback framework to operate properly. It also has a narrow habitable zone otherwise it will cause an ecosystem collapse.
Capitalism isn't just a hand, it is mostly a mind that runs as an overlay over all the participants willing or not, and it isn't very bright, but it is very powerful. We are all but rabbits under its strong hands.
Wouldn't we observe the exact same behavior if the two were in an equilibrium where long term average cost was minimized (and, incidentally, equal to the price) and something caused LTAC to rise?
just use cash. can’t be tracked and it works everywhere (however i’ve run into one cashless shop recently). it’s unweildy for large transactions though, so checks or (reluctantly) cards are useful there.
Delta Connection flights (potentially single class cabin only) only take cash. United also did away with cash transactions onboard. Of course, if people stop buying things on board because they can't use cash the airlines will switch back.
yes, almost. the middlemen are still taking ~1%, which everyone pays for through higher prices. wouldn't you rather have lower prices on everything and not have to worry about which card to use to get which points to claw back some of that cash?
to be fair, one needs to experience the current credit card rigamarole to realize that straight lower prices are less complicated and preferable. i get tired of having to remember to cash in my points in a convoluted system involving yet another third party (the rewards provider).
This is a nice thought, but come on. If you want to be a good samaritan, donate to a charity. Giving up 2-3% cash back by using cash while plaintively reminding everyone that interchange fees are harmful to society isn't making any difference to anything other than your own wallet.
Also, some cards automatically apply rewards points. My Schwab Amex card deposits my 2% cash back each month directly into my brokerage account. My Amazon Prime card just gives you a checkbox when buying on Amazon where you can apply cash back to your purchase during checkout.
It's true that they don't change prices daily, but it's also not particularly uncommon for them to do so. Visa raised an assessment I think last January? And interchange fees have changed several times over the years as well.
Gas stations change their prices based on their primary supplier for a given area these prices tend to be more or less the same, they also don’t make money on selling gas these days but rather of the convenience store/restaurant or by leasing that space to someone.
this just happened for me shopping at a grocery store I do not usually frequent, I overheard them saying it was happening company-wide. people left full carts of food because the ATM was also not working. (non-urban area)
They have survived the internet revolution where other businesses have been disrupted. No startup is even close to chipping away their collective control. So they are empowered to do as they please.
I suspect a big reason for this is that merchant agreements prevent you from directly passing on the cost of cards to customers. So if you accept Visa, MasterCard, and payment form X (where X could be cash, bitcoin, Venmo, whatever), the price you charge customers is the actual price you want to set plus the Visa/MasterCard fees, even if they pay with form X.
One way a disruptor could tackle this is by providing all (or even almost all) of those fees as cash back - giving everyone 2.5% cash back regardless of their creditworthiness / ability to get a sweet rewards card would be very popular. But then you'd probably want to not do that at merchants that aren't accepting traditional credit cards, and I'm not sure how customers would feel about this.
Are there a lot of violent robberies in Sweden? I'd think in a society with less guns people would be more wary of robbing. The clerk is separated by a counter and may have a bat or simply hit the panic button before you can get on them, leaving little time to escape...
Assuming Sweden is similar to Finland, I think the main point is not avoiding robberies, but just to save money.
Here, visits to bank branches have been in decline for decades now, especially for cash services, so it makes sense for the banks to reduce the amount of locations that offer those services to save money.
In 2018 there were 854 bank branches in Finland, compared to 1627 in 2007 and 3600 in 1985. Population is 5.5M.
This also has the effect of increasing cash handling costs to businesses if they have to get cash services from a bank branch that is far away.
The alternative to cash is not necessarily credit. It can also be debit. Which means I don’t have to line Visa’s or MC’s pockets for it. My bank is already getting its cut for offering me a form of electronic cheque.
So the fact that cash incurs a cost (it does, especially for the merchant) is not the scarecrow argument that would justify Visa or MC boosting fees or even using a credit card.
Presumably this is to pay for all the points people get by using cards, not to mention the sign up promotions.
I like how in Europe and Australia interchange fees are capped. Even if it means they live without such bountiful premium cards.
https://en.wikipedia.org/wiki/Interchange_fee
>> In the United States, the fee averages approximately 2% of transaction value.[2] In the EU, interchange fees are capped to 0.3% of the transaction for credit cards and to 0.2% for debit cards.[3]
I think the points are fully paid by avg 21% APR, $37 late fees, interchange fees, foreign transaction fees(2%) and ATM fees on credit cards. Its just greed.
Saw a video by vox today where they argue that the points are also paid by increased retail prices. Even if you decide to use cash, you are basically paying for someone's business class upgrades
The Chinese store I buy from offers me discounts if I pay in cash. He offers me 5% discount on furniture and also gives me a proper invoice (so he is not really defrauding the tax authorities either).
Yeah but the people getting the points aren't the people paying those fees. It's mostly a wealth transfer from the poor to the well off. It's grotesque, and I think they should be banned.
More like stagnant growth and very few levers to increase their (Visa/Mcard) bottom line - which, of course, shareholders demand. Issuing banks and acquirers deal with the points people get.
I forgot where I read it but an article explained the way credit card companies hide how the fees have been transferred to the customers. The merchant takes the burden but they jack up the prices of the goods which hits the consumers.
The reward point systems of the credit cards work the same way. Merchants jack up the price of the goods to be part of the reward point system which in the end hits the customers. In fact, the people that don't get a credit card with reward points actually end up losing by not joining.
I thought it's interesting that everything in the end gets put on the customers. It's the price we pay for convenience. I just don't like the way it's hidden to make it look like we're not actually the ones paying for it.
It reminds me a little of medical pricing. The real costs are hidden from the customer and things are intentionally convoluted. There are a lot of areas where we need more transparency.
> I thought it's interesting that everything in the end gets put on the customers. It's the price we pay for convenience. I just don't like the way it's hidden to make it look like we're not actually the ones paying for it.
Where else would the cost go? Credit card costs, delivery costs, supply costs, advertising costs, the consumer always pays for it as they are the only one who are providing cash in any of these scenarios. I suppose the merchant could just eat the cost, but, assuming the markup isn't wild, that's a proposition that leads to a dead business.
The cost could go to a specific credit card fee paid by the customer only when they use credit cards, but the merchant agreements typically prohibit you from doing that. You're paying the price whether or not you're getting the convenience.
(I've seen a few small merchants tackle this by offering a cash discount as a subtraction from the regular price, for instance. But I'm not sure even that is contractually permitted.)
The best way to beat the system is to take advantage of the massive credit card reward bonuses that US banks offer. I've churned credit cards since 2012 and have nearly all my personal travel paid for by points every year, including international business/first class flights, luxury hotels, and cash for travel...
Best thing is credit card rewards are not taxed because they are considered a rebate, which is quite amazing especially in a high tax state like CA!
You're just paying for that through increased prices on the products you buy. You're not beating any system, no one beats the system except for the top .001%.
I would argue that this level of dedication would be within the top 1% of credit card users and that probably is beating the system. Product prices are increased, but since the price increase is spread out among everyone (including those who pay cash), it seems likely to me he makes a good return. Maybe not $/hr, though.
Seems like game theory? If everyone else is playing, then it's better to play than abstain.
Also I'm not sure about "higher prices", in my town there's two convenience stores across from each other, one with CC fee and one with no fee, same prices otherwise, so I just go to the no fee one. Maybe it gets worked in somewhere but it's not as fair/efficient as it could be.
Good job beating the system. If you tracked all the hours and mental energy you spent on these tasks vs the amount of money returned, what do you think the hourly rate would come to?
I took a first class flight to Japan during peak Christmas season on points from one credit card that I earned the bonus on by paying my rent with a credit card...it would've cost $15k out of pocket (even economy flights are almost $1000 one way during the holidays...)
I am always hesitant on valuing redemptions for the price that would've been paid for the ticket, primarily because no one in their right mind would pay that price in the first place.
But they still don't pay the full fare. They are atrociously high so that they can be heavily discounted, especially when it comes to corporate contracts.
Eh, even if you don't value airline/hotel points, you can pretty easily get ~$500/card in value in sign up bonus just for opening the card and using it for expenses you were going to incur anyway. You need to be discerning about what you apply for and only apply for the good deals, but it really doesn't take much time.
From my own experience, it's well above minimum wage, and even very pessimistically, above $150/hr. There's a high hours/$ learning curve up front and then after that you just do it on autopilot and it doesn't take any time at all.
(IME, CC bonuses are less time intensive than checking/saving bonuses. You just sign up for a new card off one of the blogs that tracks current offers as soon as your min-spend is met on the last one, and put your ordinary spending on the new card.)
> Good job beating the system. If you tracked all the hours and mental energy you spent on these tasks vs the amount of money returned, what do you think the hourly rate would come to?
I also churn. After an initial investment of learning the concepts, I spend very little time. I can go onto a major issuer's site and spot a good deal in minutes. I have a small text file where I note offers I see on Reddit that may be of future note.
I don't recall how long it took to "learn churning" but it was small chunks spread out over a long period.
I periodically take breaks when coding to rest my brain. I'm taking one right now in fact :)
So I'd argue the time cost was zero/near zero since I wasn't going to be "productive" during those breaks anyways.
Then again, I'm not an extremeist - I mostly keep an eye out for destinations I'd like to vacation to, what airlines service them, then sign up with a card that can get me points to pay for that flight.
In the end, I'd estimate I save 1-2k on airfare per year plus some spare change in cashback. (Credit card rewards are treated as discounts and thus not taxable income, so getting tax free airfare then putting the money into an IRA or 401K is +EV).
I don't let myself get wrapped up in getting an extra percent back on my tacos or something though - in fact through analysis I've found that keeping entertainment money as cash reduces spending to a point it's better to use cash than use a CC and get rewards for spending at bars, restaurants, and the like.
It doesn't take any time. I open a card, pay my rent with the card to get the bonus, pay off the card (no interest), and then put it away and cancel a year later.
Edit: Also, I consider it a hobby. It's fun to try to beat the system. And the reward for "beating it" is incredible experiences (i.e. Singapore Suites) that would be far out of reach if I didn't play. Would you ask the same question of someone who cooks or plays video games what their ROI is?
The service Plastiq will send a check to your landlord funded with a credit card for a 2.5% fee. It’s not worth it to buy miles, but definitely worth it to earn a signup bonus where the rewards are worth 10%+ of the minimum spend requirement.
I can't speak directly for the person you replied to, but it's almost certainly worth their while. We're not talking about $100-200 in potential benefits. We're talking about thousands of dollars (in the case of international business class seats).
The reason is because on the legacy airlines, international business class seats usually cost 4+ times more than the economy class seat on the same flight but you can redeem just 2-3 times more miles for a business class seat rather than a economy class seat.
One of the issues with this hobby is that the reward redemption flights are typically not as good as the non-redemption flights (i.e. you might have a layover as opposed to a direct flight).
---
For instance, the United/Lufthansa/Swiss alliance has flights from NYC to Paris departing May 27 and returning June 5.
Economy seats are ~$650 or (60k United miles + $105). For economy, those miles would have a valuation of ~$0.0091/mile (($650 - $105) / 60k miles). Chase somewhat regularly offers signup bonuses on their United credit cards of 70k United miles if you spend $3k within 3 months (you are charged a $95 annual fee in this case). So the ROI is ~$450 ($650 - $105 - $95) in exchange for spending $3k on that new credit card.
Business seats are ~$2900 or (140k United miles + $161). For business, those miles would have a valuation of ~$0.0196/mile (($2900 - $161) / 140k miles). The same Chase offer as before applies. But you have to open the card, meet the spending requirement, get the bonus, close the account, and reopen the account and repeat once more. The ROI in this case would be ~$2549 ($2900 - $161 - $95 - $95) if you spend $6k on those two new credit cards.
In either case, it shouldn't take you more than a ~10 hours of active work to get those kinds of returns. You do need to occasionally check the banks' websites to see if they're offering any special deals, occasionally check the airlines to see if there's any favorable redemptions available, etc. In the case of economy, the ROI is ~$45/hr. For business it's ~$255/hr.
I do not churn cards, so I spend nearly zero time. But, I do have a few cards that are used for specific reasons and end up returning 'free' money. For example, if you buy a lot from Amazon, the Amazon Prime Card is definitely worthwhile for %5 back at Amazon and Whole Foods.
I mean, yeah, that's good for a limited pool of consumers (myself included, as well), but really we're just being subsidized by other consumers who pay with cash, debit, or even credit cards that don't generate as high rewards. There's no reason Visa and Mastercard (as well as the banks) should be able to rent-seek the insanely high fees that they do on most retail transactions.
I mean as a private individual I have no power to change what Visa or Mastercard do, so it makes no sense to "protest" by using cash (which actually hurts me since I'd be the one subsidizing others) instead of just trying to extract as much value as possible from the banking and payment industries.
Couldn't you say the same about taking advantage of any offer that poor people can't (or are less likely to) take advantage of? eg. buying toilet paper every 6 months when there's a deep discount, rather than buying small packs weekly (which poor people are more likely to do because they don't have the savings to buy 6 months of toilet paper upfront).
If you spend $250,000 a year on credit card purchases and get 4% back on everything you've cashed in on $10,000 bonuses, but you had to spend $250,000 to get that.
It sounds like one of those conversations where it's like "yeah, just buy a car because you can write it off on your business account", so while you do get a discount on your taxes, you still had to pay for the car which is a net negative on how much $ you have in your pocket at the end vs not buying the car and paying more taxes.
The big money is in sign-up bonuses, like "spend $3000 in the first 3 months and get 50000 points, which is worth $500 cash or even more towards travel".
I don't know how justified this feeling is by fact, but I feel like this is being done to further compete with cash back rewards. The more card holders want in cash back percentage perks, the more the credit card companies will want to collect in transaction fees.
Part of their rationale is that the cost of anti fraud and AML and so on is going up. At the same time, the volume of transactions going via cards is increasingly massively year on year and will continue to do so for quite some time. Surely a lot of these anti fraud and other systems benefit hugely from economies of scale. Once you've got your anti fraud tooling set up, you mostly just need to throw a few new VMs and staff at it as tx rates grow. This seems to me like a good cover for them to cartel up and raise prices.
The problem is that frauds are fat-tailed. The vast mayority of them are small, but most harm comes not from them but few huge ones where there is no economy of scale to offset it.
If one increases the number of transactions, then it can be depending on fraud distribution details that harm from big ones increases disproportionately and makes average cost of transaction higher.
If transaction rate is increasing, that means that fraud costs should actually be going down as a percentage of transaction income.
And of course, Visa and MC control the technology. Their continued avoidance of major technical advances in the core card technology (things like one-time credit card numbers for online shopping) tends to undermine the "fraud is why we charge so much" theory. Also wouldn't hurt to look at the profit margin of Visa while you're at it, it's remarkable.
I believe Visa and Mastercard are feeling threatened perhaps?
For both UnionPay and Alipay are huge in Asia, various banks replacing Visa/MC as primary choice for credit/debit cards and mobile payments in a majority of shops.
Europe seems to be next from what I've noticed, their brands showing up here and there in shops.
But I think this might be a good thing, we need more competition in that area.
The situation in Europe is generally better because EU legislation (Interchange Fee Regulation) has limited the fees that payment processors can charge. That regulation also requires more transparency and is supposed to promote alternative payment systems by limiting lock in.
As always, Europe is too fragmented, and slower to adopt new tech, for one of these app based solutions to gain wide spread adoption quickly, though.
> As always, Europe is too fragmented, and slower to adopt new tech, for one of these solutions to gain wide spread adoption quickly
Not sure what you're talking about. In Poland, I can use my phone to pay for anything anywhere. Seriously. I can buy a single apple at a grocery stand and tap my phone on the reader that will surely be there and will surely work with all NFC payment systems.
Coming to the US is a shock, because suddenly nothing works, and even in places where it's supposed to work nobody tries to pay with a phone, because it's flaky.
So I'd say it's exactly the other way around. With customer-facing banking tech, Europe is way ahead of the US.
You mean Google/Android Pay or Apple Pay or anything else? (such as the wonderfully low-tech solution of placing a miniature NFC credit card sticker on the back of your phone or in your phone case).
I'm not sure what you mean by "getting adoption", but when I stand in line in Warsaw, almost all payments are contactless, and probably 1/3 are done using a phone.
There are multiple components to the final rate that a business pays, with the bulk of it being interchange, which goes to the banks that issue cards. Visa/MC only get assessments and dues, which are significantly smaller. (Visa's volume assessment is 0.13%, for example.)
We need to know which fees they're raising, and by how much, to know what sort of impact this will have.
I think there's a place for a nationalised network or some sort of not-for-profit org.
Seems silly to rest such an important part of society in the hands of a few private orgs. Or maybe even empowering banks to better compete (as long as we don't end up with 50 different networks).
It does so in India for rural communities. I've always wondered why it cannot do low cost banking in US. they already have the infrastructure and the manpower.
We have a national network in Germany. It’s called girocard and has debit cards only. You get one from your bank by default for every checking account. Transaction fees are very low at ~0.25%. They double as an ATM card and are usually co-branded with either Maestro or V-Pay so you can use them internationally.
Of course they’re not perfect and are often behind MC/Visa when it comes to new features like contactless, tokenization, etc., but it’s still a great little system.
358 comments
[ 2.8 ms ] story [ 275 ms ] threadI remember being shocked when my local pizza place put a sign on the register saying there was now a 3% fee on card usage (which became legal to do as of ~September 2017). Absolutely wild that Visa/Mastercard would raise prices further. It's already hard enough to find a place that accepts my Discover card, let alone an independent joint that will accept Amex (accept for all the places in and around Chinatown who only accept Amex, never will understand how _that_ happened).
Otherwise there is no incentive to lower them.
Customers regulating through voting with their wallet isn't going to work with how much power large financial firms wield. I contacted Elizabeth Warren's office (she's on the Senate Banking Committee); if this matters to you, I suggest you do too!
Unless you've also got a plan to get a Democratic majority in the Senate, your plan probably needs to extend beyond Warren if you are relying on her role in the Banking Committee (if you are expecting her to win the Presidency in 2020, that's perhaps another story.)
It does. No need to pollute this thread, email me if you want to chat about it.
Whether it's actually working that way in practice, of course, is a valid question.
Combine this with contract terms in many places preventing merchants from passing on fees and it gets even worse, because card networks can gain customers and increase their network size by offering rewards and then use the network effect to raise fees. If the merchant can't charge more to customers whose card network charges them higher fees, the cardholder has the incentive to use the card with the highest rewards (and thus the highest fees), so you get a ratchet of increasing processing fees despite an overall trend of falling underlying processing costs due to automation.
Slightly old info, but:
SEC filings for end of 2016 had Visa circulation at 335 million, MC at 200 million, Discover at 51.4 and Amex at 47.5.
https://wallethub.com/edu/market-share-by-credit-card-networ...
Nilson report 2016 card usage by volume has Visa at $1.549 trillion, with Amex at $0.695 trillion, Mastercard at $0.693 trillion.
https://www.valuepenguin.com/largest-credit-card-issuers
Forbes has some charts with market share info.
https://www.forbes.com/sites/greatspeculations/2017/09/07/vi...
Moreover, that still wouldn't give you competition, because then what incentive does Visa have to give you a good rate if they're the only network you could plausibly attempt exclusivity with? It's like trying to solve a lack of competition by creating a monopoly.
>contract terms in many places preventing merchants from passing on fees a
This is not a thing anymore, the card brands allow surcharging. It's prohibited by state law in something like 7 states, but those are rapidly losing court battles about it.
https://www.fool.com/investing/2017/06/20/how-did-costcos-cr...
Providing parking is also a cost of doing business. I don't see any arguments in favor of merchants charging car-driving customers more than walk-ins.
They were prohibited by federal law until a few years ago. That was repealed, but now they're still prohibited by state law in a number of states. In addition, some merchant agreements still prohibit it, particularly if the merchant accepts American Express.
Saying as a merchant ;)
I used to tell myself that it was superior customer service, but I once disputed a charge at an overseas hotel and was sure it would be a fast/easy process - I paid for the room through Expedia and the merchant charged me for the room after I checked out. I contacted the merchant and they agreed and said they'd refund the charge. They never did.
I sent all of the information to Amex including the Expedia booking and the email from the merchant saying they'd refund me. It took them 3 weeks to "investigate" the charge and then they came back and determined that the charge was legitimate and I was not due any refund.
I spend an hour on the phone with them and got escalated to a supervisor who said she would re-open the investigation and 20 days later, they decided that I was due a refund and a week later they refunded it.
That's when I realized that there's no reason to have an Amex, so I replaced my Amex Gold Card with a Chase Sapphire card - I had to dispute one charge on the Sapphire and I didn't even have to talk to anyone, just did an online dispute and had my money back in less than a week.
As you said, users should still carry a backup, but most places accept it. As for customer service etc., their platinum cards are where they shine.
square lists discover fee 1.56% – 2.3% and visa fee at 1.43% – 2.4%.
of course, fees are negotiable and much less for the physical retail. durbin amendment sets the limit on /debit/ fees at 0.05%+$0.21
I don't have any love for Ryanair but recently booked with them because the ticket cost less than Easyjet's fixed fee.
This is the cost of wanting a cashless society, mastercard and visa get a tax on everything. A tax not subject to voting, but one controlled by unconstrained capitalism.
Worse than that, actually. Bitcoin transaction fees can be pretty volatile, but they're currently in the $0.20-0.30 range.
https://bitcoinfees.info/
https://www.technologyreview.com/the-download/612947/pricing...
>Researchers at the University of Bologna in Italy created two simple reinforcement-learning-based pricing algorithms and set them loose in a controlled environment. They discovered that the two completely autonomous algorithms learned to respond to one another’s behavior and quickly pulled the price of goods above where it would have been had either operated alone.
>“What is most worrying is that the algorithms leave no trace of concerted action,” the researchers wrote. “They learn to collude purely by trial and error, with no prior knowledge of the environment in which they operate, without communicating with one another, and without being specifically designed or instructed to collude.” This risks driving up the price of goods and ultimately harming consumers.
I don't think it's out of the realm of possibility that two companies could arrive at such a move without conscious collusion. I also don't think it should be treated differently.
Long term, I think Visa an MC could shoot themselves in the foot. Merchants are now allowed to charge fees for using CCs IIRC in at least some areas.
You could easily end up with a situation like Europe where people mostly use debit cards for in person purchases since the processing fees are lower.
Consumers lose the protection of a buffer from their bank account, issuers lose out on revenue. Not a good outcome IMHO.
That is there is more than you win/I lose or I win/you lose but there is win/win.
It’s definately conceivable two algorithms or two ai would be capable of concluding the same. In fact it may be even easier because what’s the actual dilemma/self interest of such a system without the selfishness of human nature?
And the CC "protection policies" aren't that useful here, in my experience it's near impossible to do a successful chargeback and there are few cards with high cashback.
In India, banks have transferred the liability of debit card frauds directly to the card holder. As far as they are concerned, the cards have EMV chips, and you have to provide a PIN to use the card on every transaction (merchant or ATM). Further, everytime a transaction occurs, the user gets an email and SMS message on their mobile informing them of the same. So ultimately it is presumed to be your fault if your debit card is "misused" in any manner.
In fact, there was recently an interesting and controversial indian court case and ruling on debit card usage -
A spouse used his wife's card at an ATM to try and withdraw money to pay her medical bills (she had just given birth). The transaction failed (i.e. he didn't get the money) but the amount was debited from the account. They informed the bank and the bank told them that there might be an issue with the ATM and in such cases the amount would be credited back to the account in 24-48 hours. When that didn't they filed a complaint, and the ATM's CCTV footage confirmed that the ATM had not disbursed the money. But since the footage also showed the spouse using the card, and not the card holder, they closed the case stating that since debit card PIN has been shared, the bank is not liable as debit cards are non-transferable. After appealing in various forums, and finally in court, even the court sided with the bank. They further added that if the account holder wanted her husband to withdraw money, she should have given him a self-cheque for the amount, and not her debit card.
In India, banks have transferred the liability of debit card frauds directly to the card holder.
As far as they are concerned, the cards have EMV chips, and you have to provide a PIN to use the card on every transaction (merchant or ATM). Further, everytime a transaction occurs, the user gets an email and SMS message on their mobile informing them of the same. So ultimately it is presumed to be your fault if your debit card is "misused" in any manner.
If you lose your card or suspect fraud, you can always block it through your online net banking account or by calling the bank.
In fact, there was recently an interesting and controversial indian court case and ruling on debit card usage -
A spouse used his wife's card at an ATM to try and withdraw money to pay her medical bills (she had just given birth). The transaction failed (i.e. he didn't get the money) but the amount was debited from the account. They informed the bank and the bank told them that there might be an issue with the ATM and in such cases the amount would be credited back to the account in 24-48 hours. When that didn't happen, they filed further complaints with the bank and the ATM's CCTV footage confirmed that the ATM had not disbursed the money. But since the footage also showed the spouse using the card, and not the card holder, they closed the case stating that since debit card PIN has been shared, the bank is not liable as debit cards are non-transferable. After appealing in various forums, and finally in court, even the court sided with the bank. They further added that if the account holder wanted her husband to withdraw money, she should have given him a self-cheque for the amount, and not her debit card.
If the bank didn't disperse the cash after cashing out the machine, then that is theft.
Cooperation is the way to maximize profits for both companies.
Source: am in the industry.
Along with lowering costs, Optblue let processors add a markup to Amex transactions. (Previously they couldn't. That meant no incentive for processors to suggest or push Amex acceptance, as they didn't make money on Amex transactions.)
Now they can, and those markups tend to be higher than for Visa/MC. In egregious cases, the processor simply continues charging the business the old Amex rate (~3.5%) and pockets the entire difference between 3.5% and the new lower rates.
Why are they not competitors?
I might be way out there, but if two companies provide the same service (even if they vary slightly), they are competitors.
It's the same reason why airlines don't compete with each other.
Well merchants and consumers aren’t the competitors of visa/MC. Maybe they should cooperate by lowering the fees. If cooperation is the way to maximize profits...or does that only work when two companies collude to price fix?
- the typical open and transparent "price signaling" where competitors can "see" others' price changes. Similar to one airline immediately changing (matching) a ticket price in response to another airline lowering or raising its price. Same mechanism as Amazon bots constantly web scraping Best Buy and Walmart and Best Buy in turn scrapes Amazon. Everybody is constantly monitoring everybody's prices.
- Visa and MC have overlap of owners[1][2]. 4 out of the top 5 owners are the same for both: Vanguard, Blackrock, FMR, State Street
- Visa and MC have overlap of member banks that also have minority ownership
Yes, you were being sarcastic about the coincidence but it seems like the natural economic equilibrium is for both to have near identical network fees.
[1] Visa top 5 institutional stockholders: https://www.nasdaq.com/symbol/v/ownership-summary
[2] MC top 5 institutional stockholders: https://www.nasdaq.com/symbol/ma/ownership-summary
Economists have found evidence that as ownership concentration increases, firms act more like a monopoly.
See this paper for one example in the airline industry: https://onlinelibrary.wiley.com/doi/full/10.1111/jofi.12698
There's been a trend towards more activism with passive indexes. One example with Blackrock's passive fund:
https://www.afr.com/business/larry-fink-says-blackrock-will-...
it’s at least not totally implausible.
Company A 'mulls' something, company B and C follows, X gets done.
If company A mulled something and no one else piped up, they could still of course go it alone, or they could decide that they want to help save their customers even more money, and not raise prices.
All data shows the same: competition is being trumped by consolidation and its eventual end, cartelization
That's not to say that capitalism is thus refuted as an economic model. All it means is that someone hasn't been doing an adequate enough job (probably regulators or lawmakers, in this case).
Capitalism's success is always a function of adequate rule of law, economic regulation, social trust, and personal generosity. Where those are present, it absolutely trounces other models.
Capitalism isn't just a hand, it is mostly a mind that runs as an overlay over all the participants willing or not, and it isn't very bright, but it is very powerful. We are all but rabbits under its strong hands.
https://www.youtube.com/watch?v=ArNz8U7tgU4
these services should not operate as for-profits. though efficient oversight is also hard :(
Technically it depends, but it's still Delta branded with Delta setting the policies. Endeavor Air is, for instance, wholly owned by Delta.
to be fair, one needs to experience the current credit card rigamarole to realize that straight lower prices are less complicated and preferable. i get tired of having to remember to cash in my points in a convoluted system involving yet another third party (the rewards provider).
Get Citi Double Cash and you'll get 2% on everything without point conversion hassles.
Also, some cards automatically apply rewards points. My Schwab Amex card deposits my 2% cash back each month directly into my brokerage account. My Amazon Prime card just gives you a checkbox when buying on Amazon where you can apply cash back to your purchase during checkout.
Visa and Mastercard change prices much less often than that, so this take is a little too apples-and-oranges for me.
One way a disruptor could tackle this is by providing all (or even almost all) of those fees as cash back - giving everyone 2.5% cash back regardless of their creditworthiness / ability to get a sweet rewards card would be very popular. But then you'd probably want to not do that at merchants that aren't accepting traditional credit cards, and I'm not sure how customers would feel about this.
It’s mostly on the risk of keeping and transporting cash, and the cost associated to mitigate those risks.
Small shops are usually more willing to take the risk to avoid fees.
Here, visits to bank branches have been in decline for decades now, especially for cash services, so it makes sense for the banks to reduce the amount of locations that offer those services to save money.
In 2018 there were 854 bank branches in Finland, compared to 1627 in 2007 and 3600 in 1985. Population is 5.5M.
This also has the effect of increasing cash handling costs to businesses if they have to get cash services from a bank branch that is far away.
Sources (Finnish): https://www.finanssivalvonta.fi/kuluttajansuoja/kysymyksia-j... https://www.savonsanomat.fi/kotimaa/Suomessa-pian-alle-tuhat... https://www.kauppalehti.fi/uutiset/pankkien-konttorit-katoav...
So the fact that cash incurs a cost (it does, especially for the merchant) is not the scarecrow argument that would justify Visa or MC boosting fees or even using a credit card.
I like how in Europe and Australia interchange fees are capped. Even if it means they live without such bountiful premium cards.
https://en.wikipedia.org/wiki/Interchange_fee >> In the United States, the fee averages approximately 2% of transaction value.[2] In the EU, interchange fees are capped to 0.3% of the transaction for credit cards and to 0.2% for debit cards.[3]
https://www.youtube.com/watch?v=ySH5SudRwak
https://www.finextra.com/newsarticle/33339/ecb-chief-says-in...
More like stagnant growth and very few levers to increase their (Visa/Mcard) bottom line - which, of course, shareholders demand. Issuing banks and acquirers deal with the points people get.
Source: was in the industry for a dozen years.
The reward point systems of the credit cards work the same way. Merchants jack up the price of the goods to be part of the reward point system which in the end hits the customers. In fact, the people that don't get a credit card with reward points actually end up losing by not joining.
I thought it's interesting that everything in the end gets put on the customers. It's the price we pay for convenience. I just don't like the way it's hidden to make it look like we're not actually the ones paying for it.
Where else would the cost go? Credit card costs, delivery costs, supply costs, advertising costs, the consumer always pays for it as they are the only one who are providing cash in any of these scenarios. I suppose the merchant could just eat the cost, but, assuming the markup isn't wild, that's a proposition that leads to a dead business.
(I've seen a few small merchants tackle this by offering a cash discount as a subtraction from the regular price, for instance. But I'm not sure even that is contractually permitted.)
Best thing is credit card rewards are not taxed because they are considered a rebate, which is quite amazing especially in a high tax state like CA!
Also I'm not sure about "higher prices", in my town there's two convenience stores across from each other, one with CC fee and one with no fee, same prices otherwise, so I just go to the no fee one. Maybe it gets worked in somewhere but it's not as fair/efficient as it could be.
(IME, CC bonuses are less time intensive than checking/saving bonuses. You just sign up for a new card off one of the blogs that tracks current offers as soon as your min-spend is met on the last one, and put your ordinary spending on the new card.)
I also churn. After an initial investment of learning the concepts, I spend very little time. I can go onto a major issuer's site and spot a good deal in minutes. I have a small text file where I note offers I see on Reddit that may be of future note.
I don't recall how long it took to "learn churning" but it was small chunks spread out over a long period.
I periodically take breaks when coding to rest my brain. I'm taking one right now in fact :)
So I'd argue the time cost was zero/near zero since I wasn't going to be "productive" during those breaks anyways.
Then again, I'm not an extremeist - I mostly keep an eye out for destinations I'd like to vacation to, what airlines service them, then sign up with a card that can get me points to pay for that flight.
In the end, I'd estimate I save 1-2k on airfare per year plus some spare change in cashback. (Credit card rewards are treated as discounts and thus not taxable income, so getting tax free airfare then putting the money into an IRA or 401K is +EV).
I don't let myself get wrapped up in getting an extra percent back on my tacos or something though - in fact through analysis I've found that keeping entertainment money as cash reduces spending to a point it's better to use cash than use a CC and get rewards for spending at bars, restaurants, and the like.
Edit: Also, I consider it a hobby. It's fun to try to beat the system. And the reward for "beating it" is incredible experiences (i.e. Singapore Suites) that would be far out of reach if I didn't play. Would you ask the same question of someone who cooks or plays video games what their ROI is?
The reason is because on the legacy airlines, international business class seats usually cost 4+ times more than the economy class seat on the same flight but you can redeem just 2-3 times more miles for a business class seat rather than a economy class seat.
One of the issues with this hobby is that the reward redemption flights are typically not as good as the non-redemption flights (i.e. you might have a layover as opposed to a direct flight).
---
For instance, the United/Lufthansa/Swiss alliance has flights from NYC to Paris departing May 27 and returning June 5.
Economy seats are ~$650 or (60k United miles + $105). For economy, those miles would have a valuation of ~$0.0091/mile (($650 - $105) / 60k miles). Chase somewhat regularly offers signup bonuses on their United credit cards of 70k United miles if you spend $3k within 3 months (you are charged a $95 annual fee in this case). So the ROI is ~$450 ($650 - $105 - $95) in exchange for spending $3k on that new credit card.
Business seats are ~$2900 or (140k United miles + $161). For business, those miles would have a valuation of ~$0.0196/mile (($2900 - $161) / 140k miles). The same Chase offer as before applies. But you have to open the card, meet the spending requirement, get the bonus, close the account, and reopen the account and repeat once more. The ROI in this case would be ~$2549 ($2900 - $161 - $95 - $95) if you spend $6k on those two new credit cards.
In either case, it shouldn't take you more than a ~10 hours of active work to get those kinds of returns. You do need to occasionally check the banks' websites to see if they're offering any special deals, occasionally check the airlines to see if there's any favorable redemptions available, etc. In the case of economy, the ROI is ~$45/hr. For business it's ~$255/hr.
Well, sort of. Enough bad publicity and public shaming has some impact on corporate bad behavior.
> it makes no sense to "protest" by using cash
I agree — I never suggested that.
If you spend $250,000 a year on credit card purchases and get 4% back on everything you've cashed in on $10,000 bonuses, but you had to spend $250,000 to get that.
It sounds like one of those conversations where it's like "yeah, just buy a car because you can write it off on your business account", so while you do get a discount on your taxes, you still had to pay for the car which is a net negative on how much $ you have in your pocket at the end vs not buying the car and paying more taxes.
If one increases the number of transactions, then it can be depending on fraud distribution details that harm from big ones increases disproportionately and makes average cost of transaction higher.
If transaction rate is increasing, that means that fraud costs should actually be going down as a percentage of transaction income.
And of course, Visa and MC control the technology. Their continued avoidance of major technical advances in the core card technology (things like one-time credit card numbers for online shopping) tends to undermine the "fraud is why we charge so much" theory. Also wouldn't hurt to look at the profit margin of Visa while you're at it, it's remarkable.
For both UnionPay and Alipay are huge in Asia, various banks replacing Visa/MC as primary choice for credit/debit cards and mobile payments in a majority of shops.
Europe seems to be next from what I've noticed, their brands showing up here and there in shops.
But I think this might be a good thing, we need more competition in that area.
As always, Europe is too fragmented, and slower to adopt new tech, for one of these app based solutions to gain wide spread adoption quickly, though.
Not sure what you're talking about. In Poland, I can use my phone to pay for anything anywhere. Seriously. I can buy a single apple at a grocery stand and tap my phone on the reader that will surely be there and will surely work with all NFC payment systems.
Coming to the US is a shock, because suddenly nothing works, and even in places where it's supposed to work nobody tries to pay with a phone, because it's flaky.
So I'd say it's exactly the other way around. With customer-facing banking tech, Europe is way ahead of the US.
Because I guarantee most of Europe has never heard of it.
That was my point. Solutions might gain adoption in a single country quickly, and there are some that are becoming very popular in various countries.
But it's hard for any one of them to get adoption across the EU.
You mean Google/Android Pay or Apple Pay or anything else? (such as the wonderfully low-tech solution of placing a miniature NFC credit card sticker on the back of your phone or in your phone case).
I'm not sure what you mean by "getting adoption", but when I stand in line in Warsaw, almost all payments are contactless, and probably 1/3 are done using a phone.
Visa/MC are threatened by a new entrant, so raise fees?
.......thus prompting retailers to shop around for a different provider?
If you have ever ran a small business and seen the obscene amounts these companies make; you would be outraged too.
There are multiple components to the final rate that a business pays, with the bulk of it being interchange, which goes to the banks that issue cards. Visa/MC only get assessments and dues, which are significantly smaller. (Visa's volume assessment is 0.13%, for example.)
We need to know which fees they're raising, and by how much, to know what sort of impact this will have.
Seems silly to rest such an important part of society in the hands of a few private orgs. Or maybe even empowering banks to better compete (as long as we don't end up with 50 different networks).
Of course they’re not perfect and are often behind MC/Visa when it comes to new features like contactless, tokenization, etc., but it’s still a great little system.