Sounds like the law needs to be amended to prevent this. Not just for these "what if" scenarios, but for Capital One who's already in this position.
If anything, interchange fees should be brought down for credit cards to match those for debit cards. Europe has them capped at rates far lower than the US. With so many people paying with credit cards, retailers have adjusted prices to compensate, which is effectively a consumption tax paid to Visa, Mastercard, and AmEx... even if you don't use a credit card those added fees are still baked into the price. It's only on big ticket items where it's possible to ask for a cash discount, which is usually discounted by whatever interchange fee the store is paying for credit purchases.
People have happily made their worlds more expensive for "points". In what cases are these points actually more valuable than the 1% more the consumer pays for them? Or is just the case that card users are pitted against cash and cash users are the losers?
The stats are fuzzy, but about half the users carry a balance, so while they may think they’re winning with points, they are almost certainly losing. For those on the good side of the balance stat…
Points can also be used as an excuse to spend more. Consumers tend to spend about 15% more on a card than they otherwise would with cash. Considering it takes spending $10k to get $200 in points on a straightforward 2% back card, a year’s worth of points can be wiped out pretty quickly by increased spending.
Points are also often locked to an idealistic dream and aren’t cashed in (ex. travel). Other times they get lost on a technicality. For example, my mom had a GM card and spent on it for years as a way of getting extra money for a future car. She wanted a Saturn, which was a subsidiary of GM. When she went to go get the car, she was told Saturn didn’t count. Maybe she should have read the fine print years earlier, but this kind of things happens a lot, and rules also shift over time.
For travel cards, they are generally locked to a particular airline. Most airlines are basically credit card companies that use the airline to advertise the card. Most of their profit comes from the cards. It’s hard to know what if a person is getting a deal or not with point, since it makes the math so fuzzy. Timing and watching for deals will generally get someone a better flight deal, and it probably won’t be with the airline from their card. I have a travel card that isn’t tied to an airline, but only use it for recurring bills these days to avoid most of these traps. There is a yearly fee on it though, so the rewards from the first $2,500 spent just go to pay the fee, effectively.
These card companies don’t give points as charity. They make people use the card more often (increasing swipe fees), increase spending, and often don’t have to pay it all out at the end of the day. So they win multiple ways while the customer loses.
Even without pitting cash vs card, it seems like card users are losing, many are losing even when they think they’re winning.
I’m sure you can point to someone who is actually winning, those people who make a hobby out of playing credit card games, but they are the exception, not the rule. I might be on the winning side, but I call it a wash. I’m not getting enough in points to really care, and mostly ignore them. Every few years they might offset a few nights in a hotel, but if I use that to justify a more expensive hotel, then I just fell into a trap.
No snowflake is responsible for the avalanche, no defector is responsible for the all-defect prisoner's dilemma. All choices made were rational, and here we are.
Back when I was shopping (2022) for a good secured credit card, I consulted NerdWallet among other sites. I found that Discover Card offered good deals for newbies, as well as some sweet cash-back bonuses.
Then I found out why the deals were so so good: Discover Card has low acceptance, especially internationally, and this is often because Discover charges relatively high transaction fees. I also learned that Discover, despite its reputation and age, had only one physical branch, in Delaware or something, and so my inner masochist immediately recognized my true financial love.
I also picked up a Discover Bank checking account, which has even lower acceptance rates, but also offers 1% cash-back if I feel like an adventure.
Since then, Discover eliminated their sole physical branch location, and their credit card division was also acquired by Capital One, https://m.xkcd.com/2206/
But I feel like the proliferation now of Apple/Google/Samsung Pay, Zelle, PayPal, Venmo, et al., will stave off any large-scale gouging of consumers through transaction fees.
Europe interchange fees are capped at 0.3% for credit, 0.2% for debit
Sounds like the law needs to be amended to prevent this. Not just for these "what if" scenarios, but for Capital One who's already in this position.
If anything, interchange fees should be brought down for credit cards to match those for debit cards. Europe has them capped at rates far lower than the US. With so many people paying with credit cards, retailers have adjusted prices to compensate, which is effectively a consumption tax paid to Visa, Mastercard, and AmEx... even if you don't use a credit card those added fees are still baked into the price. It's only on big ticket items where it's possible to ask for a cash discount, which is usually discounted by whatever interchange fee the store is paying for credit purchases.
People have happily made their worlds more expensive for "points". In what cases are these points actually more valuable than the 1% more the consumer pays for them? Or is just the case that card users are pitted against cash and cash users are the losers?
The stats are fuzzy, but about half the users carry a balance, so while they may think they’re winning with points, they are almost certainly losing. For those on the good side of the balance stat…
Points can also be used as an excuse to spend more. Consumers tend to spend about 15% more on a card than they otherwise would with cash. Considering it takes spending $10k to get $200 in points on a straightforward 2% back card, a year’s worth of points can be wiped out pretty quickly by increased spending.
Points are also often locked to an idealistic dream and aren’t cashed in (ex. travel). Other times they get lost on a technicality. For example, my mom had a GM card and spent on it for years as a way of getting extra money for a future car. She wanted a Saturn, which was a subsidiary of GM. When she went to go get the car, she was told Saturn didn’t count. Maybe she should have read the fine print years earlier, but this kind of things happens a lot, and rules also shift over time.
For travel cards, they are generally locked to a particular airline. Most airlines are basically credit card companies that use the airline to advertise the card. Most of their profit comes from the cards. It’s hard to know what if a person is getting a deal or not with point, since it makes the math so fuzzy. Timing and watching for deals will generally get someone a better flight deal, and it probably won’t be with the airline from their card. I have a travel card that isn’t tied to an airline, but only use it for recurring bills these days to avoid most of these traps. There is a yearly fee on it though, so the rewards from the first $2,500 spent just go to pay the fee, effectively.
These card companies don’t give points as charity. They make people use the card more often (increasing swipe fees), increase spending, and often don’t have to pay it all out at the end of the day. So they win multiple ways while the customer loses.
Even without pitting cash vs card, it seems like card users are losing, many are losing even when they think they’re winning.
I’m sure you can point to someone who is actually winning, those people who make a hobby out of playing credit card games, but they are the exception, not the rule. I might be on the winning side, but I call it a wash. I’m not getting enough in points to really care, and mostly ignore them. Every few years they might offset a few nights in a hotel, but if I use that to justify a more expensive hotel, then I just fell into a trap.
No snowflake is responsible for the avalanche, no defector is responsible for the all-defect prisoner's dilemma. All choices made were rational, and here we are.
Imagine being so greedy you might upset your cash cow and market dominance for a 20% gain. Unreal levels of hubris here.
Anything but offering pay by bank on cheap FedNow instant payment rails.
cancer gonna cancer, amiright
Back when I was shopping (2022) for a good secured credit card, I consulted NerdWallet among other sites. I found that Discover Card offered good deals for newbies, as well as some sweet cash-back bonuses.
Then I found out why the deals were so so good: Discover Card has low acceptance, especially internationally, and this is often because Discover charges relatively high transaction fees. I also learned that Discover, despite its reputation and age, had only one physical branch, in Delaware or something, and so my inner masochist immediately recognized my true financial love.
I also picked up a Discover Bank checking account, which has even lower acceptance rates, but also offers 1% cash-back if I feel like an adventure.
Since then, Discover eliminated their sole physical branch location, and their credit card division was also acquired by Capital One, https://m.xkcd.com/2206/
But I feel like the proliferation now of Apple/Google/Samsung Pay, Zelle, PayPal, Venmo, et al., will stave off any large-scale gouging of consumers through transaction fees.