I generally agree though say it’s simply indeterminate whose money it is. Economists can do studies, but never proves anything. It’s like ‘who pays the corporate income tax?’. It’s not necessarily ‘corporations’ just because they are the ones writing the tax check. It’s some combination of the owners, customers and employees of the company, as the effects spread into prices and wages.
And with credit cards, there’s the extra effect of potentially increasing consumption generally by making it more convenient. That’s generally good for people in the business of selling stuff to consumers.
Anyway I agree it’s not economically rational to not use cash back credit cards because ‘they are raising prices’. To the (debatable) extent that’s true, they’ll raise them virtually identically whether a particular individual out of 100’s millions consumers uses them or not. People are of course always free to make political/social statements by where and how they shop, but shouldn’t confuse that with strictly rational economic decisions. Not using a credit card could also benefit people who can’t control their spending, but it again assumes a non-rational aspect. It might be present and best to recognize, but the economic fact is you are costing yourself 2% (best cash back cards) on everything where there’s no discount for cash. Where that money goes is not relevant to the individual decision.
Likewise merchants can assess for themselves whether a business model of ‘cash only’ or ‘discount for cash’ works, for them. Apparently that’s a fairly unusual perception.
I get that, like I said, rewarding the customer with the merchant’s money. Of course, if you can get a Visa rewards card, you can also get a Mastercard rewards card, so there is no actual incentive to get one card over the other anymore.
It is baked into all the costs, in the end, but it doesn’t jack up fees overall, it jacks up fees on those specific cards. Different cards have different rates. It depends on the credit card company, for instance, American Express has higher rates than Visa or Mastercard, and it also depends on the method of transaction, where using a chip is a lower fee than swiping, and that is a much lower fee than manual entry. And it also depends on the type of card, where a rewards card does have about a 1% higher fee than the same card without rewards.
Now, like I said, it’s a scam, but it is a scam you can get on. But not everyone can. If you don’t have as good a credit or financial history, then it is harder to get a rewards card. So, it is generally those who are more marginalized economically who subsidize those who are wealthier and have better credit. Some cannot even get a credit card at all, and have to use debit or cash. These are the main people who you are grateful for, not the comparative few who are eligible for a rewards card and don’t use it.
I would think that those who are proud to make the decision to use credit or debit cards as little as possible are proud that they are contributing the least to the tragedy of the commons, they are proud that they do not need that kickback pried from the merchant, they are proud that they are not getting people of less economic status to subsidize them. I think of it as sort of like being proud of not littering; as a litterer, one can be grateful to the non-litterers for not making the place a trash heap, while being the rational actor who maximizes their own benefit by not expending time or energy in properly disposing of their own trash. (Though I think that many proclaim to be proud in a sour grapes way, they can’t get a rewards card, or even a debit card, so maintain their pride by being “proud” that they don’t use these instruments.)
Some of my clients pay in cash, and I don’t mind that in the least. The bank is on my way home, and it takes me less than 5 minutes to count and deposit it, with no transaction fees.
Until Dodd-Frank in 2011, Merchants were not permitted to give discounts for cash. It was only with that that merchants were allowed to have minimum transaction amounts before you were allowed to use a card. If you were caught doing so, then your merchant processor could fine you or jack up your rates, or even drop you altogether.
Now that we are allowed to discriminate, we don’t, because it offends customers. There was a thread a while back that was specifically talking about a merchant who had a minimum purchase amount to use a card, and it was recommended to them that they take a picture of the sign, send it to the processor, and get them into trouble.
Even though that is out of date information, there are many who do not know that, and will cause a hassle to a merchant that they merchant doesn’t want to deal with.
Cash only has always been permitted, of course, but having cash only cuts out the quickly growing number of customers who do not carry cash.
Perhaps that enlightened others of unknown facts, if so perhaps worthwhile.
Obviously as I suggested very few merchants think it’s worthwhile to do cash only (a restaurant I go to does that, seems eateries are the most common brick and mortar establishments doing it, besides small scale in home service people who can’t process cards and/or are cheating on their taxes, another ‘benefit’ of cash only :)).
But your contention that the cost of the credit card system comes from merchants is just an assertion. Effects of systems like that get spread all around. Many consumers are convinced it comes from them and not merchants. They can’t both be entirely right. Neither are likely to be mainly right, and both ignore the degree to which convenience greases the wheels of commerce. It’s not necessarily zero sum.
Anyway non-cash payment systems aren’t going anywhere. And singling out being able to get the best credit cards with a good credit score is one tiny thread in a big sweater of how things don’t come out evenly economically, because people don’t all produce the same amount, for various reasons which might subjectively be deemed ‘fair’ or ‘unfair’. And thus back to a persistent big argument whether collectivism of various kinds can actually ‘improve’ that. The general reasonable answer IMO being that collective action in small details like price controls on particular things (what you can charge as merchant fee, what you can give back in customer rebate) usually doesn’t work well. Something like a progressive income tax might, oh wait we have one!, though people reasonably debate whether it should be more or less so.
It is an inefficiency in the transaction. It is a cost that the consumer isn’t getting value out of, and it is revenue that the merchant doesn’t actually get to keep. (Some CC’s charge per transaction, I pay all my fees at the end of the month.)
They are both right, without that fee, the consumer could pay less, the merchant could profit more, or we could meet in the middle.
However, a rewards card is an additional cost. It is a higher rate, so, even if it spread around I still make less profit off of someone who uses a rewards card as off of a normal credit card.
I mean, seriously, the situation is that, if someone uses a normal credit card, I may pay 1.8%. If they change their mind and use a rewards card instead, I pay 2.9%. (varies based on card, entry type, amount, and a few other variables they like to use.) That difference comes directly out of my pocket, not out of the customers, not out of customers in general, not out of a spread around cost, but directly from my pocket. As many of my bills total into the hundreds, that decision costs me a few dollars directly. that is less money that I get to take home and spend on things I want to spend it on, and instead, the client gets to keep those dollars and spend them on something that they want to spend it on.
We certainly are not ignoring the convenience that credit cards in general bring to us. If I didn’t think that they “greased the wheels” then I wouldn’t have paid a couple thousand bucks for credit card machines, and then pay another thousand or so in processing fees a month. If customers did not appreciate it, they would not carry the cards in the first place. What we are talking about, however, is rewards cards, and I challenge you to define what convience that creates to grease the wheels of commerce that a regular card wouldn’t.
I didn’t say that they were going anywhere. And I did not single out anything, I was responding to another poster who was puzzled as to why people would be proud not to be contributing to the tragedy of the commons.
As far as what you can charge as a merchant fee, I entirely disagree on that. Before Dodd-Frank, there were no limits to what the CC companies could charge you for transactions, so you had to essentially negotiate it per business. This hampered small businesses ability to take credit cards, as they may be paying upwards of 15% per transaction, with a multi dollar per transaction flat fee as well. They would also not be allowed to offer a discount for cash, not allowed to have a minimum purchase amount, or they would be fined or even terminated by terms of their contract with the merchant processor.
Now, what it sounds like you are saying is that you are against these terms of dodd-frank, and that we should go back to where the CC processors may make any demands that they desire of businesses? If so, I completely disagree, I think that would be a massive blow to the growth of small business, and likely bankrupt quite a number of them. It’d be great for large companies that are able to use their size and revenue to negotiate a better rate.
Companies originally had to pay the cost for processing cash indirectly by having some of their employees’ time tied up in dealing with it. Now it’s all paid to the payment processor. Businesses are willing to do it because they get more sales that way, and are willing to pay a rate above the rate the processors would require to stay in business. Wanting to attract more people to their processing system to collect more fees, processors are willing to share the fee they charge merchants with the consumer. The processor then will charge the merchant more money because it costs them more, and the merchant will still gladly pay it because it’s better than not getting the sale. The merchant agrees to give the customer a discount which is eaten entirely by the merchant in the same way that they’re willing to sell a whole case of an item at less than its retail cost but more than its wholesale cost: they make some money by getting the sale at a lower price and make no money by not having the sale.
I wasn’t aware of the provisions of Dodd-Frank with regard to credit card transactions; I had thought it was still against merchants’ contracts to have a minimum credit card charge. I still pay cash at the cleaners because they’ve been known to bitch when people have small orders on credit cards. I guess that’s now their right, and if I don’t like it I can go to another establishment.
