Your Rewards Card is Actually Bad for You...

[Onomea]

... and everyone else, per this analysis, link below, from the NYT today.

The piece says that even if you are among those who always pay off their debt every month, the fact that "swipe fees" are passed on to all consumers, including you, means that the monetary value of the rewards you get will not equal the cost of the swipe fees passed on to you in the things that you buy.

Why Your Rewards Card Isn’t Actually Rewarding | NYT Opinion - YouTube

Swipe fees, per the above, are nine times higher in the US than in Europe. (We're numba one! We're numba one! You can buy better, but ya can't pay more! Kinda reminds me of healthcare here...)

I thought this analysis interesting, but unless the existing system that allows for this is changed by legislation in the US, think it makes sense to continue using a rewards card.

I do pay cash for cash discounts though, e.g., on gun auction sites. Would do this elsewhere if offered, too.

 

[LoboGunLeather]

Good point. Probably just another one of those things I can wish I had thought up first, way back in the days before BankAmericard became VISA, American Express was only for the select few, and all the others hadn't even been thought up yet.

At least my card company shares a fraction of the fees with me. Lots of companies pound the retailer, then pound the card-holder again.

 

[s&wchad]

That computer generated video is just garbage...
If you have a cash back rewards card like Discover and pay the balance off every month, there's no fee and you save money.

 

[GaryS]

New York Times, LOL!

 

[Onomea]

That computer generated video is just garbage...
If you have a cash back rewards card like Discover and pay the balance off every month, there's no fee and you save money.

The swipe fee is the fee that Visa and MasterCard (and other cards) charge merchants every time they accept a payment with a credit card for payment from a customer. The merchants do not just eat this fee. They include it in the prices they charge for whatever they are selling.

The concept the video is trying to explain is that at the end of the month, when you pay off your card, it includes the merchants' "swipe fees" which they include in the prices that you have paid for the things that you have bought with the card.

While you are not charged interest if you pay at the end of the month, you cannot escape the swipe fees if you use a card.

The total amount of swipe fees that you are indirectly paying when you pay off your credit card at the end of the month, exceeds the value of the rewards (or cash back) that you receive from using the card.

 

[glenwolde]

The problem is prices won't fall if they reduce swipe fees. The merchants will just keep it. So you just increased inequality rather than reduce it by transferring my point rewards to merchants. I get a few hundred bucks a year from that.

 

[glenwolde]

That computer generated video is just garbage...
If you have a cash back rewards card like Discover and pay the balance off every month, there's no fee and you save money.

You do, but "society" pays more. It's textbook class warfare.

 

[GaryS]

We live in a more or less capitalist country, the EU is a mostly socialist entity.

I'd rather pay that swipe fee than whatever it is that the EU requires.

BTW, many merchants will offer a discount for cash or check so if the swipe fee is a concern, that's an option.

 

[Onomea]

You do, but "society" pays more. It's textbook class warfare.

Leaving aside the inequality and class warfare aspects, I think the video is saying even those of us who pay off every month and get rewards (or cash back) would save money if swipe fees were reduced across the board

I agree that if the fees were reduced, merchants would try keep it if they could, but price competition with other merchants would likely drive prices down, no?

 

[THE PILGRIM]

My cards are Cash Reward Cards.
I already got frying pans.
When I get a cash reward balance, I roll it into my account.
I don’t get my entire Swipe Balance back, but I get some of it.
Since the Swipe Fee is already incorporated into the selling price, in most places, everyone pays it no matter how you pay.
If I desired, I could pay cash everywhere all the time.
But that Plastic is so dog gone convenient!
Just this morn I gassed up, then got a MickyD coffee and burrito.
Viva Vista!
Now if Congress passes this magic bill, Swipe Fees decrease, credit card company income goes down, and my grocery bill goes down? Yeah, Right.
I wonder how much my Coffee and Buritto will go down?

 

[wood714]

American Express was only for the select few, and all the others hadn't even been thought up yet.

I had an American Express card when I was in my early to mid 20's. I never thought it was special.

My credit card is thru my bank. I pay it off every month, and get around $500 cash back every year.

 

[moonsterman]

I use cash only...but card let see???? give you 4% back on a 33% perchase hummmm thats minus 29% in my book....credit card suck!!!

 

[llowry61]

Just an FYI - Both Discover and American Express have their own payments networks. So, they are competing with MC and Visa - people think MC and Visa are credit cards and they aren't. They are payments networks, and the Visa / MC brand cards are issued by individual banks, however the issuing bank is bound by the Visa / MC agreement and bylaws which in essence means unless you are a major merchant like Sams Club etc. you are at their mercy and pay what they say you will pay.

Ironically, Discover and American Express sued Visa and MC for Anti-Trust because their bylaws were designed to eliminate competition and, in many ways, gave them a monopoly on monetary transactions. The court ruled in favor of DFS and Amex resulting in a multi-billion dollar payout to them.

Another unique aspect of Discover is they issue the cards out of Discover Bank (previously the Greenwood Trust Company) located in the state of Delaware.

I am not going to argue the point that risk-based pricing favors well those that are lower risk aka - higher income / wealthier individuals. I guess banks have figured out that it costs more to lend to people with a higher propensity to not pay you back. Seems like common sense but some people see it as predatory. There re arguments that the pricing should be a flat model which seems to make sense until you consider that the same consumer who gets all those perks and better deals really doesn't need the credit card. Credit is used as a convenience and if the cost goes up they will exit the market and guess what - the price still gets passed on to the higher risk individuals because now loss rates increase.

So, I see it as another simple solution to a complex problem that many just can't accept which is there will always be haves and have nots and unfortunately the haves, have options and the solutions of sharing the cost to reduce the burden on the have nots just plain never works.

One other thing, show me a retailer that doesn't take credit cards and I will show you a retailer that will fail. The sales generated by the credit card purchases are game changing.

The merchants were all fine with it while sales went through the roof but now that the margins are tight, they want that 3% regulated. Which IMHO never helps.

 

[Onomea]

I think I agree with most of your post, llowry61, and especially the statement that the have nots will always get the short end of the stick compared to the haves.

Just the way it is, has been, and always will be.

But, I don't think the push, such as it is, for reducing swipe fees is coming from merchants. They just pass it on to consumers. I think to the extent there is a push — and I think that it is minimal — it is coming from well intentioned consumer advocates, a few left leaning politicians, and the occasional NYT journalist.

I am curious, though, as to how you, as you seem well informed, evaluate the contention, the statement, made in the video that regardless of how many rewards, how much cash back, you gain in rewards from your credit card, it will not make up for the ineluctable swipe fees you have paid for indirectly.

(To repeat, I don't think the swipe fee system is going to change, at least for the foreseeable future, and therefore plan to continue using my credit card, and choosing my card, based on rewards offered. Also, to repeat, heck yeah I will pay cash if there is a cash discount, but in my experience that option is pretty rare.)

 

[Skeet 028]

Heck I had a new well drilled..Asked the well guy...discount for cash...he sai yes.. How much... He said 5%...I said...oh heck not really worth that.. I already get that much in rewards so I'll use the card...he actually folded at 10%... Which I of course took. I woulda got 4% Hey 900 bucks is better than maybe 360. I understand the swipe fees...still better than getting...nothing. With 2 cards we use...We have earned?? 650 dollars this year. Even doctors accept credit cards...who knew??

 

[Krogen]

I understand that the 2% kickback I get from Citi cards is less than what they receive in swipe fees. Swipe fees are indeed built into pricing, but whatever those rates are or become, that will always be true. Companies are out to make money.

I use my cards for nearly everything, for convenience. I pay them off each month and consider the kickback gravy. I consider paying cash if I get a discount and the discount is more than my 2% kickback. (splitting hairs, I know). Alternatively, I pay cash if there's an added fee for card use. For example, I'd pay my property taxes with a card, except the county adds a 3.5% fee for card use. Paying 3.5% to get a 2% kickback is senseless especially on a bill as large as property tax.

The system is what it is. I'll work it as seems reasonable until the rules change and I need to re-evaluate. Swipe fees are high, but I'm not in favor of the government making the rules.

 

[glenwolde]

My random thoughts:

The savings to consumers is theoretical. It assumes that the savings from reduced swipe fees get passed along to consumers. There's lots of reasons this might not happen.

It assumes there is no change in behaviour by consumers, merchants, and the card networks and all of them make rational economic decisions. Which is ridiculous. For the very same reasons that projected revenue from tax increases never materializes. Because people change their behaviour. Ever read "Freakonomics?". It's the law of unintended consequences.

The networks: What are they going to do to replace this revenue? It's either find a plan or shrink a lot. The only sources of revenue they have are the merchants, and the banks. So they are going to hit the banks up with more fees. The banks have to recover that cost. Imagine every credit card now has an annual or monthly fee. Don't forget the debit cards that the government forced the fees down on run on the same network. Exactly where are the network operators supposed to get their revenue?

What if consumers cut their usage drastically? Suddenly there's a surge in demand for cash? Everybody switches to debit? There's more risk to the consumer with those two options. I don't like carrying large sums of cash but I guess I will. I don't like exposing my debit card as the fraud protection is not as good as credit cards. Hard to see how that saves the consumer money. It's also entirely possible that there will be a huge shift in the economy from the loss of loyalty. The loyalty programs exist because they work. They keep you coming back. What exactly happens when that disappears? Some will gain, some will lose of course.

I know what the merchants will do. In inflationary times it's easy to sneak in price increases without anybody really being able to tell. They'll just keep the fees and maybe...maybe...not raise their prices as fast for a little bit.

As the government has done many times, they screw things up and then make them worse by fixing them.

A free market guy would say this is a wash. You're just redistributing money. There's no "savings". The loss goes to the network employees and shareholders.

Europe operates completely differently than we do. Want to be like them? Kiss you 30 year fixed rate mortgage goodbye. Germany has a government run credit bureau. In France it's all based on your bank and depends on your relationship with them. If you switch banks you start all over. They use a lot more of those buy-now-pay-later services we're starting to see here. Just because swipe fees are lower there doesn't mean everything else in consumer finance is lower.

This is a large, popular, entrenched system that I'm leery of jacking around with on such a scale.

 

[THE PILGRIM]

US Credit Card Debt just topped One Trillion Dollars.
Swipe Fees are a mere Pittance compared to the Interest charged by the Credit Card Companies.
If you have a Credit Card you have already agreed to pay these High Rates.
But only if you carry a Balance!
I pay my charges when they post.
Paid Capital One $67 last night online.
Ammo from Cabelas!

 

[SMSgt]

The swipe fee is the fee that Visa and MasterCard (and other cards) charge merchants every time they accept a payment with a credit card for payment from a customer. The merchants do not just eat this fee. They include it in the prices they charge for whatever they are selling.

Likewise, the business includes the employees' pay, their insurance, their rent or mortgage expense, their costs of inventory, and any and every other costs of doing business in what they charge the customer. In the grand scheme of doing business, both as the business and customer, the "swipe fee" is an insignificant amount of what anyone pays when walking out the door with a product in hand, regardless of how it was paid for.

The swipe fee is typically a percent of the credit card sale, somewhere in the 3.5-6% range. For years cash customers have been paying the swipe fee right along with credit card customers. At least now some business are offering a discount for cash, although it still remains only a few.

 

[CH4]

The swipe fee is the fee that Visa and MasterCard (and other cards) charge merchants every time they accept a payment with a credit card for payment from a customer. The merchants do not just eat this fee. They include it in the prices they charge for whatever they are selling.

The concept the video is trying to explain is that at the end of the month, when you pay off your card, it includes the merchants' "swipe fees" which they include in the prices that you have paid for the things that you have bought with the card.

While you are not charged interest if you pay at the end of the month, you cannot escape the swipe fees if you use a card.

The total amount of swipe fees that you are indirectly paying when you pay off your credit card at the end of the month, exceeds the value of the rewards (or cash back) that you receive from using the card.

True, however that doesn’t mean you’re taking the hit. Oftentimes, the overall price is lower than what others are asking, even with the CC fees baked in. Just gotta be smart and shop around. However, it’s for sure the CC companies are getting their cut.