If everyone suddenly developed self-discipline with money over night, the need for credit cards would disappear. Emergency use? replace emergency credit card with emergency savings and a bit of self discipline. Buy now pay later? wait until later.
So the cash back is just a partial refund on your credit card processing fees.
Cash also has cost - employee theft, risk of getting robbed while taking it to the bank, it takes more time to handle, etc.
If I had a business, I would not accept cash at all.
It just doesn’t seem ethical to me (for my parameters) any more. :-/
I'd argue that this suggests another hypothesis that the article only partially considered: high interest rates are a cross-subsidy to attract the 40% of credit card users who never carry a balance, and the 40% of credit card users who never carry a balance are a marketing expense to normalize credit card use and make the 60% who do think it's completely acceptable to spend without a thought. I get literally thousands of benefits from the credit card company, and I don't pay a cent. That money has to be coming from somewhere, and I'd bet that it's coming from the 60% of consumers who pay usurious interest rates.
If you read the whole article, you would learn that it is actually coming from you, via the merchant. Which means you are likely paying higher prices. Now you pay the higher prices either way for the most part, so you may as well enjoy the kickback^W rewards.
When you're providing a service to one group at or below cost and making all your profits off another group or another service, that's the definition of a cross-subsidy, even if you do get a token amount of revenue off the first group.
I don't have to run the numbers, because I read the article where they did the actual research with real numbers, not your back of the envelope estimating, and they came to the opposite conclusion:
| This leads to our second hypothesis: High interest rates are necessary to recoup the high cost of rewards. However, our analysis shows this is not the case. Rewards expenses are more than fully covered by banks’ interchange income—fees collected from merchants based on purchase volume. On average, interchange income amounts to 1.82 percent of purchase volume, while rewards expenses are 1.57 percent.
Loans and debt do not exist just because some people lack discipline.
In my country, credit cards are safer because they offer better fraud protection mechanisms than debit cards.
Credit cards make it easier to spend money in foreign currencies. I’ve faced issues when trying to pay with a local currency debit card abroad, but I never have faced that issue with a cc. Then, I can just pay my credit card with local currency.
Most of these issues are solvable for sure. But as of today, credit cards are way more reliable than debit cards. At least for me.
I think credit cards do have very valid use cases today.
Sure, you ask someone who's 60 or 70 years old, they'll tell you debt is slavery, you'll end up paying back twice what you borrow, and if you're out of money at the end of this month and you take out a loan you'll be even worse off at the end of next month leading to a spiral of debt. Being disciplined with money is crucial to your family's wellbeing. Because they lived through periods of incredibly high interest rates and saw that stuff happening first-hand.
You ask a 40 year old, though? For most of their adult lives interest rates have been below 1% as the economy staggered from one financial crisis to another. Their lived experience is that buying a car on credit has almost no downsides, you certainly don't end up paying 100% more, you pay perhaps 5% more to get the car 2 years earlier. Even college-educated folk who operates spreadsheets for a living could convince themselves it was better not to pay off their mortgage, better to put that money into the stock market.
It remains to be seen how modern attitudes towards debt will respond to non-zero interest rates. I hope it doesn't go too badly...
Yeah, except the sale for whatever you buy may expire before "later" comes. You'd save more money purchasing now and paying off the credit card a week or two later in that case. It's not always as simple as you describe.
They're certainly not the least expensive way for the merchant, but unless they pass the merchant "discount" as a line item, it doesn't make sense as a purchaser to use anything else. And even then, I think my current card involves the issuer paying me to use it, beyond the discount (4% cash back, but I think merchant fees top out closer to 3%). There's also the delay between time of charge and when the statement is due, although I think the merchant's receipts are also delayed.
Which card is this?