Hacker News Reader

Comment by opendais | Hacker News Reader

You are so very, very wrong. They make money off of interchange fees and carried balances.

These "rewards" are rewards for the consumer if you: 1) Never carry a balance 2) Pay the same price as cash and the merchant eats the fees [as most merchants do!]

Its perfectly rational if you make fewer mistakes on average. So far, in the 10 years of using credit cards, I've recovered about 2% of every dollar I've ever spent and never carried a balance. This amounts to half a paycheck.

Its perfectly rational to assume that my rate of 'error' will remain roughly the same as it has been historically and that I want to continue to use credit cards and force merchants to effectively give me a larger discount that they would otherwise.

View on HN

You say that the merchant "eats the fees," but what actually happens is that they price their goods higher to compensate for the fees.

What's worse, because the vast majority of merchants charge you the same price whether you're paying cash or credit, people who pay cash are, in effect, charged these hidden fees as well.

If people stopped using rewards cards, and the merchants didn't have to deal with the associated fees, the cost of the merchandise would arguably drop by the same percentage as what you're getting back in rewards.

And if people stopped using rewards cards and the merchants lowered their prices, I'd stop using credit cards.

However, I'm not going to fall on my sword and give up 2% in the hope that that will happen.

You even admit in your post it would cost me money to stop at present :/

You're absolutely correct, and the credit card companies know they've got a good thing going for them. Everyone would be better off if the whole "rewards card" phenomenon died out, but nobody's willing to stop because they assume that nobody else will.

Perhaps we need a pledging system with a Kickstarter vibe -- I pledge to stop using rewards cards if X% of the market also makes the same pledge.

Good luck with the pledging system. :) I'll do it at 75%.

I think the best solution is to offer a better payment system to merchants and consumers. Merchants accept rewards cards because it is what their customers have and want to use- customer shave and want to use them because they are convenient (accepted by most merchants) and the reward is an extra. If you can offer a secure payment system that is adopted by a significant portion of the market (make it even more convenient than rewards cards), while offering merchants significantly lower fees, eventually most merchants will accept your payment method- and as more consumers use it, many merchants will begin to stop accepting rewards cards and paying the high fees.

This is a long haul strategy, and likely a costly battle to fight. Is it worth it?

> What's worse, because the vast majority of merchants charge you the same price whether you're paying cash or credit, people who pay cash are, in effect, charged these hidden fees as well.

Their merchant account agreements actually require cash/card prices to be the same. (Credit card purchase minimums are generally not allowed either - of course that doesn't stop many merchants from trying.)

I think what jawns is getting at is precisely because you can't price-discriminate on the payment method, you might as well increase prices for everything in order to cover transaction fees (operating under the assumption that most customers will pay with credit card), which effectively means that cash-paying customers get stuck with those fees.

Agreed.

That is incorrect as of 2010 and was incorrect for several states before 2010. :/

This is not true any more. The Dodd-Frank act of 2010 allowed retailers to set up to $10 minimum purchases and lower cash prices.

In addition, as of January 2013, merchants are allowed to add a surcharge.

http://usa.visa.com/personal/get-help/checkout-fees.jsp

Reply on news.ycombinator.com