I'm in the USA and I much prefer to use my personal Amex card whenever I can because Amex has always had excellent customer service. My cards have been used fraudulently a few times over the years and I've always gotten a call from a human about it explaining everything and the next morning FedEx delivers new cards to me. When ever I've called them, they handle my issues very well. I don't think I've ever had a bad experience with Amex.
Same here. Also got the premium rental car insurance from them, and ended up breaking the tail light on the rental while in France. I had to just to call them a file a short form, and then they took care of everything else.
Are we all subsidizing people who use cash? Keeping large drawers full of valuable paper isn’t cheap, nor is insuring it against theft, hiring armored cars to move it around, etc.
There’s a lot of hand wringing about credit card users being subsidized by other customers. If it were that significant, we’d expect to see a lot of stores only accept cash and compete with other stores by offering lower prices. In my experience, cash-only stores are extremely rare.
I live in Seattle. I bring cash for cash-only businesses.
In my experience, cash-only stores still exist. Stores that like cash are very frequent.
There's a lot of hand writing about cash users being subsidized by other customers. If it were that significant, we'd expect to see a lot of stores only accept credit card and compete with other stores. They would just be losing a few percentage points of revenue from transaction fees...
Cash-only stores certainly exist. I can’t remember the last time I’ve seen one in the US. I think I ate at a hole-in-the-wall cash-only restaurant in DC a couple of years ago.
Nice attempt to turn my phrasing onto me, but I’m not actually claiming that cash users are being unfairly subsidized. Rather, I’m arguing that cash also costs, and the difference between cash and card (whichever way it goes) evidently isn’t all that important.
Just because it's minor doesn't mean it's nonexistent. I think it's fair to say that cash subsidizes cards, and the other cards subsidize AmEx. Stores should be free to pass on the transaction fee, it's not fair that processors can hide it.
I've encountered several cash-only restaurants over the years. Some in NYC and even a few in my area. The local one that stands out in my mind is a combination of the restaurant being extremely good and reasonably priced, so there's always a long waiting line. There's also the "cash discount", which my dry cleaner offers. And I can't tell you how many house contractors will charge less (sometimes substantially less) if you pay them in cash.
Don’t know about NYC, in other places (eg. Italy) cash payment is attractive to the stores because it can remain hidden to taxation.
Restaurants particularly like cash because of two reasons:
1. Food is perishable, it’s easier to justify discrepancies between food bought and revenue.
2. They often pay workers under the table.
I once naively asked why so many ice-cream vans were based in the UK council housing estate where I grew up.
It was pointed it out that it was the perfect tax-free income mechanism; no vendor certification or registration, no fixed property, minimal ingredients, cash transactions...
> I can’t remember the last time I’ve seen one in the US
Confused... I've been all over the US and every city has tons of cash-only stores. Especially smaller cities and towns. It wouldn't surprise me if half of the independent delis in the US are cash only. I'm guessing you live and spend most time in a suburb?
In fact, most of the Chinese take-out restaurants still prefer cash payments than cards; for the rare ones that do take cards, they require a minimum charge of $10-$15.
If only 5% of your sales are in cash, you nearly all the expenses of storing, securing and transporting cash.
So if 50% of sales are in cash, it doesn't cost you 10x more.
But every incremental credit card transaction costs another 3%.
So you can't argue that cash customers are subsidized by card customers when cash costs are relatively fixed while card costs scale linearly with volume.
Completely false. There is a huge difference in what an insurance company will insure your business for if you regularly hold $500 vs. $5,000. Cash is a huge liability.
Also, I can store $500 in a locked drawer or I can comfortably bring it home with me. $5,000 would need a safe bolted to the floor. And if you have a safe, now you need a camera to watch the safe. Say you now want to hold $50,000. Now you need a bigger safe and more cameras.
Uh, literally any commercial insurance? You get categorized into a risk pool depending on whether you handle cash or not, and how much cash you store overnight. Google “commercial insurance”, there’s usually a section for Theft and Counterfiet of cash risk.
I mean, it's just a basic tenant of commercial insurance. If you hold lots of cash, you are at a higher risk for theft. This is evaluated when you are in the process of acquiring commercial insurance. You basically just asked me for a reference for whether or not you get wheels when you buy a car. Of course you get wheels, you just need to work with the dealership to determine what they look like!
Cash is probably cheaper than the 2-5% the credit cards charge. And you don't have to sign thousands of words of legalese that restricts your speech and your pricing freedom.
A store can't compete on the 2-5% difference in price because it isn't enough of a persuasion on each small individual transaction, even though it's a huge percentage of the business cost when taken together.
Customers are incentivized to carry credit cards because of cash back rewards, need for a short term loan, convenience of not having to carry cash, and fraud protection.
Merchants are incentivized to accept credit cards because many potential customers carry little cash because it is inconvenient.
And in all this, we are implicitly paying a 2-3% tax for everything we buy that goes straight to the credit card companies.
mikeash makes a different point, one I often make: accepting cash is not free. It's a physical item that can get lost or stolen, which means it needs significant physical security when storing or transporting. There are card-only stores, and I imagine the reason is how much is simplifies their physical logistics. (No need for cashing out drawers at the end of shifts, no need for safes on site, no need to pay a company to transport cash to the bank.)
How much does that cost the consumer? Is it less or more than the "tax" what we pay to the credit card companies?
I'm reasonably confident I lose, burn, have stolen from me, or otherwise fail to enjoy the benefit of far less than 2 of every hundred dollars in my wallet.
Not to mention the significant fraud risks when dealing with cash.
Many years ago I worked retail. A few minutes after I sold something to a man, he came back to my counter angrily. He said I'd given him change for a $20, but he'd given me a $50. I was quite certain he'd given me a $20 and he was trying to steal from us. This is not a pleasant situation to be in, and it wouldn't have been possible if he'd paid with a card.
Don't debit cards give much of the same benefits for both parties as CCs, and aren't they much cheaper to process? I know sometimes their can be a buyer fee associated with a debit card but I've never had one that did. My bank card can be used as either. I use debit when given the option specifically because I thought it was cheaper for sellers in most cases.
it's illegal to offer cash discounts, for shop keepers, so everyone is forced to pay for the credit card fees, even if they just want to pay with cash. People should have the right to choose and shop owners should have the right to choose. I don't see how this crazy law isn't being challenged by the courts.
It’s not illegal. It is against the terms of credit card agreements, and you could make the case that there isn’t enough competition there. They seem to have at least some loopholes, as I’ve seen quite a few places either offer cash discounts or require additional fees for card payments.
I really wish we could just make credit card rewards schemes go away entirely. I don't expect that to happen any time soon, but they just feel like such a waste of time and effort.
I don't even like the name "rewards" - it's really more of a rebate/refund (on the raised prices of everything), with the catch that you forfeit the refund if you pay with anything except a "rewards" card.
A sensible response is for national regulators to cap credit card interchange rate. Banks are free to offer more generous rewards, just they can't fund it via the retailer.
The EU's cap is 0.3%, Australia's was 0.55%.
By comparison, typical credit card interchange rates in the US are 2%+.
Strange that Discover both has the lowest merchant acceptance, and the lowest merchant rate based on what is given here. And from what I've noted, some of the most aggressive holder rewards, too.
> ... interchange fees are typically a flat fee plus a percentage of the total purchase price (including taxes). In the United States, the fee averages approximately 2% of transaction value.[2] In the EU, interchange fees are capped to 0.3% of the transaction for credit cards and to 0.2% for debit cards.[3]
That 1.8% difference pays for a lot of rewards, marketing, etc.
As a small merchant accepting cards in the US, the best rate one will
see is about 1.65% for a high-volume business (plus lots of
fiddly fees). Square ran 2.95% when we first started using it,
but was worth the difference to a small business to avoid all the fiddly fees
(per-transaction, per-month for statements, per-month for online access! (years ago)).
We have seen card usage go from 80/20 cash/card to 20/80 cash card over the last 15 years,
and the ease of making additional sales on credit has increased our volume a lot. YMMV.
Most merchant agreements disallow charging customers a penalty for paying by card,
but (implicitly) allow a discount for paying by cash (or having 2 prices: cash xor credit).
This decision about Amex is part of the same perspective.
True disruption will not reach the US card payment market until some business big enough
to take on Visa & MasterCard offers card acceptance to merchants at much lower fees -
perhaps without all the rewards, points, and other faddle they now pay to card users.
A no/low reward card that charges far lower merchant fees? We have those. They're called "debit cards".
Sure, not quite the same, but the only way to do it (since debit cards also remove the risk that credit cards do, namely, defaulted payments, which causes the fees to inflate a bit).
Good point. To be more explicit, I'd like to see credit cards
with good fraud protection for card-holders, no rewards/points systems,
far lower & competitive merchant fees, and minimal fees to card-holders,
other than interest on balances, of course.
It sounds like card issuers in the EU and AU are doing this, or most of it,
but that those in the US are not, presumably because they are making a
nice profit doing it at 2%-3% now, and have a good moat around their
businesses.
By "good fraud protection" I mean the kind that US banks do
for credit-card holders now, and not the kind they do for
debit-card holders.
This seems rather one-sided in terms of the costs of using a credit card. Yes an Amex costs me a fee each year and yes I can't use it in lots of places, but when my dad's iPhone died 2 months after the 1 year warranty ended, I realized he was on my phone plan and I pay for that with the Amex card, so I'm in the process of getting that paid for, which will offset more than a decade of fees.
Amex offers 1 extra year of warranty coverage beyond what the store/manufacturer offer. So after your warranty ends, and you're within that extra 1 year with Amex, they'll reimburse you the cost of the item. Many Amex cards, the ones with better benefits, charge you an annual fee to use. Hence, the reimbursement you get from your item can offset the fees.
Amex has additional 1-warranty for your purchases. So instead of buying a new phone (since the manufacturers warranty ended), he is getting a replacement phone for free from Amex. Just that one event is paying back for the fees occurred in the previous years.
>But then the merchants lose out on the business of customers who want to pay with their Amex, often to get points for rewards.
who actually does this? I'd imagine most amex users probably have a mastercard/visa anyways, and it's not like they're going to switch merchants to save an extra 1-2% on their purchase, presumably when the merchant they chose already have the lowest prices to begin with.
I charge about $120k/year on my Amex charge card. I use my Chase Visa when a merchant doesn’t take Amex (rare), but I’d rather use my Amex whenever possible.
To not maximize credit card rewards means to subsidize others who do. To fix the problem, you have to regulate interchange fees down so that rewards aren’t sustainable and are no longer offered. The problem isn’t American Express, it’s lax financial regulation.
Personally, I fully support the cramdown of interchange fees and the resulting impact on financial institutions.
Well, now that I keep my driver's licence and one credit card in my phone case, and have to make a point of carrying another card, any but a favorite shop loses out to someone who takes amex.
was it for convenience reasons (didn't want to deal with 2 credit cards)? because from a purely rational point of view, using debt/cash when a place doesn't take amex is always worse than using a no yearly fee visa with some amount of cashback.
I almost never ran into a merchant that didn't accept Amex, so I didn't have any particular reason to go to the trouble of getting another card. In fact, I more frequently ran into places that didn't take credit cards at all.
Rewards cards are really just a way to reward wealthy people for being wealthy.
I went through a bankruptcy in my early 30s, largely because of credit card debt, and then immediately started getting big pay raises. 7 years later, I came out of it with an 800 credit score and a six figure salary and it was an incredible eye opener how much money and kickbacks credit card companies are giving to wealthy people for the privilege of using their card, while I was getting fucked 10 ways to Sunday on interest when I was making 30k a year and struggling to make minimum payments. I worked out the math later and it turned out that even with the bankruptcy I had paid well over the amount I borrowed in interest and had barely put a dent in the principle.
These days I’m regularly getting $100 cash back rewards and free flights or hotel rooms and not paying a penny in interest.
I don’t really get the economic incentive of shoveling money at wealthy people while grinding down lower class people into debt slavery.
Wealthy people are more profitable for them. Who would you rather have as a customer, someone who puts $3,000/month on their cars (warning you a nice 2% or so of that) and always pays, or someone who puts $500/month on the card and is likely to go into default due to overspending or losing their job or an illness in the family or something?
There’s no conspiracy here, any more than there’s a conspiracy behind the large discount you can get if you buy a year’s supply of toilet paper at once.
I'm pretty sure the opposite is true for credit card companies. The wealthy tend to pay down the balance before interest is even charged, while the poor tend to carry balances forever paying mostly interest while getting hit with other fees.
It is true, however, that wealthy people carry much less risk for them so they may have similar expected values (this is just a guess)
I question whether the interest is worth more than the merchant fees they get from wealthy people using the card constantly.
If one poor person is paying, say, 11% interest on their $500 balance for a year, then the company makes a few hundred bucks on the interest. If a wealthier person spends $50k (admittedly random number I made up, its going to vary vastly for different card-holders, and probably in the millions for many) with their card over the course of the year but pays it all off immediately, they've made between 1k and 1.5k risk-free on the 2-3% merchant fees, and the customer will probably continue to use that card.
I think his point is that wealthy people spend more, so the card brands can charge more interest to the merchants. If you spend $20,000 and Amex charges 5% that's $1000 in fees. But a poor person who spent $500 only earns them $25 in fees to the merchant. Now it's true that the poor person if they can't pay might pay 20% interest, but the real money maker for the card brands is not the late payment fees but the processing fees which is the gist of the lawsuit and the article.
You’d expect for them to hit an equilibrium where the expected values are similar. You’re absolutely right that a poor person who carries a balance forever and pays a ton of interest is extremely valuable, but that’s countered by people who stop paying altogether. It’s the same reason a wealthy person (or rather, a person with good credit, which I’m sure correlates strongly with wealth) can get a better interest rate on a mortgage or car loan.
You have the basics correct, but not where they make the profit from. Someone spending $3,000/month on a card and paying it off winds up paying little to no interest. However, they do get to make a good deal off of the fees.
Like the article says, the fees make the cards a lot of money.
That person putting $500 per month on the card likely isn't poor either unless they are paying most of their expenses with it and paying the card off each month. Again, they get some fees. With a limit high enough for $500 a month without paying it off, they aren't as high risk - after all, that is at least a $6,000 limit. That's a full 20% of a 30k/year income, after all.
These folks are in a middle ground. The company can make some of their money off of transaction fees, but will try to make up for it through interest rates, which won't be all that horrible.
The actual poor person has a credit limit of $500-$1000. They aren't spending enough for the company to make much from fees, so they try to make it up in interest.
Poor people are not profitable enough to deserve equal treatment. Airline flights aren’t useful to people with starving babies or people whose very existence is illegal. Those people have different desires and other marketing strategies are more effective.
And there is the system itself: value exists in transactions, not money. Money is just another commodity. When you have a pile of money, it’s a safe bet there is only one thing you care to do with it: make more. Investments in things you don’t expect to be rising in value are unlikely, but since that pile of money isn’t profitable until you invest it, your choices are limited. All people with piles of money come to the same conclusion: throw it at rich people because that usually seems like the best way to make it get bigger on it’s own. Even if this likelihood even outweighs massive risk, it’s still better than contributing to society because if it works, it will be guaranteed to only take from society instead... which is much easier and somehow still garners social approval.
For society which depends on vertical circulation, the result is catastrophic waste. But the goal was to profit, which requires transactions.
Most of the best rewards cards are available to everyone. The rewards are more valuable to someone with low income. Case in point, when I had less money using Discover 5% rewards to buy clothes was more valuable than it is to me now.
Wealthy people are a more lucrative target for the type of surveillance that credit cards do. Their pot is obviously bigger, and their financial inefficiency is more steerable (whereas a poorer person's inefficiency will be out of necessity). eg ordering from Amazon without checking prices can be nudged into ordering from a different retailer without checking prices.
They are a way to get card members that wouldn't otherwise be card members. The rewards are economic due to the delay between the cards receiving payment and issuing the rewards.
That's my understanding anyway. There is quite a bit written on why rewards cards are not free lunch in the end.
Rewards are nice, but usually only a few percent. Even at 5% cash back, you'd need to spend sixty dollars to pay for a $3 dollar coffee. (200 dollars at the more common 1.5% mark).
Personally, I've found I generate way more "rewards" by using cash for my entertainment budget. Having to look into my wallet at the month's "fun money" and pull out some of it engenders critical thinking.
(This is one of the main reasons casinos use chips - to abstract away the value of your money and induce spending)
For those arguing that cash also has costs: cash usually doesn't cost the poorer classes of people, but cards, even when used by relatively wealthier people, make things more expensive for the poorer classes. The title of a different article, written by someone who uses cash, could be "We're all subsidizing people who use cards", and it would ring higher on the moral scale.
Meh not really. When this was actually true very few places accepted AmEx anyway - at least in Europe. Mostly high margin tourist shops.
Now more places accept them but they are basically the same as Mastercard or Visa. They charge similar fees but you can't get decent cashback like you used to either.
The thing that isn't mentioned anywhere is that while Amex's fees are about 1% higher, their customers spend more than twice as much on average (in the US).
It's scary to think that this court is going to get more conservative for decades to come. I wonder if any consumer or environmental protections will survive.
In the EU the ceiling in the regulation is 0.2% for debit card rates and 0.3% for credit cards. 1% cash back credit cards are virtually non-existent...
Right, I wasn't really serious but it would be interesting to know what the details of the deal are. I'd prefer if we used something other than Amex since it's definitely not universally accepted. Based on the other comments it must be the level of service.
Off topic, but the totally pointless animated gifs in this article are distracting and made it painful to read. I don't understand why they felt the need to make an article about a serious topic look like a teenager's tumblr post.
