Micro-loans actually seem better than the standard western practice of credit cards. With a credit card the individual never pays for their own transactions, they're completely sidelined then pay back the cost + more later. At least with a micro-loan the individual actually is involved and in control of the money.
When you say Western, you mean American. Almost nowhere in Europe is buying on credit the norm, but debit cards or credit cards that debit your bank account directly.
They're missing out on a useful feature of credit cards. If you get hit with a fraudulent transaction, you can dispute the charge to get it reversed. I have never tried this with a debit card, but the credit card companies make this much easier than dealing with your bank.
Also, if you pay the balance in full every month, you don't get charged interest.
If you're disciplined, then you'll use credit cards for every cashless purchase.
In Europe, banks handle these things for you, rather than an intermediary CC provider (although that is possible too). It's a misunderstanding if you thought there is no recourse whatsoever on European debit cards.
There is always recourse, it's just my understanding that it's easier with CC companies. And when you get hit with a charge, it's not immediately hitting your bank account. You can get hit with the charge, dispute it and get it reversed without ever having to pay out of your own pocket.
I think the main difference here is that it's way easier to get a CC charge than a debit charge. Anyone who happens to stumble upon your credit card information can try using it and cause a charge. If you want to cause debit charges you need to know a PIN number and physically have the card (since, afaik, chip&pin hasn't been cracked yet) or you need access to a second factor such as a TAN-code list.
Either system is a valid solution to the problem of fraudulent charges, both have their advantages and disadvantages.
I actually don't have a credit card. I have a debit card and I use it for everything I can. I NEVER have to enter a PIN except at the ATM. Web based transactions wouldn't know if I physically had the card.
The PIN requirement for usage must be a European thing.
> The PIN requirement for usage must be a European thing.
It is. Over here a credit and a debit card work in significantly different ways. In the USA (and probably other countries too) a debit card is just a credit card that's more likely to get declined and gets billed slightly differently. Over here they are entirely different transaction systems as far as I can tell.
Depends on your definition of fraudulent. If money is stolen out of your account or your card is cloned then you will get your money back with a debit card. If the restaurant overcharges you or you are not happy with your webshop purchase then the bank will not help you out.
It might be an added benefit but in the end you do pay a couple percent on each purchase for that insurance.
> If the restaurant overcharges you or you are not happy with your webshop purchase then the bank will not help you out.
I don't know what it's like in other European countries, but I have to enter my PIN code before a transaction can take place (except for very small transactions). So since overcharging or webshops charging my account cannot really happen without my explicit permission, I don't really see how that could happen?
You pay the couple of percent whether you use the credit card or not, since there is usually no discount for cash or debit.
On the other hand, a credit card will give you back 1-2% of that in the form of cash back or other rewards. So in effect you are paying to not use a credit card.
The statistics that I found on a quick google show pretty small differences in debit/credit split between the US and EU. EU just has more cash. (these numbers are self-reported through a survey though so may be unreliable)
(If it's 'type of payment method' owned: possible. But if it's volume of currency exchanging hands then it //really// mismatches with my experiences in US vs Northern EU)
That said, northern EU is the place where people don't remember exactly how cash looks like since everything is paid either with card or using an app. But northern EU is population-wise a rather small market.
Exactly, but most of those I would think of as "debit", albeit electronically. (RFID bank card, apple pay -- all do not route to a line of credit in Europe but to debit/checking accounts).
European CCs provided by banks are often direct debit. On top of that, having a CC as backup for travel is common too. Transaction volume will show a very different distribution.
What we call a credit card in Europe is usually a charge card: You have to pay back at the end of the month. Not paying will result in immediate closure of your account and sending the bill to collections. There is no option to transfer your debt to the next month.
FTA: "Borrowers don’t incur any interest unless they miss payment deadlines or sign up for installment plans."
So yes, this sounds exactly like a western style credit card, just with a micro-credit limit. You get X days of interest free credit, then pay interest if you take longer than that to pay (or set up a fixed payment plan, which some western cards also offer).
Credit card companies also make a huge amount of revenue from merchant fees. Every transaction carries a fixed and percentage-based fee. Often something like $0.29 + 2.5%.
Payment companies like Alipay have much lower fees to the merchant, from what I recall.
Maybe there are some differences concerning the dataprocessing on spending history/behaviour.
I know that credit card data is processed and sold, too. But maybe there micro loan data is less restricted for that kind of data business.
Credit cards give you a 30 day loan with no interest. Interest only starts on purchases after one bill cycle. What is the average duration of a microloan?
The smaller you make the loan, the more pointless it becomes for more and more of the population. For clarity, consider the extreme case: very few people would consider taking a loan of a penny, however many people would consider taking a load of $10,000. A penny is a negligible fraction of your earning power, so it makes more sense to wait 2 seconds at work than to spend 3 seconds taking out a penny loan (and I'm being generous to modern tech; it will take you longer than 3 seconds to take out a loan).
Credit cards acknowledge this issue by construction. They assume that there's some overhead (convenience, time, effort, etc.) with paying back a loan, so what they effectively do is allow you to batch transactions together and pay them all back at once. That way, you don't have to log in every time you make a purchase to "refill". Of course, if this "refill" has no overhead cost, then it wouldn't matter.
Right, but for anyone who has to keep a close eye on their balance (so excluding most HNers), the credit card UX makes it as easy as possible to be irresponsible and as difficult as possible to be responsible. That's why responsible poor people are sometimes willing to pay entire percentage points of their total spend (!) in order to use debit cards so that the balance check gets done at the point of sale.
> I don't know about yours, but my credit card is automatically paid off at the end of each month, so unless I run out of money I won't incur interest.
This, it's easy to set-up a direct debit to pay off the entire balance every month in the UK. Every major CC provider I've had a card with has supported it.
My credit limit is many times higher than the amount of money I keep in my current account and that's only for a single card. It's very, very easy to overspend on a credit card and after you've done it once it can be difficult to recover.
The entire financial world is designed to exploit people who are not very good with money.
> Right, but for anyone who has to keep a close eye on their balance (so excluding most HNers)...
Keeping a close eye on your balance is basic financial responsibility and maintaining situational awareness against the ever looming threat of fraud. It doesn't matter if you operate on a bank account with $10 or $100,000...if you're not actively accounting for your transactions, that's a personal flaw. The way how I see it: if you don't have the discipline to properly account for even the smallest expenses, you'll never be able to sustain wealth at any significant level.
Anecdotally, a recurring pet peeve encountered is when I'm not provided with a receipt for purchases by default. This happens more often than not at fast food joints and gas stations, and when kindly asked for one, I almost always receive a reaction of either dubious entitlement or disgusted inconvenience, highly correlated to which car I happened to take that day. Although this class of expense is in the noise with respect to my financial posture, I still track them with unwaivering vigilance and find it so ironic when a minimum wage cashier who probably struggles to make ends meet every week disrespects that little piece of paper which enables personal accountability. Stochastically speaking, many of us--including myself--come from humble beginnings.
Accounting for your transactions and watching a tight balance are two entirely separate activities, as different as day and night. One involves checking a list / notifications for fraud and the occasional exercise of self-control to stay within a reasonable budget. Easy peasy. The other involves frequent constraint solving and optimization, which explode in complexity as budgets get tighter and constraints get harder.
The latency built into modern tooling exacerbates the issue. Credit card apps, mint, etc are decent for accounting (or allow export to an app that is), but they are so bad for dealing with a tight budget that people resort to debit cards and hand-ledgers (under which I am including manual entry of amounts into an app). A sizable safety margin lets you tolerate latency and gives you access to modern, low-overhead, highly capable tooling. Also, the luxury of choosing your own budgets lets you dodge tons of constraint solving right off the bat.
> Stochastically speaking, many of us--including myself--come from humble beginnings.
Then surely you remember the massive cognitive unloading that came when you first built a safety margin, yes?
Even putting all of the above aside, I just don't have much faith in patronizing and finger-wagging as tools for social progress. Even if responsibly consuming credit were trivial at all income levels, I still would still object to business models that encouraged and monetized irresponsibility.
Why do you need the receipt itself for fast food or gas? I categorize transactions once a month based on the statements, if something looked crazy I’d dispute it (never has).
I do take photos of larger dining receipts, since errors can be made entering the tip after I’ve left. Usually anything over $75 I’ll take a photo.
Seems unnecessary to me to spend much time on the noise since I can see in aggregate if some behavior like eating out is problematic.
I don't know how it works in the US, but here in Europe we can see the amount we were billed on the card terminal and the shop isn't just able to go change it after the fact.
In the US, the terminal is not brought to the table. The tip amount is written on a paper receipt and entered by the clerk at a (usually) out-of-sight terminal, usually after you've left. A customer doesn't interact with a terminal at all.
This is one of the (many!) problems with how financial technology works in the US. Cards get an auth placed twice for the same bill (one without tip, one with tip), there's little to no card-based security in place when making purchases and customers don't get to hear about their transactions until many days have passed since the purchase.
Every time one of these discussions comes up, it always seems shocking how bad bank/card mediated transactions are in the US. It's as if you just give your open wallet to anyone. I've just moved to Europe and it feels like I've gone back in time a decade. I can't imagine what it must be like in the US.
I take photos of receipts to protect against those scenarios, I just don’t cross reference them unless something looks “off” when I categorize monthly.
I suppose I could have fallen victim a few times on tiny amounts never knowing, but in total couldn’t be more than $100 over the past several years. I also tip pretty well on smaller bills, so that probably reduces my exposure a bit.
I respect the discipline it takes to audit everything, but for me it doesn’t seem worth the effort.
