The merchant fee sucks for poor people because businesses likely raise margins to cover it (if they see significant volume via credit cards, like grocery stores).
Every transaction I make nets me 2-5% 'cashback'. Great for me since I get 5% back even on things like my electric bill and Internet.
But for everyone else paying cash at places where credit is primarily received, they're basically being fined for my benefit.
Honestly, it's not even that great for you. For starters, you're basically giving your credit card company a free loan.
If given a choice between paying 100% and being done, or paying 105% and getting the 5% back later, almost no one would chose the 105% option. (I know it doesn't actually work this way, but it's still a good illustration.)
Additionally, that program necessarily adds some cost, which is just rolled into higher prices that you (and everyone else) pay.
All that said, I completely agree with your point. I wish credit card reward schemes would just go away.
I guess you're both giving each other loans, but even if you pay your bill in full each month, yours still isn't free. If you're getting 5% back, then the item was almost certainly marked up more than 5%. So you're still paying something for that loan in the form of higher up-front pricing.
And, of course, if you don't pay your bill in full each month, then you're likely looking at 15-20% or more (APR) on whatever balance you left unpaid.
> If you're getting 5% back, then the item was almost certainly marked up more than 5%.
How though? The 5% back is not a rebate coming from the merchant, it's coming from the card issuer. Don't they (generally -- barring special agreements for specific cards) get the same amount of money regardless of what cards people use?
When I ran a business that accepted credit cards, I had to pay different levels of fees depending on the type of card and rewards scheme associated with it. I had to set my prices based on the highest rewards card fees, and if someone paid with a lower fee card, I just kept the difference as extra profit. (My agreement with the CC processor explicitly required me to give everyone the same price regardless of how they paid.)
I think 5% is a special case that's limited to specific vendors or products, I'm not aware of any general rebate higher than 2%.
I know Stripe and Square and other companies have come along now that charge the same fees regardless of the type of card - but note that they're all above 2%.
I think the only difference now is that Stripe/Square/etc. keep the difference as profit when someone pays with a non-rewards card, instead of the vendor. (But, in their defense, they're able to negotiate lower rates than I was ever able to get on my own.)
This is a good point. But realistically, that choice is not an option. Therefore, I'm at a disadvantage if I don't use the most "rewardy" type of card available. The cost of these points/rewards are priced in. So the only way to recapture that is to use a high reward card. It's a sucky model, but we're all caught in it and the folks paying with alternatives like cash are the ones holding the bag.
Isn’t this against the merchant agreements between them and the credit card companies? If it was allowed, wouldn’t you see separate cash and credit prices all over the place?
I see those. Dentist, Gas, Pub. My dentist is 10% off for cash. Gas I bought last week in New Hampshire, $0.07 cheaper with cash. Pub has a minimum and sur-charge for card. And my coffee place too.
An interesting fact is in China even traditional credit cards have significantly lower fee. UnionPay only charges around 0.6%. Not comparable to Alipay or WeChat Pay's effectively 0% but still.
As an American, the only thing I don't spend on a credit card is rent (because my landlord doesn't accept it).
It's silly not to pay for everything on credit cards here, when you can get 3-5% back on anything with the right card. That's around $4k/year if you spend $100k before even accounting for doubling on some cards and other benefits like travel vouchers, Uber credits, and free insurance coverage. (Minus a $600-$1000 a year in annual card fees for high end cards.)
I imagine that spending is dominated by a few major categories, which you can find specific cards to cover. There are spending limits, but you can always get multiple cards. I do that with BoA, I have 2 basically identical credit cards, but each has a different bonus category set, or I can set both to use the same category like dining out.
So unless you're spending like 200k net a year on life expenses, it's pretty easy to get the max returns.
You can get a pretty good, simple system set up with Chase CSR and FU, supplemented with the Amazon card. Just have to remember to use the CSR for the relevant categories, which isn't that hard.
As an American, I don't care if I get 0% back, I'm still using a credit card because the identity theft protection discrepancy between credit and debit cards is enormous. I say this to people and those who have had to deal with identify theft before immediate are on board with me. Those who haven't proceed to argue.
Basically, when you purchase something with a credit card the bank fronts the money to the merchant and bills you for purchases later. If a transaction is fraudulent, either the merchant or the credit card company take the hit, and you're never out any money, even temporarily. For credit cards the market has settled on 0 consumer fraud liability pretty much no matter the circumstances (and very hassle-free too).
On the other hand, with debit cards money is withdrawn from your account when a fraudulent purchase is made, and you need to wait for your bank to complete an investigation to reimburse you. They also tend to have rather stricter reporting standards in that if you don't report fraud promptly, you might be stuck with (some) liability.
Either way you'll typically get your money back, but the hassle is much reduced with credit cards.
The US (and Canada) have much weaker consumer protections for debit than credit.
If a merchant posts a fraudulent transaction against a credit card, you'll most likely get your money back. If a merchant posts a fraudulent transaction against a debit card, you might not get your money back.
More dangerously, if your debit card credentials are skimmed and used to withdraw money from your account by any means other than the retail debit-card payment system, you won't get your money back.
Every transaction I make nets me 2-5% 'cashback'. Great for me since I get 5% back even on things like my electric bill and Internet.
But for everyone else paying cash at places where credit is primarily received, they're basically being fined for my benefit.