Toronto Star article on credit card fees

[VivienM]

http://www.thestar.com/business/article/545726

What amazes me is that it seems it costs MORE for merchants if you pay with a Visa Infinite-type thing than with some "ordinary" card...

[angel_wing0]

yeah i thought we all knew that...it costs more for the merchant if we use platinum/infinite type cards.

[Newbieinvestor]

Can you sum up what they say?

I refuse to read the Star due to their left wing big government bias and being a mouthpiece for the Liberals.

They always rant about business, landlords, conservatives, yet keep quiet on government corruption and when I lived in Toronto I received monthly calls asking me to subsribe (hmm, business!) For such a paper, they certainly have some interesting classified ads (money!)

However, this could be a good article.

[Jucius Maximus]

Considering that studies have shown people are willing to pay more on average (something like 12-18% more) than when paying cash, I think the retailers and credit card companies are coming out on top.

The losers are the people who spend outside their means and then get bogged down with interest payments.

[angel_wing0]

Considering that studies have shown people are willing to pay more on average (something like 12-18% more) than when paying cash...

i have to agree, nothing beats free 30 day loans :D ...but 12-18% more seems kinda high.

[chicadam]

Basically when you use your credit card, the merchants pay a processing fee, and depending on which card the charge could range form 1.7% to 2% of the purchase.

------------------

Merchants should not ***** about this fee, they get people spending on things they may otherwise would reconsider. 2% is high but its worth it, merchants get there money while banks have to chase for it and absorb the interest, that's worth the 2%.

[Jucius Maximus]

i have to agree, nothing beats free 30 day loans :D ...but 12-18% more seems kinda high.

It's from a Dun & Bradstreet study (http://www.associatedcontent.com/article/142336/do_we_really_spend_more_with_credit.html). D&B is a business information company dating back to 1841.

I think it might not be 12-18% higher for RFD users, but we don't represent an aggregate of how most people act.

[angel_wing0]

It's from a Dun & Bradstreet study (http://www.associatedcontent.com/article/142336/do_we_really_spend_more_with_credit.html). D&B is a business information company dating back to 1841.

I think it might not be 12-18% higher for RFD users, but we don't represent an aggregate of how most people act.

indeed, to be honest i wouldnt want to pay more than 10%...lets say if i m given a choice to pay say, $630 with cash or $700 with cc, even if its the 2% cashback amex, i m willing to pay cash and get the savings.

[tng11]

indeed, to be honest i wouldnt want to pay more than 10%...lets say if i m given a choice to pay say, $630 with cash or $700 with cc, even if its the 2% cashback amex, i m willing to pay cash and get the savings.

Unfortunately it's not like we really have a choice as CC fees are built into a lot of stuff we buy, only thing I can think of are asian restaurants who give a cash discount of like 10% where you really save by using cash, otherwise it's just a reality we have to live with. And I have this bad feeling that a lot of places that give these heavy cash discounts (10%) are avoiding taxes and I do not want to support businesses that do so.

What really pisses me off is some places have that "minimum" BS and if I had the time like the people on creditboards, I'd report each and every one of them. Or those businesses who subjectively take credit cards, worse case was I bought $40 of stuff at a place at St. Lawrence Market and they refused to take CC because it would "cost them too much", even though they have a sign saying they take Visa.

[Potsman]

Basically when you use your credit card, the merchants pay a processing fee, and depending on which card the charge could range form 1.7% to 2% of the purchase.

------------------

Merchants should not ***** about this fee, they get people spending on things they may otherwise would reconsider. 2% is high but its worth it, merchants get there money while banks have to chase for it and absorb the interest, that's worth the 2%.


I think this article is somewhat misleading.. It's been several years since I had a business Visa and M/C account, however, when I was an account holder the rate does not fluctuate based on the type of CC someone pays with. The Commission rate is established in a contract between the merchant and the bank and does not change unless the contract is adjusted. I can't remember if there was a minimum comission on a transaction but don't think there was.

It does look now though that banks are using this reason to charge more comission to the merchant in order to cover their reward programs. I do feel for the smaller merchants as they are the ones bearing the brunt of this. IN the end, it is the little guy that get's it as they suffer and yet in these hard times, banks are still managing to record quarterly profits in excess of a billion dollars.

[DanielCarrera]

indeed, to be honest i wouldnt want to pay more than 10%

You are missing the point. The fact that people pay more when they shop with credit cards is not a conscious reaction. Nobody thinks "gee, I have a credit card, I think I'm going to spend a little more". Everything happens in the subsconscious and it is roughly speaking an issue of credit cards not feeling like "real money".


There is another human bias, discovered by the field of behavioural finance, which makes people feel that the credit card limit is the amount of money that they are "allowed" to spend. That is, if you have $500 left in your credit card limit, then it's ok to spend $500 on something. In turn, when paying cash, the amount of cash in your wallet is the amount that you are "allowed" to spend. This isn't an overwhelming force, but it does mean that people have a broad tendency to spend a little more when paying with plastic.

Finally, people have a strange utility function, whereby spenditure "now" is more painful than arranging for your future self to spend the same amount of money in 30 days. Again, this isn't an overwhelming force, but it does make people spend a little more when they buy on credit.

[DanielCarrera]

What really pisses me off is some places have that "minimum" BS and if I had the time like the people on creditboards, I'd report each and every one of them. Or those businesses who subjectively take credit cards, worse case was I bought $40 of stuff at a place at St. Lawrence Market and they refused to take CC because it would "cost them too much", even though they have a sign saying they take Visa.

I don't see anything wrong with that. The merchant's job is to make money, just like everyone else. This is part of how the economy works. If the merchant saves money, that money makes it back into the over-all economy. In a competitive market place, the money will make it back in the form of lower consumer prices. In a less competitive market place, the money will make it back in the form of increased spending by the merchant, who is also a consumer. There is nothing wrong with the merchant wanting to save money and as a consumer you will, in general, directly or indirectly benefit if the merchant removes an external source of expense. Every dollar that the merchant has to pay in credit card fees is a dollar that you as a consumer have to pay in the form of increased product prices (it's actually a little worse than that, thanks to sales taxes). Therefore, you should be supportive of a measure by the merchant to reduce this external cost.

[dealtacular]

I think this article is somewhat misleading.. It's been several years since I had a business Visa and M/C account, however, when I was an account holder the rate does not fluctuate based on the type of CC someone pays with. The Commission rate is established in a contract between the merchant and the bank and does not change unless the contract is adjusted. I can't remember if there was a minimum comission on a transaction but don't think there was.

It is now a higher rate for Infinite cards only, AFAIK. This is a recent change.

[Jaytee]

Another example why the 2% cashback Amex is awesome.

[VivienM]

There is another human bias, discovered by the field of behavioural finance, which makes people feel that the credit card limit is the amount of money that they are "allowed" to spend. That is, if you have $500 left in your credit card limit, then it's ok to spend $500 on something. In turn, when paying cash, the amount of cash in your wallet is the amount that you are "allowed" to spend. This isn't an overwhelming force, but it does mean that people have a broad tendency to spend a little more when paying with plastic.

Finally, people have a strange utility function, whereby spenditure "now" is more painful than arranging for your future self to spend the same amount of money in 30 days. Again, this isn't an overwhelming force, but it does make people spend a little more when they buy on credit.

There's also something else: many people don't carry tons of cash. It's harder to make an impulse purchase if you have to find your bank's nearest ATM (or get robbed in fees) and withdraw cash, then go back to the merchant and buy the thing.

And what if it's 5:45 and the store closes at 6? Then you have to come back the next day....

[iluvmikeharris]

I don't see anything wrong with that. The merchant's job is to make money, just like everyone else. This is part of how the economy works. If the merchant saves money, that money makes it back into the over-all economy. In a competitive market place, the money will make it back in the form of lower consumer prices. In a less competitive market place, the money will make it back in the form of increased spending by the merchant, who is also a consumer. There is nothing wrong with the merchant wanting to save money and as a consumer you will, in general, directly or indirectly benefit if the merchant removes an external source of expense. Every dollar that the merchant has to pay in credit card fees is a dollar that you as a consumer have to pay in the form of increased product prices (it's actually a little worse than that, thanks to sales taxes). Therefore, you should be supportive of a measure by the merchant to reduce this external cost.

Blah blah blah. If they can't afford to abide by the Merchant Agreement they SIGN, they should not to accept credit cards. They want their cake and to eat it to. It's like stores who post the SCOP signs in their store but do whatever they can to get out of actually abiding by it.

[Thalo]

Can you sum up what they say?

I refuse to read the Star due to their left wing big government bias and being a mouthpiece for the Liberals.

They always rant about business, landlords, conservatives, yet keep quiet on government corruption and when I lived in Toronto I received monthly calls asking me to subsribe (hmm, business!) For such a paper, they certainly have some interesting classified ads (money!)

However, this could be a good article.

+1


But some Canadian retailers say credit card fees now take $4.5 billion a year out of their pockets, and they're spiralling out of control. With two very large multinational companies, Visa and MasterCard, dominating the card market, retailers say it can only get worse unless government intervenes.



You were right. Where's Jack Layton on this?

[DanielCarrera]

Blah blah blah.

Thank you, that's a very insightful comment. Your eloquence and powers of rethoric are truly compelling.

If they can't afford to abide by the Merchant Agreement they SIGN, they should not to accept credit cards.

Isn't this a bit of a simplistic view? Since you are trying to make a legalistic argument, I'd like to point out that merchants are perfectly in their right to only accept credit cards for higher value transactions if that's what they want to do. But your legalistic view misses the point. It appears that you can't see past your personal short-term convenience to see the economic effects of the merchant's decision. Accepting credit cards for higher value items but not for lower value items may allow a merchant to be more competitive and consumers have an interest in merchants being competitive. Money that leaves the merchant to enrich the bank has a negative effect on the consumer too. If the merchant has to pay more to the bank, you as a consumer will feel the effect either in the form of increased prices, or poorer selection.

[duner]

I'd like to point out that merchants are perfectly in their right to only accept credit cards for higher value transactions if that's what they want to do.

Straight from the visa website.

Protection from Minimum Charges. Visa merchants are not permitted to establish minimum transaction amounts or charge cardholders a fee when they choose to use their Visa card, even on sale items. Cardholders encountering this problem should notify their card issuer to document and file their complaint. The card issuer's address will appear on their Visa statement and may also appear on the back of the card itself.

Here's the link

http://corporate.visa.com/md/nr/press609.jsp

[DanielCarrera]

Straight from the visa website.

Thank you, I stand corrected (I will assume that the same rules apply to Canada). That said, I find the terms unfair.

[iluvmikeharris]

Thank you, I stand corrected (I will assume that the same rules apply to Canada). That said, I find the terms unfair.

So it's okay for them to sign the agreement and then make up their own rules?

[1226]

I don't see anything wrong with that. The merchant's job is to make money, just like everyone else. This is part of how the economy works. If the merchant saves money, that money makes it back into the over-all economy. In a competitive market place, the money will make it back in the form of lower consumer prices. In a less competitive market place, the money will make it back in the form of increased spending by the merchant, who is also a consumer. There is nothing wrong with the merchant wanting to save money and as a consumer you will, in general, directly or indirectly benefit if the merchant removes an external source of expense. Every dollar that the merchant has to pay in credit card fees is a dollar that you as a consumer have to pay in the form of increased product prices (it's actually a little worse than that, thanks to sales taxes). Therefore, you should be supportive of a measure by the merchant to reduce this external cost.

It's one thing for a retailer to decide not to accept CC's. That's fine. But it's flat out deceptive to advertise to your customers that you take CC's, only to renege when your customer gets to the checkout.

[gman]

Straight from the visa website.

Protection from Minimum Charges. Visa merchants are not permitted to establish minimum transaction amounts or charge cardholders a fee when they choose to use their Visa card, even on sale items. Cardholders encountering this problem should notify their card issuer to document and file their complaint. The card issuer's address will appear on their Visa statement and may also appear on the back of the card itself.

Here's the link

http://corporate.visa.com/md/nr/press609.jsp

Well, the merchant can still set the minimum because it is not against the law. The agreement is between the merchant and the credit card company. It is not between the merchant and the customer. The credit card company makes you think they will do something about it. In real life, they don't.

Try that before and the result was ... really discouraging. Let me put it this way, the credit card company tried VERY HARD to discourage you and tried VERY HARD to not looking at it.

[gman]

It's one thing for a retailer to decide not to accept CC's. That's fine. But it's flat out deceptive to advertise to your customers that you take CC's, only to renege when your customer gets to the checkout.

That is not the worst because you still can refuse the purchase. In my case, they put the surcharge after you consumed the product (i.e. in the restaurant). No where in any where saying such surcharge exists. I complained to the credit card company, they don't give a damn.

[DanielCarrera]

So it's okay for them to sign the agreement and then make up their own rules?

Straw man. I did not say that. Are you unable to hold an argument without accusing the other person of saying things he didn't say? I'm sure that it is a lot easier to argue if you allow yourself to fabricate absurd claims and attribute them to the opposition; but this is a dishonest way to conduct a debate.

[DanielCarrera]

It's one thing for a retailer to decide not to accept CC's. That's fine. But it's flat out deceptive to advertise to your customers that you take CC's, only to renege when your customer gets to the checkout.

That's fair enough. How about a merchant that has a sign saying "minimum $40 transaction for credit card purchases"? That merchant is being honest about when and how he is willing to accept credit card purchases. I've seen signs like that on some merchants.

[setell]

There's also something else: many people don't carry tons of cash. It's harder to make an impulse purchase if you have to find your bank's nearest ATM (or get robbed in fees) and withdraw cash, then go back to the merchant and buy the thing.

And what if it's 5:45 and the store closes at 6? Then you have to come back the next day....

You could use debit to buy the product if you don't have cash. Most of the places that I've been to treat debit as cash and credit cards separately. Of course it also depends on your debit limit too, for me I've never spent more than a couple of hundred on my debit per day and I have a whoooping $3000 per day limit! With debit there seriously is no need to carry a huge wad of cash around if you want to make a big purchase and don't want to use debit cards.

I know some people here have complained about the limit that some merchants set up etc. and/or charge a fee but have you guys think how costly it is to the merchant? When we were a merchant years ago you pray that people don't use their credit cards so that it'll cut down your costs. Those fees eat up a lot of of your profits if you don't increase your prices. Whether you like it or not you will pay more if a merchant accept even a $1 credit card transaction! These merchants that set up these limits are usually the little guys as a way to cut costs. I am ok with that and either pay with cash or use debit. If you're going to a mom/pop shop I'm supporting them so that they'll last and I just don't think bitching about them setting a $10min before they take credit cards is unreasonable. The ones that I do find outrageous is the ones that charge a fee. They do that to hopefully offset their own fees but I don't think that's right. I rather a min. limit than a fee.

Btw if you guys think the Visa/MC fees are high than you should check out the AMEX fees!!! There is a reason a lot of merchants don't accept it because their fees are super high!!

EDIT: I thought AMEX fees were higher but according to wiki it's just 2.5% vs the 2%. Still fair bit higher but a lot less than I had originally thought.

[Potsman]

Btw if you guys think the Visa/MC fees are high than you should check out the AMEX fees!!! There is a reason a lot of merchants don't accept it because their fees are super high!!

EDIT: I thought AMEX fees were higher but according to wiki it's just 2.5% vs the 2%. Still fair bit higher but a lot less than I had originally thought.

I see DC's point as the merchant has to make a living, however, the end result is they are violating the agreement with the credit card supplier and that is not right. That said, I still prefer to use CC for any transaction I can due to the extra coverage it gives you (doubling warranty periods, purchase protection etc). Sadly paying with good old fashion cash or cheque gives you no perks.

As stated before, It has been some time since I held merchant accounts (and apparently the rules have changed regarding commission schedules... (thans Dealtacular for the info)), but the main reason I never took on AMEX was it took forever for you to get your money from them (up to 90 days). This was in the late 80's / early 90's and I have to think they are much better now.

[Newbieinvestor]

Another example why the 2% cashback Amex is awesome.
How does that one work for you?

[D582]

That's fair enough. How about a merchant that has a sign saying "minimum $40 transaction for credit card purchases"? That merchant is being honest about when and how he is willing to accept credit card purchases. I've seen signs like that on some merchants.

And all of those merchants are violating their agreements. If they get caught (and many eventually do), they can face thousands of dollars in penalties. Merchants are however allowed to set minimum limits and charge fees to use Interac.

You could use debit to buy the product if you don't have cash. Most of the places that I've been to treat debit as cash and credit cards separately.

EDIT: I thought AMEX fees were higher but according to wiki it's just 2.5% vs the 2%. Still fair bit higher but a lot less than I had originally thought.

And many people don't like to use debit, especially for high value purchases. Debit counts against your transaction count, and if you experience debit card fraud, you are missing that money for however long it takes to get it back. Credit cards however you have not lost anything. Many credit cards also double the warranty for you, something you won't get by paying with debit.

That rate on Wikipedia says it is the average US rate. I have seen merchants in Canada get charged anywhere from 3-5% per AMEX transaction.

[angel_wing0]

That's fair enough. How about a merchant that has a sign saying "minimum $40 transaction for credit card purchases"? That merchant is being honest about when and how he is willing to accept credit card purchases. I've seen signs like that on some merchants.

lots of chinese merchants i might add...i guess its a good thing that they accept credit card at elast :D

[tng11]

That's fair enough. How about a merchant that has a sign saying "minimum $40 transaction for credit card purchases"? That merchant is being honest about when and how he is willing to accept credit card purchases. I've seen signs like that on some merchants.

I wouldn't mind if I was told in advance before buying at this store, but there was absolutely zero indication given there was a minimum purchase. Mind you, $40 at this store was pretty significant as it was a cheese shop so I was a little upset they didn't take Visa for it and their prices weren't cheaper than other places in the market for that. It's not everyday you make a $40 purchase of cheese, if I had knew I would have went to the store that I go to frequently, who is more than happy to take my Visa for a $5 purchase.

It's like bait and switch, I was misled into believing they took Visa as they displayed the sign and they refuse it. Yes I know I made a comment I would report retailers who impose minimums, but I really wouldn't in the end.

[setell]

And many people don't like to use debit, especially for high value purchases. Debit counts against your transaction count, and if you experience debit card fraud, you are missing that money for however long it takes to get it back. Credit cards however you have not lost anything. Many credit cards also double the warranty for you, something you won't get by paying with debit.

That rate on Wikipedia says it is the average US rate. I have seen merchants in Canada get charged anywhere from 3-5% per AMEX transaction.

Well I was under the impression that if credit cards were not one of the viable options than debit to me is the next best thing. It's a lot safer than carrying a huge wad of cash around with you. I do agree with you that people will prefer to buy big ticket items with credit card like me. I personally like the benefits my credit card provides when I buy big ticket items.

[iluvmikeharris]

Straw man. I did not say that. Are you unable to hold an argument without accusing the other person of saying things he didn't say? I'm sure that it is a lot easier to argue if you allow yourself to fabricate absurd claims and attribute them to the opposition; but this is a dishonest way to conduct a debate.

The question mark at the end of my statement means that I was asking if that was what you were implying. I didn't misquote or paraphrase.

[iluvmikeharris]

That is not the worst because you still can refuse the purchase. In my case, they put the surcharge after you consumed the product (i.e. in the restaurant). No where in any where saying such surcharge exists. I complained to the credit card company, they don't give a damn.

I would have given them two choices:

-remove the surchare and I'll be happy to sign the the credit card slip (of course they would have lost any TIP coming their way by that point)
-stick the bill up their a$$ as I walk out and say thanks for nothing

[eliteblaze2]

Part of their issue is that the Infinite "Super Premium" Cards charge a premium fee. Merchants thought it would be relatively rare but pretty much anyone can get an Infinite card so they're getting burned.

NOt sure why there was that miscommunication. Everyone knew "Infinite" would be like "Gold" and "Platinum" cards and they'd hand it out like candy.

[at1212b]

I bet most people, including myself, would stop using credit cards, if they charged the normal price, plus included in the receipt was a 'charge' figure, much like a tip figure used at restaurants for higher quantity tables.

So whatever is listed as the cost of the product, there is a separate line item indicating the amount actually going to the credit card company, so normally a $499 item is actually listed at $490, with the credit card charge on top of it, I bet most people would rather pay cash or interact and avoid the charge, even if it meant getting xx amount reward in points.

Now of course it doesn't address the lost revenue if ppl were going to pay in cash anyways. Or merchants charging a additional price (which it clearly states on the shelves) on top if credit card it used.

I'm not totally advocating it, but this obsession with payment through credit card, plus considering we as a nation are spending more then our disposable income on credit, this might be a good thing. And it helps the merchants too instead of it going towards higher interest credit card rates (which is odd how it just keeps getting higher, and higher).

[VivienM]

Part of their issue is that the Infinite "Super Premium" Cards charge a premium fee. Merchants thought it would be relatively rare but pretty much anyone can get an Infinite card so they're getting burned.

A premium fee? Isn't the annual fee the same than on the platinum version, usually?

[angel_wing0]

A premium fee? Isn't the annual fee the same than on the platinum version, usually?

i think infinite > platinum. So it's not strange that there will be a higher charge for the merchant if the customer uses the infinite. The annual fee to the user doesnt make a difference because it's set by visa and has nothing to do with the merchant. To be honest, the infinite is not that rare anwyays. I see at least 2-3 a day when i go out for lunch.

[DanielCarrera]

The question mark at the end of my statement means that I was asking if that was what you were implying. I didn't misquote or paraphrase.

Are you admitting to being a baby killer? And when did you stop beating your wife? ... I am not so naive as to think that a question raised in an argument is always just a question. It was a strawman. You were implying that what I said was somehow similar to your absurd misconstruct. Trying to hide behind a technicality of phrasing is a dishonest strategy and I have little respect for people who do that sort of thing. I believe in honest debate.

[tng11]

A premium fee? Isn't the annual fee the same than on the platinum version, usually?

They're referring to the merchant fees which are apparently higher with Infinite and corporate Visas. I think it would be ridiculous if a merchant decided not to take Infinite Visas as I would think such holders would likely have more disposable income and therefore spend more (higher salary requirement, higher limits).

[DanielCarrera]

I bet most people, including myself, would stop using credit cards, if they charged the normal price, plus included in the receipt was a 'charge' figure, much like a tip figure used at restaurants for higher quantity tables.

It would make me think twice. I would only use credit cards in cases where there is a clear benefit to me.


So whatever is listed as the cost of the product, there is a separate line item indicating the amount actually going to the credit card company, so normally a $499 item is actually listed at $490, with the credit card charge on top of it, I bet most people would rather pay cash or interact and avoid the charge, even if it meant getting xx amount reward in points.

Indeed. Personally, I couldn't care less about reward points. I don't look for credit cards that have rewards. I look for cards that have no fees and low interest.

[angel_wing0]

So whatever is listed as the cost of the product, there is a separate line item indicating the amount actually going to the credit card company, so normally a $499 item is actually listed at $490, with the credit card charge on top of it, I bet most people would rather pay cash or interact and avoid the charge, even if it meant getting xx amount reward in points.

If it's only a $10 difference on almost $500 worth of goods, I will gladly pay with my credit card, with cashback, reward, or even nothing. I dont mind paying 20 days later :D

[DanielCarrera]

If it's only a $10 difference on almost $500 worth of goods, I will gladly pay with my credit card, with cashback, reward, or even nothing. I dont mind paying 20 days later :D

$10 on a $500 product is about right (2% surcharge). I like at1212b's idea of including the surcharge in the bill. Some people might decide that the surcharge is worth it, and some people will decide that it is not. In my case, I would probably choose the surcharge in cases where I'm concerned about getting my money back if there's a problem (e.g. buying plane tickets). But for buying groceries I would pay with debit and save myself the 2% surcharge.

In any case, I like the idea of being able to choose. Different people will choose differently according to their personal preferences. And people will become aware of the cost of using their credit cards.

On a slight tangent: In Germany the sales tax is higher than in Canada, but people are less aware of it because the ticket price of products includes VAT. In Canada, when you see that $490.00 item jump to $553.70 you suddenly become very aware of PST and GST. If we did something similar with credit cards, perhaps people would notice it more.

[iluvmikeharris]

Are you admitting to being a baby killer? And when did you stop beating your wife? ... I am not so naive as to think that a question raised in an argument is always just a question. It was a strawman. You were implying that what I said was somehow similar to your absurd misconstruct. Trying to hide behind a technicality of phrasing is a dishonest strategy and I have little respect for people who do that sort of thing. I believe in honest debate.

Can't say that I was seeking your respect, Junior.

[1226]

$10 on a $500 product is about right (2% surcharge). I like at1212b's idea of including the surcharge in the bill. Some people might decide that the surcharge is worth it, and some people will decide that it is not. In my case, I would probably choose the surcharge in cases where I'm concerned about getting my money back if there's a problem (e.g. buying plane tickets). But for buying groceries I would pay with debit and save myself the 2% surcharge.

I don't think I'd mind that but good luck getting Visa/MC/Amex to agree to it. You'd see debit eat up even more of their market share. The first store to try it would get their merchant account closed before they opened the next day. It would take an expensive lobby effort on the part of the Retail Council of Canada as the change would have to be mandated by the feds. And I'd be surprised if it happened during a Conservative rule.

Frankly, from a selfish point of view, I like the way things are. Basically cash and debit payers are subsidizing my CC rewards.

[1226]

That's fair enough. How about a merchant that has a sign saying "minimum $40 transaction for credit card purchases"? That merchant is being honest about when and how he is willing to accept credit card purchases. I've seen signs like that on some merchants.

I don't mind that. As long as it's clearly communicated, I can just choose to shop somewhere else before I even get started. If you hide that fact until I've spent all that time shopping and I'm at the checkout then it's a lot harder to walk away.

[angel_wing0]

Frankly, from a selfish point of view, I like the way things are. Basically cash and debit payers are subsidizing my CC rewards.

Selfish, but true, and i like it as well :D

[M-e-X-x]

Unfortunately it's not like we really have a choice as CC fees are built into a lot of stuff we buy, only thing I can think of are asian restaurants who give a cash discount of like 10% where you really save by using cash, otherwise it's just a reality we have to live with. And I have this bad feeling that a lot of places that give these heavy cash discounts (10%) are avoiding taxes and I do not want to support businesses that do so.

What really pisses me off is some places have that "minimum" BS and if I had the time like the people on creditboards, I'd report each and every one of them. Or those businesses who subjectively take credit cards, worse case was I bought $40 of stuff at a place at St. Lawrence Market and they refused to take CC because it would "cost them too much", even though they have a sign saying they take Visa.

GTA asian restaurants generally don't take credit cards though...

and yes, minimum charge is stupid, but ah well... don't encounter that too often...

[DanielCarrera]

I don't think I'd mind that but good luck getting Visa/MC/Amex to agree to it. You'd see debit eat up even more of their market share. The first store to try it would get their merchant account closed before they opened the next day. It would take an expensive lobby effort on the part of the Retail Council of Canada as the change would have to be mandated by the feds. And I'd be surprised if it happened during a Conservative rule.

Yeah, I don't see it happening either. But I can dream :-)

Frankly, from a selfish point of view, I like the way things are. Basically cash and debit payers are subsidizing my CC rewards.

And that signals a market inefficiency. Buyers are motivated to use credit cards even though credit cards are 2% more costly. Whenever individual agents are motivated to do something which in aggregate is worse for the economy, that's a place where the government probably should step in. But like you said, there's not much chance of that happening.

[Drew_W]

I don't look for credit cards that have rewards. I look for cards that have no fees and low interest.

How does that make any sense?

[Newbieinvestor]

GTA asian restaurants generally don't take credit cards though...

and yes, minimum charge is stupid, but ah well... don't encounter that too often...
Interesting sig.

I agree. How did you come up with it?

[DanielCarrera]

How does that make any sense?

Rewards don't come for free. The bank is not giving you free stuff out of the kindness of their hearts. If a card offers rewards, it is because, in average, the bank receives more extra money from these cards than what the rewards cost. So, to start off, odds are that you'll spend more than what you'll get from the rewards. Even if the additional cost balanced out exactly with the value of the rewars, I'd rather have the cash than the rewards because cash can be used for whatever I want, whereas rewars always have limitations on use.

There will always be some people for whom the rewards are worth it, but they will always be in the minority (or else, the bank would stop issuing these cards). I have no reason to believe that I am going to be in the minority, and even if I was, I should still factor in the fact that rewards have a severely reduced value for me compared to cash. For example, some times the rewards are used to buy stuff from a specific online store. It is unlikely that the online store has exactly the product I want and offers the product at the best price I can find in the market. If I have cash, I can look for the best product at the best price. Another example: air miles. There are restrictions in how air miles are used, which are likely to significantly offset their benefit. You don't get absolute choice of itinerary the way you do if you buy plane tickets with real money. Other reward features will have similar limitations. The bank will make sure that the rewards look a lot better on paper than what they are in real life (if the bank did otherwise, they would be negligent in their duty to shareholders).

For these reasons, reward cards are not likely to work in my favour. It is possible that they might be... but the odds are strongly against.

In turn, cards without any fees are almost guaranteed to work out in my favour compared to a card with a card that charges fees. The fees saved are real cash that I can use for other purposes. Real cash has a lot of value for me, because it is so flexible. So fees are a top priority. After that, I look at interest. I am good at paying my credit cards in full, but there is always a chance that I might not (e.g. due to a financial emergency, I might need to keep a balance for a few months). So interest takes a second-place role after fees.

EDIT: I forgot one thing: Cards with rewards will encourage me to spend money by using the card a lot. This is also likely to more than offset any benefit that the rewards might have. The pressure to spend more may not be overwhelming, but the rewards are so small that it doesn't take a lot of over-spending to negate any benefit that the rewards might have.

[Drew_W]

How can you argue cashback? It's basically free money. When you don't have the option of paying a lower amount for cash/debit, why not?

[Rishi]

^ I think you need a no-fee 1% cashback card. :)

[tng11]

I think some of us may be forgetting that when you buy with CC you extend the warranty on some items as well as get all that insurance (travel, rental cars) that would add up over time. I had a great experience when my MacBook died on me 18 months in and the Apple store told me it would cost $1,300 to fix it, I sent the estimate to RBC and they processed the claim within 3 weeks, giving me a cheque for the entire purchase price of my laptop to buy a new one, after I returned the busted one to them. I got a cheque in the mail for $1,500 which I used to buy a new one.

[DanielCarrera]

How can you argue cashback? It's basically free money. When you don't have the option of paying a lower amount for cash/debit, why not?

Cash back is better than "points" but you still have to wonder where the cash for the cash back is coming from. Do you think that the bank really wants to give you free money? If they can afford to give you cash back it's because, with these cards, they make more extra money (compared to a regular card) than what they give you in cash back. The bank is not stupid. It is not in business to hand out freebies. It is in business to fool people into thinking that they are getting freebies so that it can extract more money from them.

[DanielCarrera]

I think some of us may be forgetting that when you buy with CC you extend the warranty on some items as well as get all that insurance (travel, rental cars) that would add up over time.

I always use credit card for large ticket items for that reason. One time I bought plane tickets and the travel agent made a mistake and charged me twice for the same ticket. I spent several days trying to fix the error but they were stalling (leaving me on hold for several hours at a time, etc). So I called the credit card company and they cancelled the payment.

[angel_wing0]

Cash back is better than "points" but you still have to wonder where the cash for the cash back is coming from. Do you think that the bank really wants to give you free money? If they can afford to give you cash back it's because, with these cards, they make more extra money (compared to a regular card) than what they give you in cash back. The bank is not stupid. It is not in business to hand out freebies. It is in business to fool people into thinking that they are getting freebies so that it can extract more money from them.

its basically the merchant fee being refunded to you. And i do have to admit, it actually makes me want to spend more sometimes, knowing that i will get 2% back at the end of the year anyway :D

[DanielCarrera]

its basically the merchant fee being refunded to you. And i do have to admit, it actually makes me want to spend more sometimes, knowing that i will get 2% back at the end of the year anyway :D

Of course it makes you want to spend more. I bet that this is one of the reasons why the cash back thing is good for the bank and bad for you. As I said earlier, the bank is not stupid. If they do a cash back, it's because users with those cards make them more money than what the bank has to pay back as cash back.

This is very bad news for the card holder, because the bank only receives in income a small percentage of what you spend. So, if cash back is worth it to the bank, it must be that you are really over-spending. Let's say that the bank makes 10% off of every dollar the average customer spends. This would be a combination of the merchant fee, and the interest paid by the customer. I pick 10% because it makes the math easy, but you can verify that my argument remains if you pick a different value:

Bank makes 10%. That is, of every $100 you spend, the bank makes $10. If you have a 1% cash-back, then out of every $100 you spend, the bank gives you $1. But for this to be worth it to the bank, you need to spend at least an additional $10. So that the bank can recuperate the $1 that it's going to pay you as cash-back. If it didn't work out this way, the bank would not offer cash back. So... from your point of view, you are spending an extra $10 in order to receive $1 worth of cash back. That is a seriously bad proposition for you. Even if you are above average... even if you are very special and instead of spending an extra $10 like everyone else, you only spend an extra $4... you still come out losing.

Again: If your increased spending is big enough that the bank, who only receives 10%, can afford to give you $1, then your increased spending has to be at least $10. For some people the increased spending will be more than $10 on every $1 of cash back. For some people the increased spending will be less. But we know that the average has to be at least $10, otherwise the bak would not offer cash back. So the odds are stacked heavily against you (10-to-1) to start with. Even if you are an above average consumer who can control his spending better than most, it is foolish to think that you can turn a 10-to-1 disadvantage into something that works in your favour. You might make it all the way up to a 4-to-1 disadvantage. So the bank might be losing money on you (they get an extra $0.40 for every extra $1 they give you). But from your point of view, you are still losing (you spend $4, for every $1 you get back).

[dealtacular]

Cash back is better than "points" but you still have to wonder where the cash for the cash back is coming from. Do you think that the bank really wants to give you free money? If they can afford to give you cash back it's because, with these cards, they make more extra money (compared to a regular card) than what they give you in cash back. The bank is not stupid. It is not in business to hand out freebies. It is in business to fool people into thinking that they are getting freebies so that it can extract more money from them.

On the whole, the bank uses rewards to extract more money from its customers.

Individually, it is possible to use this to your advantage, and come out ahead with a rewards-based credit card if you always pay it off on time, as many people who post in this section do. Not everyone feels tempted to spend more because they are using a rewards-based credit card.

[angel_wing0]

Of course it makes you want to spend more. I bet that this is one of the reasons why the cash back thing is good for the bank and bad for you. As I said earlier, the bank is not stupid. If they do a cash back, it's because users with those cards make them more money than what the bank has to pay back as cash back.

You havent notice one thing though, making me WANT to spend more doesnt mean I WILL spend more. I can't speak for other people, but for me, I rarely do impulse purchases and purchase anything which I can't afford, so to say that it it good for the bank and bad for me, it's very very very wrong. Well for me at least...

Individually, it is possible to use this to your advantage, and come out ahead with a rewards-based credit card if you always pay it off on time, as many people who post in this section do. Not everyone feels tempted to spend more because they are using a rewards-based credit card.

exactly what I want to say.

[dog_mumu]

And that signals a market inefficiency. Buyers are motivated to use credit cards even though credit cards are 2% more costly. Whenever individual agents are motivated to do something which in aggregate is worse for the economy, that's a place where the government probably should step in. But like you said, there's not much chance of that happening.

I fail to see how it is in aggregate worse for the economy. The only con to this setup is that businesses have to pay extra 2-3% to the merchant service providers. But you have to understand that those 2-3% are not gone, they are the profits made by the banks and essentially they are fed back into economy when the banks spend money to support their infrastructure and pay their employees (who in turn buy more things from retailers).

It is Economy 101 really, the more people spend, the healthier is the economy. Everyone here agrees that credit cards make people spend more, so actually it is a very healthy thing for the overall economy. Of course, when someone goes so deeply in debt that they max out their cards and cannot spend any more, this no longer applies, too much of anything is a bad thing.

[tng11]

Individually, it is possible to use this to your advantage, and come out ahead with a rewards-based credit card if you always pay it off on time, as many people who post in this section do. Not everyone feels tempted to spend more because they are using a rewards-based credit card.

Exactly... if you pay it off all in full you're getting the 1% cash back and coming out on top! I know banks are not in the business of being benevolent, generous organizations who give freebies but since you don't have a choice of paying 5% less for not using CC, why not just take that free 1% cash? Personally, I don't spend more with my CC, I just buy groceries, gas and some occasional purchases with my CC as I realize that $50 in my pocket is much better than if I spend it on something I don't need and only get that measly 50 cents. The banks benefit the most from this in the end, as that 1% incentive generates 3% for them.

[Jacklad]

But from your point of view, you are still losing (you spend $4, for every $1 you get back).

I understand what you are saying, and it may be generally true, but it is not universally true.

For example, I get the majority of my rewards from items I buy anyway - groceries, gas, utilities. Before I started collecting these rewards, I still bought these items (and if I stopped getting the rewards, I'd still have to buy them). Just a quick scan through my financial records shows that I am not spending any more than I was (in fact, I'm spending a little less) but now I'm getting something back besides.

Like most things, it all depends on how you use it. If you're generally frugal, there's no reason for the use of a rewards card to change that - well, no reason except human psychology.

It's like the systems promoted by folks like Dave Ramsey and Gail Vaz-Oxlade - while their process may work for most people, they don't work for me (in fact, I find I'm much more likely to lose track of cash). You need to understand your spending, and find a system that works best for you. If you do, rewards programs can really pay off. If you're using rewards as an excuse to justify additional spending - then you're an idiot. :D

[bluedcfive]

lets see, paid $120 in fees for my RBC infinate avion card

Have 60,000 points (ie 2 free flights to anywhere in the continental US), each has a max value of $750 (does not include taxes) accumulated this year (no free 15,000 promotion either).

Had approx $400 of warantee/purchase security claims paid out to me.
Did not pay extra insurance for travel to the US or rental cars (value ???, took over 10 trips to the US last year and rented cars for a week at a time on avg for each trip)

750 x 2 + 400 + Value of saved insurance > $120 fee

So, your generalization does not apply to me. You are thinking in text book terms; there are many people that get benefits over and above the fees via rewards or cash back on credit cards. And the people who dont are the ones that leave a balance...

[DanielCarrera]

On the whole, the bank uses rewards to extract more money from its customers.

Individually, it is possible to use this to your advantage, and come out ahead with a rewards-based credit card if you always pay it off on time, as many people who post in this section do. Not everyone feels tempted to spend more because they are using a rewards-based credit card.

It is possible to come out ahead, but to start with the probabilities are stacked heavily against you. Everyone thinks that they are in the top 10%, but of course, most people aren't. As for spending, most people would not realize that they are tempted to spend more. Most of this happens at the subconscious level. Nobody thinks "I have a credit card, I think I'll spend more" but research shows that people do spend more when they use plastic.

[DanielCarrera]

You havent notice one thing though, making me WANT to spend more doesnt mean I WILL spend more.

Certainly, but a rewards card really stacks probabilities against you. If you listen to your temptation only 1% of the time, that's enough to compensate for the benefit you get from a rewards card. If you only succumb to temptation 1% of the time, you are well above average, but even that is not enought compensate for a rewards card that gives you only 1% cash back.

I can't speak for other people, but for me, I rarely do impulse purchases and purchase anything which I can't afford,

Well, the question is not whether you are buying more than you can afford. The question is whether you have increased your expenses by at least 1%.

so to say that it it good for the bank and bad for me, it's very very very wrong. Well for me at least...

But you see, everyone feels that way. Behavioural finance teaches us that everyone thinks that they are well above average. Think of over confidence bias and hindsight bias. Most credit card customers would say "this is a bad deal for most people but not for me because I am special".

[DanielCarrera]

I fail to see how it is in aggregate worse for the economy. The only con to this setup is that businesses have to pay extra 2-3% to the merchant service providers. But you have to understand that those 2-3% are not gone,

Imagine adding a small leech to the economy that doesn't produce anything but has to be supported by the work of others. This is bad for the economy. You are right that most of tht 2-3% goes right back to the economy, but some of it is consumed by a group of people who do not actually contribute to the economy.

I never intended to say that this was a huge drain on the economy. It's only a small drain.

It is Economy 101 really, the more people spend, the healthier is the economy.

Economics is a little more complex than that. Just spending more doesn't bring long term health to the economy. Spending a lot in short-term consumption does not aid the economy in the long term. There is a need for saving/investment because that is what brings long term economic growth. The US economy, for example, suffers from over-consumption and under-saving (saving translates into investing).

Everyone here agrees that credit cards make people spend more, so actually it is a very healthy thing for the overall economy.

Wrong. If anything, credit cards shift spenditures toward short-term consumption that do not produce long-term wealth. Misallocation of resources is not healthy for the economy. Excessive use of credit can also make the economy more vulnerable to economic shocks. In summary, economics is a little more complex than you make it out to be. It is not a simple matter of "spend more = healty economy".

[DanielCarrera]

Exactly... if you pay it off all in full you're getting the 1% cash back and coming out on top!

Paying it off is nowhere near enough to make you come out on top. You also need to not spend more than 1% more. Nobody thinks that they spend more on their credit cards, but the majority are wrong.

[DanielCarrera]

I understand what you are saying, and it may be generally true, but it is not universally true.

Of course. Few things in life are universaly true. Notice that I have tried to avoid saying "everyone does xyz" with the exception of "everyone thinks they are above average". :-)

Personally, I feel confident that I would not spend more if I had a rewards card. I am very good at budgeting. I have a strict budget and I follow it to the cent. But I also know that most people think that they are above average. So I try to temper my opinion of myself with a little humility.

Like most things, it all depends on how you use it. If you're generally frugal, there's no reason for the use of a rewards card to change that - well, no reason except human psychology.

Human psychology is the name of the game. Banks are relying on human psychology to make them profit, and clearly it goes (otherwise the banks would not offer these cards).

[DanielCarrera]

lets see, paid $120 in fees for my RBC infinate avion card

Have 60,000 points (ie 2 free flights to anywhere in the continental US), each has a max value of $750 (does not include taxes) accumulated this year (no free 15,000 promotion either).
...

So, your generalization does not apply to me.

It might, or it might not. We do not know based on the information you supplied. For example, we do not know how much more you spent because you had a rewards card. For example:

* How much more did you spend in the process of getting those 60,000 points?
* Would you have bought that insurance if you had had to pay for it?

You are thinking in text book terms;

No I'm not, I'm thinking in logical and mathematical terms. I made generalities which are true as generalities. I have said that probabiliies are stacked against you, and that in average the bank will make more than it spends, etc. These things are true. This doesn't mean that there can't be some people who benefit. In fact, it is almost certain that there are people who benefit. But it is also certain that this group is a small minority.

there are many people that get benefits over and above the fees via rewards or cash back on credit cards. And the people who dont are the ones that leave a balance...

The latter statement is not true, and it is an example of why people tend to be over confident about their ability to beat the system with these rewards cards. If the rewards are 1% and you spend 1.5% more because you have a rewards card, you have lost.

[angel_wing0]

Most credit card customers would say "this is a bad deal for most people but not for me because I am special".

lol, i dont think anyone is stupid enough like that to believe they are special unless they got a special, personal deal.

But anyway, believe what u want, it's not like i m going to stop using my 2% cash back amex~

Paying it off is nowhere near enough to make you come out on top. You also need to not spend more than 1% more. Nobody thinks that they spend more on their credit cards, but the majority are wrong.

Unless there are separate prices when paying by cash or credit card in the shop, your statement is WRONG. If paying by cash/debit is still the same amount, i dont see how we are NOT coming out on top. We are paying the amount no matter which payment method it is anyway. SO i would like to see u prove your statement rather than just merely stating it.


EDIT: I have a question for u, so in your case u say using a credit card is a losing situation. What should we do mighty daniel? Pay cash? debit? cheque? money order? egold? actual gold? or just act like NUTS (the rfd user)? pls tell us how to be on top lol :lol:

[DanielCarrera]

lol, i dont think anyone is stupid enough like that to believe they are special unless they got a special, personal deal.

If you believe that you benefit from our rewards card, even though most people lose in average, then by definition, you think you are special. You believe that you are in the minority of people who benefit from the rewards card.


Paying it off is nowhere near enough to make you come out on top. You also need to not spend more than 1% more. Nobody thinks that they spend more on their credit cards, but the majority are wrong.
Unless there are separate prices when paying by cash or credit card in the shop, your statement is WRONG. If paying by cash/debit is still the same amount, i dont see how we are NOT coming out on top.

First of all, relax, no need to yell. If you re-read the second sentence in the text you quoted you will see why paying off your card at the end of the month is not enough. If having a rewards card causes you to spend 1% more than if you didn't have a rewards card, and the rewards are 1%, then over-al you have lost.

We are paying the amount no matter which payment method it is anyway. SO i would like to see u prove your statement rather than just merely stating it.

To be clear, I did not mean that you will pay a different price for the same produce. I said that a rewards card might tempt you to spend more. I do not say that it necessarily does this to every person in the world. I am simly saying that paying off your credit card at the end of the month is not sufficient to guarantee that you come out winning. You also have to make sure that you do not increase your spenditures by an amount greater than the cash back you get from the card.

[angel_wing0]

If you believe that you benefit from our rewards card, even though most people lose in average, then by definition, you think you are special. You believe that you are in the minority of people who benefit from the rewards card.



First of all, relax, no need to yell. If you re-read the second sentence in the text you quoted you will see why paying off your card at the end of the month is not enough. If having a rewards card causes you to spend 1% more than if you didn't have a rewards card, and the rewards are 1%, then over-al you have lost.



To be clear, I did not mean that you will pay a different price for the same produce. I said that a rewards card might tempt you to spend more. I do not say that it necessarily does this to every person in the world. I am simly saying that paying off your credit card at the end of the month is not sufficient to guarantee that you come out winning. You also have to make sure that you do not increase your spenditures by an amount greater than the cash back you get from the card.

wait i m not yelling. I m just capping the word to emephaise (sp?!) :D

But fair enough, as long as we dont spend more and use our rewards card, then we win. If we do, then we lose.