I love credit cards and think they are one of the wonders of the modern world.
Picture this: you operate a Quiznos selling fatty subs of goodness at the Detroit Metropolitan airport. A lanky twenty-something comes up to you and says "Hey, I'd like some meats and cheeses, but I don't actually have money to pay for them. Don't worry though, I'm good for it." Now, traditionally you might rely on social capital (sort of hard when he grew up in Chicago and is flying from Washington to his home in central Japan) or cheap discriminatory heuristics like "He's a white guy wearing a business suit, which means he'll probably pay me if he says he's going to pay me. That black kid with the sagging pants behind him, though..." Or you just don't make the sale, and then he goes hungry and you lose revenue.
But it is the modern era and we have plastic. Plastic which certifies that a bank in Michigan trusts a company trusts a bank in Japan trusts a software consultancy trusts a university to pay their invoice to pay his paycheck to cover his debts to make their transfer to make their wire to pay for his $10 worth of artery blocking goodness.
And we can do this instantly. For fifty cents. So reliably that fraud is rounding error.
There is a big downside to them as well. Because credit cards are essentially unsecured lines of credit that are being extended to people that often really shouldn't have them and because credit card companies are powerful enough to push through legislation that favors them lots of people are in serious financial trouble.
You can run in to debt, you can only crawl out.
And credit cards make running in to debt so unbelievably easy that plenty of people find themselves in very deep water.
And the interest rates they charge border on usury in some cases.
Sure we're all adults and we can all read the fine print, but it probably would be a better world if people would save first and spend later and regular banks would be as nimble in processing charges against regular accounts as credit card companies are with charging your card.
I despise businesses that don't take credit/debit cards almost as much as I do the companies that make the cards.
If it's some taqueria that's keeping things off the books, I'm fine with that. But if it's some pretentious place that I'm paying $9 for a sandwich and I have to go to an ATM and pay another $4 to withdraw a $20, then that just makes me not want to patronize the place.
In NL this isn't the case. I popped over to Belgium yesterday, took out €50 from a Fortis ATM (my bank is ABN Amro), no charge. I was in Istanbul for New Years, using HSBC's ATMS, no charge.
When I go back 'home' to visit family (the US), ABN Amro charges me no fees for taking out money at local ATMs. The ATMs themselves (rudely) may charge a fee, but last time I was there there were still some ATMs that had no fees.
I don't pay a fixed fee for making withdrawals in other countries or other currencies, but I pay a slightly higher than average percentage in exchange fees for withdrawals in other currencies. It probably evens out in the end as compared to a fixed fee, but it's nice to be able to make small withdrawals abroad without worry.
You need to get a better bank. I used a credit union that refunded the fees. You did have to remember to keep the ATM receipts (which were usually lost for notes, laundry, blow out the window). The alternative was to use a bank with wider coverage (Citi, BofA) but they make you feel absolutely miserable as a customer.
My current credit union automatically refunds ATM fees, no receipts necessary, up to $30 a month. I think that arrangement is fairly common these days. Go credit unions.
Quite. The point is not that plastic is bad, it's that plastic as supplied by Visa and Mastercard is a monopolistic rip-off of consumers and merchants by those two companies and the banks.
It means not having to spell out a list of Western European and East Asian countries where credit cards might as well not exist. It was somewhat of a callout: patio11 lives in such a country (Japan), but his anecdote of amazement is set in the first world country with the least-decent consumer banking transaction system (USA).
You do have a point though, most of the countries people might call 'uncivilized' have perfectly good consumer banking.
Before debit cards were common, most people just used ATM cards to keep a working supply of cash handy, sufficient for typical Quiznos purchases. The market probably hasn't gotten more flexible or efficient on account of credit cards, except to the extent that cheap unsecured long-term debt has made it so.
Interesting story a while back about Visa/Mastercard expanding their debit card business in Canada (which already had a quite efficient debit card system). It can basically be summarized as "giant monopolies colluding to increase their profits on the backs of small businesses, mostly with encouragement from governments."
This reminds me of a "finder's fee", where you pay someone for recommending your product. It's similar, because the recommender has an incentive to promote your product, regardless of whether it is appropriate for the buyer or not. I know these kinds of arrangements are common, and they form a nicely logical model - but I don't like the moral hazard.
It also reminds me of advertising-supported media (free to air TV, newspapers, magazines, and of course... google's internet), in that there are two parties who may collude to the detriment of the consumer. So, you have "advertorial", that appears to be impartial, but isn't; and advertiser-friendly news stories and angles. Have you noticed how the Simpsons and Futurama depict drinking alcohol? Have you ever thought "I wouldn't mind a drink" while watching? Advertiser-friendly. Even Sponge-bob square-pants features burgers prominently. And that's just for cartoons!
It seems like it's pretty much up to the merchants to protest, since these fees don't (directly) effect me. I would say many people don't even realize that the merchant gets charged a fee for each transaction.
As far as I'm aware, Sam's Club is the only major merchant I've run into that does not accept any Visa cards, only Mastercard and Discover.
Most anything that substantially alters most every merchant's costs does affect you. You may not see it as a line item on the reciept, but it's in there.
Yes, the article says the costs are "passed on to consumers". Because goods are prices the same no matter how you buy, I think this means that the price increase is passed on to all consumers, whether they pay by VISA or not.
“What we witnessed was truly a perverse form of competition,” said Ronald Congemi, the former chief executive of Star Systems, one of the regional PIN-based networks that has struggled to compete with Visa. “They competed on the basis of raising prices. What other industry do you know that gets away with that?”
It looks like market wants merchants to pay for credit cards maintenance, and part of these merchants fees are going into customers' pockets (various promotions like air-miles and cash back).
It was clearly a smart move on Visa's part when they decided charge merchants more for using credit cards.
Picture this: you operate a Quiznos selling fatty subs of goodness at the Detroit Metropolitan airport. A lanky twenty-something comes up to you and says "Hey, I'd like some meats and cheeses, but I don't actually have money to pay for them. Don't worry though, I'm good for it." Now, traditionally you might rely on social capital (sort of hard when he grew up in Chicago and is flying from Washington to his home in central Japan) or cheap discriminatory heuristics like "He's a white guy wearing a business suit, which means he'll probably pay me if he says he's going to pay me. That black kid with the sagging pants behind him, though..." Or you just don't make the sale, and then he goes hungry and you lose revenue.
But it is the modern era and we have plastic. Plastic which certifies that a bank in Michigan trusts a company trusts a bank in Japan trusts a software consultancy trusts a university to pay their invoice to pay his paycheck to cover his debts to make their transfer to make their wire to pay for his $10 worth of artery blocking goodness.
And we can do this instantly. For fifty cents. So reliably that fraud is rounding error.
We are living in the freaking future.