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>In the US, interchange fees are extremely inflated to allow banks to recuperate the rewards they give out to distinguish their card offerings from one another. The 2% cashback has to come from somewhere.

And that's a bad thing, because it's essentially the poor subsidizing the rich. People who aren't able to get credit cards (or the "good" cash back credit cards) tend to be worse off financially than people who do.






+100! In Europe, they've limited interchange fees to a reasonable maximum. Banks can still make money, but don't offer crazy credit card rewards to the rich. I was sad to not get the rewards I was used to in the US, but happy that it was the greater good for society.

Also, with interchange fees at 0.3% and total card fees <1% for many shops, it's actually cheaper for sellers to accept cards than cash.

This is something people always miss in this discussion!

Cash is not free for the business. People always assume that businesses are losing out on revenue by accepting cards, and thar cards inflate the price for everyone.

But it's not free to accept cash - you have to manage your float, transport cash between the bank and your premises, and there can be bank charges to account for too. All of which can easily eclipse the cost of card fees, especially in markets like the EU where those are capped.


How do you figure? Is it from counterfeit money, or cost to transport the cash?

There is risk of theft too, not just robbery but from employees.

Usually the main reason some shops prefer cash is because they can put the cash directly in their pocket and do tax fraud on a percentage of their revenue.


Bringing cash to a bank either via deposit boxes or by collection is not free and coinage is even more expensive than paper. At least here in Europe

Yes, the fee for processing coinage and old notes is 50% in the bank I work for.

Wow, I just pour my coins into a machine that sorts and counts them for free at my bank.. oh right.. Credit Union!

Banks charge to deposit cash in business accounts

This has always struck me as one of the more blatant and out-in-the-open financial inequalities in this country.

It’s also a fake one. As the other commenter said, the credit card system came about bec cash was very expensive to use for stores. They were passing along those costs to consumers, the fact that that’s now inverted by some stores (cash discounts) is only doable bec of the prevalence of credit cards.

Stores need to accept cash regardless, so there’s still some minimal added costs to using cash, but even with the offered discount it’s less than the credit cards...

however if stores stopped accepting credit cards they would quickly find themselves drowning in the same costs that credit cards were invented to avoid.


Germany is still way more cash-based and you see less consolidation of businesses into large chains than in the US.

I'm not sure I buy "drowning in the same costs". I think there's something more akin to a prisoner's dilemma here.


Germany is cash-based because of consumer behavior, not because costs are somehow lower. With corona, e-Commerce and services like SumUp more widespread Germany will inevitably catch up with other countries.

@Symbiote:

Not sure were you were. I am from northern Germany, around Hamburg.

But every single store that does accept cards (not every little store can bear the fees, though) has theses signs.

So I would counter your n=1 anecdotal argument with an equally non representative n=1 argument. No one learns anything, except that some shops in Germany ask for the use of cash-alternatives, others don't.


In Denmark, the majority of shops have little signs "Due to Covid-19, please pay by card or phone" or sometime "Due to Covid-19, cash is not accepted".

On a recent trip to Germany, I didn't see a single such sign.

Germany is changing gradually, perhaps due to the EU's limits on the fees Visa and MasterCard can change, but Covid-19 doesn't seem to have much effect.


I live in Berlin and recommendations to pay by card can be seen in many places with preference for contactless payment. In fact, share of non-cash payments visibly increased here and surveys show that German attitude is already changing.

Maybe this is temporarily? I pay with card now. But intend to go back to cash after covid19.

Germany has seen a huge shift over the past months. Before that, paying by card for small ticket items such as in bakerys was frowned upon (or just not possible), now it's used by the majority in some areas.

In Norway, it is still illegal for stores to refuse cash. I know of only one store that does get away with it; I believe they do because they are primarily an online shop. Their physical store is merely a convenience for customers who happen to live nearby. Many (most?) stores still ask customers to pay with a card, though. To help out, the banks have raised the maximum amount payable by contactless cards without PIN entry.

It is technically illegal to not accept cash in Denmark with very few exceptions (I checked, since it seems to be legal in Sweden), but maybe due to COVID-19 this got relaxed or is just not enforced anymore. Not that anyone would notice, nobody pays with cash anyway except for German tourists who aren't coming this year.

I feel like this is probably a good thing. Cash payments are a very healthy thing to have in addition to digital payments.

I live in Germany at the moment and I do see this in many places. On the other hand there are also still shops where showing my card gets me a puzzling look as if I'm some kind of time traveller visiting from the future armed with my mysterious shiny plastic card.

In Stockholm, Sweden, many stores have stopped accepting cash altogether. Even before Covid.

In Gothenberg, Sweden, for instance, you can't buy public transport tickets with cash. Which meant that when a beggar approached me and asked for some cash so he could travel home, I knew he was lying. I hadn't even bothered getting any Swedish cash when I visited the country.

Depends where you are I guess. I have seen them everywhere in Germany.

Well, I thought so too in the start.

But I asked someone in a popular local store ( Belgium) and consumer behaviour hasn't changed.


How is this relevant to Germany?

Because Belgium and Germany is very similar on cash payments.

Also, you mention Covid would be a stimulator for digital payments and that doesn't seem the case in Belgium. So I wouldn't know why it would be the case for Germany.


The change in Ireland has been significant, it's made contactless be the default way to pay. I think it has removed the idea that something like a cup of coffee was too small to pay for via card/contactless. I don't think I have actually used cash in a number of months.

Before COVID one of the main banks AIB was to introduce some extra charges but they stopped that charge increase https://www.irishtimes.com/business/retail-and-services/aib-...


In the US you are a criminal if your business is dealing with large amount of cash everyday. That’s how credit card got the market share. Companies make the law so you will use their system. They dont profit if you use cash whywould they allow you to do that.

What are you referring to here? There are plenty of cash only businesses in my city and the owners aren't being thrown in jail for it.

I’m sure it varies but the US has a bunch of annoying regulations meant to curb money laundering. For instance, if you deposit $10,000 or more at the bank, you are required to fill out annoying paperwork to prove you aren’t laundering money. If you don’t want to fill out annoying paperwork so you only deposit $9,000 at a time, that is literally a federal felony.

Maybe your city has a “safety of crowds” thing going on but when cash only businesses start going scarce, I bet the remaining holdouts start getting more and more scrutiny.


KYC (Know Your Customer) laws are not exactly unique to the US.

The money industry tends to be heavily regulated, and self-regulated (PCI DSS) for a reason. Crime happens there because that's literally where the money is.

I'm doing my part, though. I pay with cash whenever I can. In Germany that's easy (often the only option e.g. in restaurants). In Sweden, not so much. And then there are countries in between.


Yeah, I don’t know how other countries differ from the US in this respect. Maybe the “war on drugs” made us paranoid about money laundering to the point where it eventually ground down the cash economy. Or maybe it really is our addiction to consumer debt.

Yup, there are some that even accept checks.

It's more like folks don't want to get robbed by keeping everything in cash, and so they use banks.

That’s another factor for sure. I’m not sure if the timing lines up—I remember credit cards being more and more broadly accepted over time compared to cash even after crime rates in the US dropped—but the US still has pretty high crime rates for a developed country.

Quite a few places in London are cashless now, typically non-essential stuff like lunch, where transaction time is important, contactless is much faster. Cash costs are not insignificant, processing time, insurance, it's not really worth it when so few people pay with cash.

It's been accelerated sharply by the pandemic. The few holdouts changed tack. There's accessibility concerns for the unbanked.


At least we don't have hyperinflation. That's even worse for the poor. Though to be sure I agree with you. We really need to fix this, but it's not going to happen. Right now we're paying an enormous -unprecedented?- political attention tax that is starving lots of important issues of oxygen.

Inflation doesn't affect the poor so long as wages keep up with inflation. If you don't have money, there's nothing to inflate.

They did say hyperinflation.

Characteristic of hyperinflation, is that nothing keeps up with it. Forget wages keeping up: your very paycheck is worth less at the end of two weeks than it was when you received it.


Your comment makes me think you weren't even close to hyperinflation, ever.

Sincerely, a guy who survived 313 000 000 % inflation per month.


> Inflation doesn't affect the poor so long as wages keep up with inflation

Does it? In an inflationary environment the status quo is that your wages shrink. I guess it’s better than holding cash because you can renegotiate your wages back, but I don’t think rich people have most of their assets as cash.


> In an inflationary environment the status quo is that your wages shrink.

The US is a classical inflationary environment and wages have kept pace with inflation forever.

Indeed, inflation only, and intentionally, punishes those who hoard cash.


Not always, depending on your timeframe. eg. if you look at https://upload.wikimedia.org/wikipedia/commons/a/a4/United_S... there’s about 2 decades where the real wage went down.

Fair enough.

I would note that chart begins prior to ending the gold standard in 1971, and it has tracked very well since 1995.

I was off-base when I said "forever." I should have said in recent history.


I think that's an oversimplification, because credit transactions tend to be 20%+ higher ticket sizes than cash purchases. In a way, the credit card surcharge baked in is something of a volume purchasing incentive. Further, the networks do explicitly permit cash discounts on card transactions, and always have. Merchants tend not to offer them, though.

> credit transactions tend to be 20%+ higher ticket sizes than cash purchases. In a way, the credit card surcharge baked in is something of a volume purchasing incentive

Funny you mention that, because that’s yet another case where it’s expensive to be poor. If you’re living paycheck to paycheck, barely making ends meet, you likely don’t have the cash flow to stock up on a sale. So rather than buying 18 months worth of TP when there’s a sale + coupon on the 64 pack, you are buying the 4 pack at regular price that costs twice as much per unit.


“The reason that the rich were so rich, Vimes reasoned, was because they managed to spend less money.

Take boots, for example. He earned thirty-eight dollars a month plus allowances. A really good pair of leather boots cost fifty dollars. But an affordable pair of boots, which were sort of OK for a season or two and then leaked like hell when the cardboard gave out, cost about ten dollars. Those were the kind of boots Vimes always bought, and wore until the soles were so thin that he could tell where he was in Ankh-Morpork on a foggy night by the feel of the cobbles.

But the thing was that good boots lasted for years and years. A man who could afford fifty dollars had a pair of boots that'd still be keeping his feet dry in ten years' time, while the poor man who could only afford cheap boots would have spent a hundred dollars on boots in the same time and would still have wet feet.

This was the Captain Samuel Vimes 'Boots' theory of socioeconomic unfairness.”


I have read the book when I was a child but seeing it everywhere on HN is starting to get on my nerves. There is a shorter way to get the idea across. "If you buy cheap you buy twice."

> "If you buy cheap you buy twice."

And for the kinds of goods I buy, in most cases it doesn't hold up. Cheap shoes might be only 25% of the price of good shoes, but in my experience last 50% as long, costing less overall. Compound that with other chances of loss (getting dusty in the back of a cupboard and eventually being thrown out in a declutter), and cheap works out far cheaper


I read the books as a child, too, and I appreciate when those quotes come up. They demonstrate something about the books that never became clear to child-me, something I only dimly started to grasp when I was older and only fully realized a lot later: Those books go far far beyond an entertaining story. They are a pointed critique of society and politics. They have an opinion. They're not mere books for children.

And the point Samuel Vimes is making goes far beyond a simple "If you buy cheap, you buy twice." It extends that basic knowledge by realizing that some people have no other option than to buy cheap, forcing them to spend resources over and over and over again and still get a worse result in the end, and how this is a fundamental and systemic social unfairness.


Note: this is a market inefficiency. In an efficient well-operating system, if you can afford ten dollars a year for cheap boots, you should be able to get some agreement with your employee or a local bank to get a loan for $50 boots plus some interest that's still gonna be less than the cumulative $10 you pay for fresh boots every year. If you will reliably have the money for $10 boots and can prove/provide evidence that you will, you should be able to get the $50 boots now. The problem is twofold: first, proving you are reliable can be hard, and second, even given credit people still often make purchase decisions that don't last long, partially because they simply don't know what sort of purchases are prudent.

Also there is a huge risk that the $50 boots aren't actually any better.

I don't disagree that this is regressive and unfortunate, although the bigger issue in my mind (and I get we can have two problems and solve both at once) is free parking. The poor tend to use transit but the cost of parking is baked into each purchase thereby subsidizing the wealthy, too. [1]

[1] https://www.vox.com/2014/6/27/5849280/why-free-parking-is-ba...


There’s a lot of transaction costs to charging for parking. Maybe with technology it can be completely automated but historically that’s been a huge reason for free parking.

A recent development: "Tap to pay" enabled transit systems are driving large increases in transaction volume.

It's a way around the truth in lending laws,* to make interest rates appear lower than they are.

Instead of 2% cash back for some, they could just add 20 percentage points or so to the interest rates of everyone else. If you think this is unfair, you're really just saying that interest rates are applied unfairly. But it doesn't sound like that's your actual thought process. Is everyone who pays higher rates subsidizing those who pay lower? How do you know?

*This is not my original idea, but something I read somewhere.


That’s not really how credit cards work though. You only ever pay credit card interest if you carry a balance from month to month. Cash back doesn’t just reduce your effective interest rate; your effective interest rate can already be zero simply by virtue of paying the full balance due every month. And the credit system does literally nothing to discourage this behavior; in fact, the credit scoring algorithms incentivize it.

The money for cash back comes from transaction fees. It would have to. People go out of their way to find ways of maximizing their return from these kinds of systems so any cash back scheme that could be too easily gamed would fall prey to these people. That actually happened once, albeit to a “merchant”. The US mint used to let you buy $1 coins, online, with a credit card, for $1 each and free shipping. You could literally buy your entire credit limit’s worth of $1 coins, deposit those same exact coins at your local bank branch to pay your credit card bill before it came due, and straight up profit from the cash back.


It's just a shell game. You think it's really different, but to the corporate bean counters the money is fungible.

You pay 2% in transaction fees, you may or may not get almost all of it back as "cash back".

In a world without significant transaction fees, we wouldn't have the grace period either, and the people who get the most cash back would pay lower rates and others higher.

The reason the powers that be like the current system and would lobby against a crackdown on fees is because it feels like they're giving you something with the grace period, and giving you something if you get cash back.

But it's just a play on psychology. If there's an injustice, I think it has to boil down to evaluating credit risk incorrectly.


> It's just a shell game. You think it's really different, but to the corporate bean counters the money is fungible.

Guaranteed per-transaction revenue is not fungible with interest revenue. Interest revenue is extremely discounted by both time value and default risk.

> In a world without significant transaction fees, we wouldn't have the grace period either...

At that point, most of the lower-risk customers who use credit cards would switch to debit cards, credit card interest would probably have to go up due to adverse selection and higher default risk, and credit cards would be a much smaller business overall.


There are costs associated with accepting and securing cash as well.

Isn't that the fault of the credit system though? Those who have access to more credit (or have better credit) are able to take advantage of these offers.

and that's why this is called systemic inequality - the inequality is built into the rules of the system.

I'll go one step further. This inequality is built into how humans work.

Most of us would not extend credit to somebody with low odds of returning it, so why do should we expect companies and organizations to behave differently? I feel like wrapping this up as in the pretty words "systemic inequality" is framing it as some constructed oppressive structure, which I'm loathe to do.


Sometimes humans are selfish, sometimes they are generous.

You don't like the term "systemic inequality" yet you're framing the problem in terms of our current system: very impersonal, only-the-numbers-and-ROI matters.

If you phrased it as "most of us would choose to exploit the more desperate because they have very little alternatives instead of willingly helping out" you might trigger different instincts. Instincts that would favor restricting interest rates and favoring a stronger social safety net.

There are more generous and forgiving systems that have existed successfully elsewhere in human history, so they're not incompatible with human nature, so yes, I think it's fair to characterize the American system as iniquitous.

Why should someone else's desparation and need be solely viewed through the lens of economic opportunity for someone else?


You don't even need RoI here, and I never even had that baked in. Any sustainable system of credit even would result in the same phenomenon.

In it's simplest form, to make a loan, you have to have the resources to loan out to begin with. Furthermore, dereliction of debt is expected. There is no guarantee that people will repay in a timely manner, and missed payments/discharged debts are not uncommon. As such, interest rates can serve to create a sustainable system by helping to cover these debts.

Discount any consideration of their ability to repay, and what you give is no longer a loan, but a gift. A gift at the cost of others that you loan to.


> very impersonal, only-the-numbers-and-ROI matters.

What would be a more personal approach when figuring out whether or not to loan the money to someone?


Deciding to lend to someone because you know them (they are "part of the community"), or they are a friend, or they are family. Of course it can be seen as more "humane" but it can also be seen as nepotism and/or a system excluding newcommers/strangers.

The condition is still the same. "Will he/she be able to pay me back/ return the favor"

And that condition will always benefit those who can return back. It's not about being newcomer or stranger, it's about being able to identify if it's a loan you can do.


That sounds like the personal system of honor being used for credit worthiness. Which wound up leading to dueling while doing a worse job of the primary task than banker evaluations. Needless to say all around it was a worse system with worse outcomes and worse externalities.

Not extending credit to people who are likely to default: makes sense

Denying a 2% discount to people who are likely to default: ???


Could argue that it "makes sense" in exactly the same way - when you offer the discount, you increase overall spend / demand, i.e. you increase the size of the loan, which is something that as the lender you would prefer to do toward people with better credit.

Do you think it’s not fair for credit card issuers to try to attract customers that have a higher value to them by offering rewards? Regardless, approvals are mostly based on credit history and not wealth. I was a low income earner for years but paid my bills and credit cards on time so I could get any card I wanted.

Lots of CC bonuses have a minimum spend specifically to filter richer customers.

The problem is not that the company is trying to make money, it's that this market has become an oligopoly with too much pricing power. With the prevalence of credit card purchases this is a tax on every transaction in the economy. Even people that don't use a CC pay a price set for those that do.




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