Are banks stealing money from the poor to reward the wealthy?

[Rorer_714]

Link

[clutchcargo]

Well... When you put it THAT way...

[xelda]

This is just an example of someone interpreting the facts to support what he wants to argue. What about the cost of hiring employees to work at the store? That cost is built into the prices at the grocery store, but you wouldn't say that the employees are robbing the customers.

[athensgaguy]

Is that supposed to be new information, I wonder?

 

I thought a long time ago that it was pretty obvious that anyone using a non-rewards CC, a debit card, or cash was subsidizing my rewards.

[FahQca]

oh god.....thats all I have to say about that....oh god.

[athensgaguy]

I figure I more than make up my share by subsidizing the kids of other people.

[toopooor]

This is just an example of someone interpreting the facts to support what he wants to argue. What about the cost of hiring employees to work at the store? That cost is built into the prices at the grocery store, but you wouldn't say that the employees are robbing the customers.

The interchange fees aren't used to pay the employees - wages come out of the $1 the cash the shopkeeper keeps from the cash-paying customer, the 97 cents they cleared from the non-rewards cardholder, or the 96 cents they got out of the amex rewards cardholder. (ETA They actually get alot less per dollar - i forgot the transaction fee of approx 20 cents per swipe. On small purchases, this eats up a large % of the profit.)

 

You can argue all you want that its a cost of doing business and its built into the prices - but that 2 - 5 cents per dollar spent (including 2 -5 cents per each dollar in sales tax) goes to pad the banks books and provide rewards for their best customers. That's 2 -5% of that the shopkeeper won't have to pay the employees more or to hire more employees.

Edited November 20, 2009 by toopooor

[improper_validation]

This is just an example of someone interpreting the facts to support what he wants to argue. What about the cost of hiring employees to work at the store? That cost is built into the prices at the grocery store, but you wouldn't say that the employees are robbing the customers.

The interchange fees aren't used to pay the employees - wages come out of the $1 the cash the shopkeeper keeps from the cash-paying customer, the 97 cents they cleared from the non-rewards cardholder, or the 96 cents they got out of the amex rewards cardholder.

 

You can argue all you want that its a cost of doing business and its built into the prices - but that 2 - 5 cents per dollar spent (including 2 -5 cents per each dollar in sales tax) goes to pad the banks books and provide rewards for their best customers. That's 2 -5% of that the shopkeeper won't have to pay the employees more or to hire more employees.

 

Don't forget the flat rate fee of about .30.

[TrevorHere]

Spin.

[higher180]

Spin.

 

 

+1 I agree!

[breeze]

Those people who don't have credit cards should come to CB, clear up their credit, and get a credit card.

[toopooor]

Don't forget the flat rate fee of about .30.

I did, then came back and fixed it.

 

Lets do a little math here. 3 customers walk in and spend $10. It's in TX or TN and sales tax is 10%

 

purchase amt $10.00

sales tax $1.00

total $11.00

card fee $0.25 (paid on every swipe, even if the card is declined)

Non-rewards transaction fee (3%) $0.33

Amex Rewards transaction fee (4.5%) $0.50

 

Initial profit / non-rewards $9.42

Initial profit / amex rewards $9.26

Initial profit / cash $10.00

 

 

Here's a $100 sale:

purchase amt $100.00

sales tax $10.00

total $110.00

card fee $0.25

Non rewards fee $3.30

Amex Rewards fee $4.95

 

Initial profit / non-rewards $96.45

Initial profit / amex rewards $94.80

Initial profit / cash $100.00

 

ET fix bad excel formula on the amex sale.

Edited November 20, 2009 by toopooor

[higher180]

Back when I overdrafted my bank account a lot I"m sure I subsidized some of your rewards

[jtoast]

Why did they leave out the part where the difference is made up in foodstamps subsidized by my tax dollars?

[TrevorHere]

Don't forget the flat rate fee of about .30.

I did, then came back and fixed it.

 

Lets do a little math here. 3 customers walk in and spend $10. It's in TX or TN and sales tax is 10%

 

purchase amt $10.00

sales tax $1.00

total $11.00

card fee $0.25 (paid on every swipe, even if the card is declined)

Non-rewards transaction fee (3%) $0.33

Amex Rewards transaction fee (4.5%) $0.45

 

Initial profit / amex rewards $9.30

Initial profit / non-rewards $9.42

Initial profit / cash $10.00

 

 

Here's a $100 sale:

purchase amt $100.00

sales tax $10.00

total $110.00

card fee $0.25

Non rewards fee $3.30

Amex Rewards fee $4.50

 

Initial profit / non-rewards $96.45

Initial profit / amex rewards $95.25

Initial profit / cash $100.00

 

This really isn't different than all the costs - insurance, utilities, tele, rent or mort. All the costs to run, sustain and most importantly - the expense where cards are key increase sales

[TrevorHere]

Those people who don't have credit cards should come to CB, clear up their credit, and get a credit card.

 

exactly

[toopooor]

This really isn't different than all the costs - insurance, utilities, tele, rent or mort. All the costs to run, sustain and most importantly - the expense where cards are key increase sales

 

Those costs are all fixed. The merchant never knows how much he's getting from the cards until he gets the merchant statement, because every card has different rates.

 

Last month i had 3 non-qual cards - it "cost" me an extra $150 on top of the usual fees (on about 6K in CC). That's $150 i didn't know i'd be short until they debited the transaction fees from my bank acct. That's $150 i can't spend on employees, buy hardware/software for my business, or spend in my community.

 

ETA: as a B2B business, CC don't increase my sales, they just make it easier for the customer to pay me. As a B2B merchant, with most businesses using corp/business cards, i pay higher interchange fees than i would if they used personal cards.

Edited November 20, 2009 by toopooor

[TrevorHere]

This really isn't different than all the costs - insurance, utilities, tele, rent or mort. All the costs to run, sustain and most importantly - the expense where cards are key increase sales

 

Those costs are all fixed. The merchant never knows how much he's getting from the cards until he gets the merchant statement, because every card has different rates.

 

Last month i had 3 non-qual cards - it "cost" me an extra $150 on top of the usual fees (on about 6K in CC). That's $150 i didn't know i'd be short until they debited the transaction fees from my bank acct. That's $150 i can't spend on employees, buy hardware/software for my business, or spend in my community.

 

The million dollar question is: if you were to drop accepting credit cards , would your bottom line increase or decrease ?

[jtoast]

and thats $5,850 that you otherwise may not have collected. I know that I refuse to shop at businesses that don't take cc's.

 

EDIT:

Oh, I saw your edit. I work for a very large corporation. I would be very surprised if by taking CC's you are not capturing business you would otherwise lose. It is much much easier to get a Corporate Card purchase authorized after the fact than it is to go through the hassle of getting a PO/paper check cut. I do everything I can to avoid that hassel.

Edited November 20, 2009 by jtoast

[toopooor]

This really isn't different than all the costs - insurance, utilities, tele, rent or mort. All the costs to run, sustain and most importantly - the expense where cards are key increase sales

 

Those costs are all fixed. The merchant never knows how much he's getting from the cards until he gets the merchant statement, because every card has different rates.

 

Last month i had 3 non-qual cards - it "cost" me an extra $150 on top of the usual fees (on about 6K in CC). That's $150 i didn't know i'd be short until they debited the transaction fees from my bank acct. That's $150 i can't spend on employees, buy hardware/software for my business, or spend in my community.

 

The million dollar question is: if you were to drop accepting credit cards , would your bottom line increase or decrease ?

For me, it would increase. It just makes it easier for my customers (about half are international) to pay me faster and this helps my cash flow. Unlike a retail merchant, i know pretty much which customers are going to use credit or paypal (all but 2) and can estimate the net income pretty close most months. I also don't collect sales tax, so i don't lose any profits by collecting it on plastic.

 

The bottom line is that the merchant fees are too high. The poor merchant who gets stuck with the citi cardholders who charges 2 cents in gas a month to keep a BT deal is the big loser.... or the one who gets stuck with the guy the other day who said he gets 10 items at the grocery store and puts each one on a different card, just so he can show some use. Ouch. If they are near $1, the merchant clears about 60 cents an item, before other expenses, and loses money on the deal. (If he was serious, i hope it does it at walmart or a big chain store, not his local small business.)

Edited November 20, 2009 by toopooor

[toopooor]

and thats $5,850 that you otherwise may not have collected. I know that I refuse to shop at businesses that don't take cc's.

 

EDIT:

Oh, I saw your edit. I work for a very large corporation. I would be very surprised if by taking CC's you are not capturing business you would otherwise lose. It is much much easier to get a Corporate Card purchase authorized after the fact than it is to go through the hassle of getting a PO/paper check cut. I do everything I can to avoid that hassel.

We started taking CC's for one customer. We did some programming for the customer - the division can put up to $5k on corp cards without auth from the headquarters. Checks needed a PO and that took at least 6 weeks for payment, once the PO was issued. At the time we only took paypal for electronic payment but paypal limited payments to like $3K (lifetime) without a linked bank account, which the person was unable to do (obviously). So we got a merchant acct. We didn't have another CC sale for probably 6 months and for maybe 2 yrs, had very few, so we lost big time on the monthly fees.

 

Most of my customers are small privately held businesses and we deal with the biz owner most of the time. To the best of my recollection the only publicly held biz was the one mentioned above (a fortune 500). (Several do biz with the government and i have to fill out paperwork for them yearly - i think one company does biz with us just because we're woman-owned and they need to do a % of biz with woman & minority biz.)

 

I've heard rumors that if a customer files biz BK, that some banks will do charge backs months after a sale and the merchant has no recourse - if that would happen to my biz, we'd be BK too.

[TroyP]

On the flip side, taking credit cards has some substantial benefits for the retailers.

 

McDonalds moved to take cards at every location after their data showed the average credit card transaction was larger than the average cash transaction, and it improved profitability.

 

There is also something to be said for the decreased risks for the merchant. Having a drawer full of thousands of dollars of cash is risky on a number of levels. It makes it more attractive for an armed robber to attempt to clean you out, makes it easier for your employees to steal cash, etc. Those risks are all reduced substantially when the merchant's revenue moves from cash to credit.

 

Also, we must not forget, many of these purchases might not have happened at all if not for credit cards. The average American household carries about $8,000 in credit card debt. That means merchants who take credit cards received a cut of $8,000 in spending that likely would not have been spent if we relied solely on cash.

 

If the business case was there to stop taking cards and force consumers to pay cash, more stores would do it. Bottom line: merchants make more money accepting credit cards, so they continue to do so, even if they lose money on a small transaction now and then.

[greywolf]

If merchants don't like paying interchange fees, don't accept credit cards. I don't like paying my business's electric bill, but if I don't pay it, most of my employees will quit, and my customers will not do business with me. Thus, I pay my electric bill.

 

No one says you have to accept credit cards as a business, it is an option that has been proven to increase sales, just like advertising.

[nothingtolose]

[link]

huh???

 

I figure I more than make up my share by subsidizing the kids of other people.

 

+the other half of the population that are at the below/zero effective rate

+lenders that underwrote bad loans to subprime borrowers

+subprime mortgage defaulters more generally

+first-time/existing home-buyers that have income below a threshold

 

So yeah I am helping my bank *steal* money from the poor by cashing in on my 2% Schwab back card for the purchases (those PIF'd purchases that put money in the pockets of the city/state through sales tax and support those low-income jobs in retail/services), PIFing, and not paying over-limit/OD/late fees. How unethical of FIA to reward PIFing spenders.

 

dunno.

Edited November 20, 2009 by nothingtolose

[2fast]

Don't forget the flat rate fee of about .30.

I did, then came back and fixed it.

 

Lets do a little math here. 3 customers walk in and spend $10. It's in TX or TN and sales tax is 10%

 

purchase amt $10.00

sales tax $1.00

total $11.00

card fee $0.25 (paid on every swipe, even if the card is declined)

Non-rewards transaction fee (3%) $0.33

Amex Rewards transaction fee (4.5%) $0.45

 

Initial profit / amex rewards $9.30

Initial profit / non-rewards $9.42

Initial profit / cash $10.00

 

 

Here's a $100 sale:

purchase amt $100.00

sales tax $10.00

total $110.00

card fee $0.25

Non rewards fee $3.30

Amex Rewards fee $4.50

 

Initial profit / non-rewards $96.45

Initial profit / amex rewards $95.25

Initial profit / cash $100.00

 

This really isn't different than all the costs - insurance, utilities, tele, rent or mort. All the costs to run, sustain and most importantly - the expense where cards are key increase sales

It's different in a few respects. The merchant can decide what deductable he wants for insurance and coverage limits and stays pretty much the same. Telephone may be similar to some degree but it's a managable cost. Rent and mortgage can be adjusted by moving to a smaller location or sharing space, and doesn't vary. Most other costs in business are managable, and pretty solid. I can't think of any other costs that vary 3-5% just because the customers decide it does.

I also can't think of any other typical cost of doing business where a customer buying my prodiuct can either pay cash at 100% retail or pay by CC and take 5%+ off the price.

When you were last at the grocery store, how much did your choice to buy skippy increase their phone bill? Rent? insurance? How much did your taking a leak vary their water bill? .00003%

The problem with interchange fees is that the merchant is at the customers and processors mercy to decide what it'll cost.

It should also be noted that Visa and MC reserve the right to adjust pricing at any time and the merchant has no right to opt out of the increases.

 

I'll send you a list of 7500 transactions from a merchant and the rate sheet for the location, you tell me how much it cost last month. If you're within 1% I'll give you $500. If not we agree that it's never though of as a normal cost of doing business again. Now remember, I'm giving you the price sheet as a cheater so it should be easy.

Now remember that the exact same transactions can vary 3%+ next month.

I'd like to see the merchant have the ability to opt out of non-qual surcharges and thus the cards that bring the fee. That way the merchant can make the business decision on whether it's in their best interest to take your 2% cash back card that'll cost them double their advertized rate or not and they could manage the cost like their other costs of doing business.

I know my opinion isn't a popular one but there it is.

Edited November 20, 2009 by 2fast