Differences in using a Credit Cards/Debit Cards as a payment method

I never in my life paid interest on a credit card. You pay it off at the end of the month.

But I understand that the merchant pays a fee to the cc company.

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Sometimes these merchants also requires to spent a minimum amount to use CC.

In US the minimum amount merchants are allowed to require for credit card payments is capped at $10. In reality, I have never seen this happen – because if I can’ pay the way I want to pay – I’m not patronizing that store anymore. I’m not sticking my debit card to random readers, nor start carrying paper and metal money to save merchant 10 cents. It’s up to the merchant to decide if they want to eat the loss of business, raise prices, or what else. I’m either paying with a credit card, or not paying at all. Why? Because much stronger fraud protection on credit cards compared to debit

For example, that same stripe charges 2.9% + 30¢. 30¢ of $10 is another 3%, and much higher on smaller amounts, so I can see why they would not want to pay 6% transaction fees. But how is that my problem, as a customer? If merchant has a lot of sub-$10 transactions they can shop around for the processor/plan that fits their use case. For example, with square, they would be paying 3.6%, not 6. And there are other, lesser known processors with better plans.

This is my pet peeve, and I feel very strongly about it. If business cannot afford to pay for getting money from customers – maybe their business is not as viable as they hoped for.

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It’s your problem, because they incorporate those costs into the price. It’s like you’re paying an additional 2-6% tax. Except this tax doesn’t go to your government, but to the poor old credit card companies. Seems pretty wasteful to me. Though not much you can do about it. Unless the default changes, you’re paying that tax whether you pay with CC or not. Where I live almost nobody pays with CC, so the costs aren’t incorporated into the price to begin with.

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Two things here:

  • yes, of course in the end it comes from buyers pockets, because they are the ones that bring money to the transaction.
  • for this to change everyone must stop using credit cards overnight, otherwise, as you said, those that will will subsidize those that won’t, and prices may eventually deflate could of percent.

But I don’t think it’s a good idea though. I’m happy to pay those extra few percent, as they buy me a lot more in return, it’s a win-win. They keep vendors accountable as a consequence of the perks these few percent buy you, to name a few:

  • it’s essentially a 30-day interest free loan. Free money right here. I get to use banks money while mine earns interest, over 4% annually currently.
  • price protection. Vendor messes with prices — not your problem.
  • extended warranty (I don’t care about warranty, but for those who do, doubling the warranty for free must be valuable)
  • zero liability for unauthorized charges. Debit cards offer weaker protection, with deductible, and you have to prove you are not an elephant, and you are out of your own money while they sort it out.
  • return protection. (You buy something, it’s doa and vendor won’t take it back)
  • various implicit insurance: rental car, travel, lost luggage, trip interruption, etc etc, automatically, no extra cost.

There are more opportunities to get quite a bit of value back, but they are not universal or automatic, so not discussing them here. (For example, my credit card refunds me 5.25% cash on effectively everything I buy, and still provides all the aforementioned perks. Yes, other users subsidize me. But that the game).

Some card companies, like American Express, charge vendors way more than visa and Mastercard do. Some merchants refuse to accept American Express for that reason alone. How can they get away for charging that much? By providing enough real (or perceived, does not matter) value to cardholders so that they would alter Itheir spending and avoid merchants that don’t accept their preferred card. Nobody forces them to, it’s a customer choice.

TLDR: I strongly feel this is all worth it, because those extra few percent buy me something of value, and with this already in place, not playing this game is just leaving money on the table. Getting lowest cost is not a goal, the whole experience shall be optimized. As an illustration, there are card products that charge customer annual fee, sometimes substantial, many hundreds of dollars, but provide better value in return.

That’s probably you don’t enjoy the same consumer guarantees as we do. Our laws already put a lot of safeguards on, let say, online shopping, so this shouldn’t be necessary. For example, there is an EU law giving everyone a right to return within 14 days almost any product bought online without having to provide any justification. Why would I need additional insurance?

I guess this might be a cultural difference. You are used to having private healthcare, private social insurance, private buyer’s insurance, where Europeans prefer building state-wide solutions. I don’t think there’s anything wrong with either approach if well executed.

These deals are not available here. Rich Americans subsidized by poorer Europeans :person_shrugging:, I guess controlling a large part of world economy does pay off. Just please allow other people to have different opinions.

Well, one of the big issues is there are only a couple networks that you can run CC transactions through. Visa is being sued by the Fed for monopoly. They make it so if you want to get the best price, you need to reach thresholds of total charges. Which forces vendors to use their network for all transactions to get the best price, rather than using others if their immediate pricing is lower.

Discover is another network which may be purchasrd by Capital One. They are waiting on approval from the Fed, but may not get it since.it would give one bank control over one of the few networks left.

If they could make it so the networks were more competitive, it would likely lower fees for merchants but there are no guarantees. Often, companies will raise prices to match competitor pricing, as they all want to charge more rather than less.

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There are similar laws in US, albeit not as strong, but this not an issue.

Even with laws in place, how do you deal with a merchant that does not comply? You received a gadget, and after 2 months it died because it was horseshit quality. You ask the merchant politely to make it right and they refuse, waste your time, feed you empty promises. What do you do? Report them? Sue them? Waste your own time getting them to do what they are supposed to? What if they are out of EU and could not care less about EU compliance?

Credit cards perks like those I describe will reimburse you, and then deal with the merchant to recover the money. They are making this not your problem anymore.

I had an opposite experience few years ago – I bought a device from UK, before Brexit, that did not work properly, would crash, etc, I spent two weeks installing their silly firmware updates but it just was a dud. Then I gave up, and offered to send it back for a refund. They refused, claiming it’s my problem and device was fine in their testing. I reported to my CC company and had my money back immediately.

Well, that’s a <0.01% of my shopping. I recall making exactly one order from outside EU in my life, and that was 10 years ago. Everything is available through merchants under EU jurisdiction… even Chinese are now setting up stores here to serve the market. For 99.99% of my shopping, CC insurance is unnecessary tax.

Nono, that wasn’t the point. The point was this:

And this is just one of many perks, as I said, I don’t care much about insurance.

You are still paying it. Via regular (generally, higher) taxes, or your time dealing with the outcomes. Someone somewhere spends resources enforcing these behaviors. And money for that comes from the buyers or taxpayer pocket. And often those are different people.

Great example. And where does money come from? Customers.

So it’s pretty much the same situation, just different implementations, as you pointed out above. Except the presence of the mediating third party, which is a clear win in my mind. Because enforcement is more expensive than aligning incentives properly.

Most merchants today behave correctly by default. I have not used that buyer protection for years. This does not mean it’s not needed. On the contrary, I did not have to use it because it exists. Merchants know if they don’t do their job customers will charge back. So they do their job. Be that local or over the pond. They are incentivized monetarily, not by some geo-restricted laws, that may or may not be enforceable. Everyone wins.

And as I said, those other perks are not available here.

Exactly! So why pay twice for the same thing?

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Not at all.
The laws and protections you alluded to earlier in your post cost credit companies money.
They recoup part of that money exactly by not having cash back and other offers like what you see in the US.
In the end, the consumer always pays.

These laws apply to merchants, not payment processors.