Credit card issuers don't pay for the cash back, it's the merchant. The merchant's are charged a credit card transaction fee that includes a fixed/percent fee determined by the negotiated contract with their bank (the acquirer), a small fixed/percent interchange fee that goes to the credit card payment networks (Visa, MasterCard, etc.), and finally a fee to the credit card issuer that provided the credit card to the consumer.
The credit card issuer fees can be the worst because of these high reward credit cards.
I'm very aware of this when shopping at a local small business. I'll pay either in cash or with my debit card, because the credit card fees are seriously squeezing small merchants.
Citation? It seems pretty crazy to me that every merchant would have to pay the difference when a customer decides to use a 5% cash back card. They can't even know the full list of cards out in circulation, and I doubt their contract says "the fee is whatever portion of the card's cash back we can't pay for" or something like that. It could work for a closed subset of cards they know about and might want to negotate separately, but I don't see how it can work for every card out there.
They do not pay the whole cash back, but they do pay more for "premium" cards (that they cannot refuse, also). See for instance this https://www.cfib-fcei.ca/sites/default/files/pdf/5513.pdf (in Canada, but the same thing applies to the US)
Right, these are just Visa/MC/etc. card classes, which don't determine the cash back on them. And so if that doesn't make up the difference, then the card companies paying the rest, right? My point is that for high-cash-back cards there are easily customers who consistently make more in cash back than whatever fees these folks get and who don't rack up interest, meaning they're costing money, so why should they still be kept as customers?
A neat little hack with some cards can make it effectively almost across-the-board.
Some rewards cards let you select "online shopping" as your high rewards category. You can extend that to in-store shopping at Walmart by enrolling that card in Walmart Pay and then paying in-store via that.
For a lot of people, "online shopping" and Walmart together will cover 95+% of their credit card use.
BofA has a card that is 3% in your selected category, which can be boosted to 5.25% if you have a large enough total in your accounts at BofA and Merrill Lynch.
The base card is 3% in your selected category (online shopping; gas; dinning; travel; drug stores; or home improvement and furnishing), 2% in grocery and wholesale clubs, 1% everything else. The 3% and 2% are limited to $2500 per quarter.
The base rate is multiplied by 1.25, 1.5, or 1.75 if your total at BofA and Merrill Lynch is at least $20k, $50k, or $100k, respectively.
> Enough of them wind up over-extending and paying interest to make it lucrative.
Yes. I understand this. I'm asking, why do they keep the others' accounts open?
> I'm also not aware of any across-the-board 5% rewards cards
I'm not either, but many people just rotate to a different card instead of using the same card for less cash back. And who never miss a payment or rack up interest. Meaning they always use those cards at a loss for the company. I'm asking why do these peoples' accounts get kept open.
I suspect you're underestimating? A lot of people (around half of Americans if not more) don't carry a balance. I don't know what fraction of them try to extract the most from their cards, but judging from the sheer number of websites that explain what card you should get to maximize which reward and bonus, I'm skeptical that the number of people who pay attention to this is negligible enough that it'd cost companies more to simply close their accounts than to let them go on.
The only thing Mint's lacking is the geolocation of the individual merchants - something they can garner in a lot of cases from the merchant name. The grocery store I frequent includes a store number in the transaction name, for example. (Mint definitely has the "how much" bit - they've got each transaction individually, including the amount.)
On the flip side, Mint has all the rest of the credit card data for the person (across potentially many different cards and card networks), savings and checking accounts, brokerage accounts, mortgages, car loans, student loans, and tax returns if you use TurboTax.
I think that balances out the equation pretty handily - that amount of linked, collated data should easily be worth more than a single CC can garner.
Ohh, sorry, you're talking about Mint -- somehow I confused it with Credit Karma. Yes, they have transaction history and all that from across cards. I agree, it should be pretty valuable for Intuit. What indicates to you that it's not (or not as much as you expect)?
> What indicates to you that it's not (or not as much as you expect)?
Intuit's a public company, making both their revenue and the number of Mint users publicly available. They're not making anywhere near what they'd need to make off their extensive data holdings to make your theory work.
What I meant was, could you cite the numbers and math you are arriving at that tell you this? The 10-K I'm seeing says they make around $200M/year from desktop TurboTax and $2.2B from Mint and other services, and that's just with 20 million Mint users. That seems plenty to me.
Debit cards with PINs are lower risk than credit cards, so they typically have a lower interchange rate. And rewards cards (travel, triple points, etc.) and business cards typically have have higher interchange rates."
I used to do this in the UK brought my monthly season ticket using a 3% cashback used to make just under £20 a month.
Of course the badly implemented EU changes which in theory should have benefited the consumer did not - the merchants just took the reduction in interchange fees and didn't cut prices at all for the end consumers
The amount they need to pay can sometimes be deduced from the card itself. For MasterCard for example they will pay more if it is marked World Elite than if it is marked World. And for VISA, they pay more for Infinite than for Signature.
The credit card issuer fees can be the worst because of these high reward credit cards.
I'm very aware of this when shopping at a local small business. I'll pay either in cash or with my debit card, because the credit card fees are seriously squeezing small merchants.