CC Rewards?

[Pupart]

Rewards Cards Only Reward the Credit Industry

By Kevin LoVecchio

One small business owner wrote regarding the high costs that card processors charge retailers for every credit card transaction. These fees can range as high as 6 to 7% depending on the volume of transactions and type of card, with rewards card incurring the highest fees.

Interestingly, some consumers don't realize that the rewards percentages that kick back into their accounts are not coming from the credit card company. Rather, the business on the other end pays that amount (and then some) towards the transaction.

Many consumers might find these types of redistributions perfectly acceptable, but the point is often missed that businesses often compensate for these expenses by raising prices.

Moreover, as our reader points out, retailors are not allowed to give discounts to customers who pay by cash or check. Doing so will cause them to lose the "privilege" of accepting credit cards as a form of payment.

Thus, the merchant's credit card-related expenses get transferred to all customers, those with rewards cards and otherwise, and everyone ends up paying more for every item and every purchase. What good are those rewards if you're simply paying more up front?

The only group making a profit or deriving a benefit from these arrangements is, of course, the credit card industry. Our reader suggests that this "smacks of a monopoly."

But the credit industry wants you to believe that your "1% cash back" or miniscule airline miles reward is a little something extra that you wouldn't receive if you paid by cash. They're right, to some extent -- but only because they've forced all of us, cash customers included, to systematically pay extra up front.

Sort of puts a damper on the whole reward card/incentive program, no?

[sweeps]

I don't disagree with the article, but what's a consumer to do? Credit cards aren't going away, and businesses have already built in the cost of credit card processing into their prices. If I pay with cash out of protest, I'd only be hurting myself.

[Pupart]

Originally Posted by sweeps

I don't disagree with the article, but what's a consumer to do? Credit cards aren't going away, and businesses have already built in the cost of credit card processing into their prices. If I pay with cash out of protest, I'd only be hurting myself.

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I don't personally know the writer of the article, but I think he is just venting his feelings about the credit card co's.

[MonkeyMama]

Agreed.

We considered dropping our cards out of protest to the industry, but figure we are paying more and more for goods and services regardless, due to merchant fees. Might as well get our rewards to offset those costs. Just the way we have looked at it for a long while. But I think the point is that most people don't really realize this. IT's a double whammy for those sucked into credit card debt I guess.

[Pupart]

Unfair Credit Card Fees | Fight Fees: Get Involved


There are people trying to fight these fees!
Get involved if you care!

[Vapors]

Why don't all credit cards offer good rewards then? If they are just passing through the charge I would think they would all offer 1 or 2% cash back.

[vsjhoc]

I'm confused by the mechanics of how this works.

Say I buy something today with my Discover card. Discover charges the merchant a set percentage of my purchase amount. Do they get charged on the spot by Discover, or monthly?

Now suppose my Discover has a tiered reward system. So my cash back depends on what my standing is at the end of the month. Does Discover figure out my cash back amount, and then go back and charge the merchant? What if I made two Discover purchases on one day which tipped the balance from one tier to the next. How does Discover decide which merchant to charge the higher amount of cash back to?

[corns]

I'm confused by the mechanics of how this works.

hi vsjhoc, what the credit card issuer charges the merchant doesn't depend on how much you buy. Usually the issuer and merchant has an agreement to charge/pay a fixed % of the transaction or whatever % that's in the agreement.

retailors are not allowed to give discounts to customers who pay by cash or check. Doing so will cause them to lose the "privilege" of accepting credit cards as a form of payment.

Is there a demand for retailers accepting only cash & cheque? I mean, would you be willing to pay cash if the retailer sells 5% less than what other retailers are selling but he only accepts cash/cheque? If there's demand, then this will open opportunity for entrepreneurs to serve this niche consumers, and cash paying consumers these are.

[safari]

Merchants have agreements with credit card processors, that charge a certain fee based on the card type (Visa, MasterCard, AmEx, Discover). AmEx and Discover charge higher fees, that's why they are accepted by fewer merchants. I don't think that whether your Visa card has cashback bonus or not affects the fee that the merchant is paying to the credit card processor. The fee is going to be the same for all Visa cards. The credit card processors in turn are paying the percentage of each transaction to Visa, Mastercard, etc. For example, a credit card processor might charge merchants 3% of each sale, out of which 1.5% goes to Visa and the remaining 1.5% is their profit. In addition, there is a fixed amount added to each sale by the credit card processor, for example 30 cents. So in reality, the fee that merchants are paying is 3% + 30 cents. For example, if someone buys a pen for $1 and pays with a credit card, the merchant's fee is going to be 33 cents, which is 33% of the sale price. No wonder a lot of retailers have minimum amount requirements for using a credit card (for example, $10). There are stores that only accept cash. When I had my car fixed at a body shop, they quoted the price in cash, and if I was to pay with a credit card, it would have been 3% extra.

the point of the rewards process is the same as everything else done by the industry...get people to spend more with their plastic.

the fees obtained from the transactions are one thing but you also have the likelihood that most people (outside of the enlightened souls here) will spend more when they use plastic. the rewards create that much more encouragement, "hey it's ok, I'm getting money back for this!" this in turn (they hope) increases the chances of people carrying a balance and eventually (they hope) getting stuck with over the limit and / or late fees for whatever reason.

believe me, they wouldn't be doing it if their data didn't show it was increasing profits. those of us who come out ahead with rewards because we already have our spending under control with budgets and discipline are certainly in the minority.

and as far as discounting for cash and checks, not likely anymore. for a retailer of any reasonable size, the cost of processing paper can be substantial (the labor, cost of equipment, risk of shrink, etc.) compared to the electronic alternative. the embracing of ECA (electronic check acceptance) helps moderate that cost some but cash...you can't cut much there, ya gotta count it, sort it, wrap it, deposit it, and research when it doesn't add up.

[Vapors]

Originally Posted by corns

Is there a demand for retailers accepting only cash & cheque? I mean, would you be willing to pay cash if the retailer sells 5% less than what other retailers are selling but he only accepts cash/cheque? If there's demand, then this will open opportunity for entrepreneurs to serve this niche consumers, and cash paying consumers these are.

There is an indepentant garage/gas station a few blocks from where I work. He only accepts cash, at least for gas purchases, and charged 10 to 12 cents below what other stations charge in the area. People are always waiting in lines to buy from him. I buy there too when I don't have to wait, but for me it's not worth waiting 10 to 15 minutes in a line to save a few dollars.

Back on the topic of this thread...from what the last few posters stated (which is how I believed the process worked) it doesn't appear that Mastercard is passing through my 2% cash back for groceries back to my grocery store. They charge the same fee whether I use my 2% cash back card or my 1% cash back card. Correct?

[vsjhoc]

Originally Posted by Vapors

There is an indepentant garage/gas station a few blocks from where I work. He only accepts cash, at least for gas purchases, and charged 10 to 12 cents below what other stations charge in the area. People are always waiting in lines to buy from him. I buy there too when I don't have to wait, but for me it's not worth waiting 10 to 15 minutes in a line to save a few dollars.

Back on the topic of this thread...from what the last few posters stated (which is how I believed the process worked) it doesn't appear that Mastercard is passing through my 2% cash back for groceries back to my grocery store. They charge the same fee whether I use my 2% cash back card or my 1% cash back card. Correct?

This is exactly what I was asking. I thought the article below was saying that something different happens with a cash back card:

"Interestingly, some consumers don't realize that the rewards percentages that kick back into their accounts are not coming from the credit card company. Rather, the business on the other end pays that amount (and then some) towards the transaction."

Can anyone clarify?

BTW, if a merchant gives a discount for cash, they are breaching their contract with Visa/MC.

[tinapbeana]

from what the previous poster said, i don't think the gas station is giving a discount to cash customers, rather he only accepts cash (and therefore has no contract with Visa/MC) and prices his gas cheaper than other gas stations who accept both cash and credit cards.

[vsjhoc]

Right, I was just echoing the OP where retailer does have a MC/V contract. Sorry for confusion with LP (later poster) situation with cash only.

[creditcardfree]

Rewards are not only with cc's...I have a USAA debit card that has rewards of cash or merchandise.

[Pupart]

Originally Posted by creditcardfree

Rewards are not only with cc's...I have a USAA debit card that has rewards of cash or merchandise.

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I have a USAA debit card also.
I have never racked up enough points to get anything back yet.
No complaints though about USAA. They are simply the best IMO!