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I've seen some mention in forum topics here and I've also hears a few people in conversation say that they pay for nearly everything with a credit card, but pay off the balance each month so they never pay interest. Their reasons for this vary, but at least one that I know does it for the rewards and believes he is "making them pay" since they "don't make a dime" off of him.
My thought is this: even if a person never pays interest on their purchases and gets the rewards back, the credit card company is still making money off of every transaction that person makes at the expense of the business. Whatever reward they're "earning" back is not a loss to the credit card company. Part of it comes from the fees charged for each transaction to the business, and part of it comes from the interest paid by the millions of the cardholders who do not, or can not avoid paying interest every month. So, in the short run it may be better for the individual to do this, but in the long run isn't it worse for everybody involved (except the credit card companies) to do this? It seems that the credit card companies still win, even if they have a net balance owed to a minority of cardholders, the majority of cardholders are still going to pay into the ridiculous profits of these banks.
Wouldn't it be better to use cash or checks and cut the credit card companies out of every transaction possible?
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You make a good point about the convenience of using credit cards. I've been told by many business owners that the fee is less for debit card transactions than credit card transactions, so if you are going to use a "card" payment, better to use debit than credit. It is important to know however, that you don't have the same rights when using a debit card as you do a credit card. I still maintain that checks aren't such a big hassle that they're prohibitive to use. In fact, I've gotten to know a few store clerks here and there just during the short conversation we have while I'm writing the check. Do you know what that amounts to? In retail department stores I've been alerted to upcoming, unadvertised sales, etc. In my grocery store, I've been given discounts and coupons that I didn't bring with me or otherwise qualify for. Personal interaction is powerful, and if you can make a connection in just the time it takes to write a check....write a check!
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For some reason, our checks always get flagged by the company that the stores use to approve checks. Haven't bounced any checks either. The one that Target uses, in particular, always flags our checks. Argh.
If that weren't an issue, we'd do it more often.
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We only use checks when we don't have the option of using a card. I think with our bank card , if you use it as a debit it's free and if you use it as a credit it's 0.25 per transaction. Checks are enough of a pain to me to not use them. Nice to meet you jsexton :)
Great observation!
I also think it's funny that their transaction fee is typically a percentage. So, it's not really a "transaction fee". It's more of an unofficial tax. They do incur more risk as the amount goes up, but the formula seems skewed in their favor.
Yes, even if you pay it off...they are getting that hefty transaction fee from the business owner. Trouble is, there's not really a reasonable alternative to the conveinence factor of credit and debit cards. Online, you can move a lot of transactions to PayPal, and use direct bank account debits. Offline, in the real world, though...argh. Checks are a pain, and cash is just too many trips to the ATM, where you face another maze of potential fees.
I wonder why something like a PayPal doesn't come along for in-store transactions. Seems like the credit card companies could use some real competition.
Interesting fact...
In Europe, where the European Union closely regulates such things, the average "transaction fee" that the credit card companies get from retailers is around 0.3%. Australia is around 0.5%. In the U.S it's closer to 2-3%.
Also, an interesting excerpt from this article at newrules.org