High costs are weighing down working-class families, while driving big rewards to rich ones. Over the past few decades, the credit-card market has quietly transformed into two credit-card markets: one offering generous benefits to wealthy Americans, the other offering expensive debt to the poor, with the latter subsidizing the former. While balances are compounding at the highest average APR in decades, a brutal 21.5 percent, the haves are not just pulling away from the have-nots. The people swiping their cards to pay for food and gas are also paying for wealthy cardholders’ upgrades to business class.
In the credit-card industry, the well-to-do are known as transactors. They pay off their balance in full every month, avoiding late fees and interest charges. They use credit cards as a convenient payment method, and as a way to earn travel points, cash back, airport-lounge vouchers, seat upgrades, and other goodies. Given how valuable these rewards are, transactors make money by spending money. “If you’re spending $100,000 a year, you’re getting maybe $1,500 back in terms of points or cash,” Aaron Klein of the Brookings Institution told me. “You’re not paying taxes on that. It’s worth closer to $2,500 or $3,000 a year in taxable income.” (That’s double the average worker’s weekly earnings.)
Accepting cash costs the retailer nothing. Accepting a debit card issued by a large bank costs it 0.05 percent, plus some change […], and a fancy rewards card as much as 4 percent.
Why the hell would retailers accept to pay 4% transaction fees? That’s very high. Unless banks or card processors are diluting fees so that retailers just see average rates?
In any case, pressure from retailers against high-fee cards could help.
When it comes to businesses and money I’m sure everyone wants to make as much as possible and therefore are applying all possible pressure at all times. It’s that pressure from Visa and Mastercard is much stronger because you’re not going to be able to run a business effectively without taking payments that way.
Card processing should be a service that’s provided by a central government and even capitalists would be happy about it but we live in a neoliberal hegemony.
A public credit card processor option might help, since competition amongst large private processors isn’t able to keep fees low. Retailers and citizens could compare fees between public and private processors, see the difference when a processor doesn’t give cashback nor perks to fancy card owners.
Nationalising or replacing all private processors isn’t going to happen any time soon. Adding a public option seems more realistic.
I’m not sure about the revolvers ‘subsidising’ the transactors though? Yes, those not using reward cards are getting screwed by the higher shop prices, but it’s not like banks would be losing money on the transactors. Why would banks subsidise them over…just making more money.
Here is an interesting read on the topic of credit card reward programs: https://www.bitsaboutmoney.com/archive/anatomy-of-credit-card-rewards-programs/
Banks could be losing money on transactors hoping they’d make it through different channels as well. That doesn’t change that boots theory can be seen everywhere and that system has been set up as it is by the wealthy.
