I, like a lot of you I’m guessing, have a complicated relationship with chocolate. I mean credit cards.
On the one hand, I love them. These days, cash is about as necessary as fax machines and rotary jukeboxes. And hey, giving me 1% rewards plus 30 interest-free days to pay just sweetens the pot.
On the other hand, I hate them. I’ve always paid off my balance in full each month, but the amount of money they squeeze out of people who don’t is stupendous! Not to mention annual fees, late fees, cash-advance fees, and of course merchant fees!
I’m sure most everybody already knows this, but no credit card provider could ever survive on the billions they make from consumers.. they are inclined, nay, forced to also charge the merchant a percentage of every single transaction. (Usually around 2% + 30 cents.)
Of course, it’s still way worth it for most merchants to accept credit cards. The savings over not having to deal with (as much) physical cash are pretty huge, as well as the benefit that on average people paying with credit cards spend 30% or maybe 112% more than those paying with cash.. even at McDonalds! Credit cards are generally faster than cash too, and the whole world of eCommerce which would be pretty screwed if not for electronic payments.
But hey, it’s not ALL milk and honey for the credit card companies, right? They have a lot of expenses too… all those consumers that never end up paying their bills, all that fraud and theft, and all those frequent flier miles ain’t FREE you know?!
But hey, actually, they ARE free. And it IS all milk and honey.
Because, you know who pays for all that fraud and theft? Not the credit card companies. The merchants. If a customer disputes a charge that you received the funds for, the credit card processor just takes the money back from the merchant… plus a $25 fee!
And you know who pays for all those points and cash back rewards? NOT the credit card companies! The merchants. Yep, I didn’t even realize this myself until recently, but there’s a higher rate charged to the merchant for any cards that offer any sort of benefits back to the card holder (in fact, it’s even MORE than 1%)! And as a merchant you have no choice but to accept that higher rate for those cards… even though it wasn’t your idea to offer such crazy incentives. It was Discover’s.
And you know who pays for all those deadbeat consumers? I’ll give you a hint this time. NOT THE CREDIT CARD COMPANIES! Well, they actuallllly do, a teeny little. But in the end, it’s the individual themself who pays, by having their credit report ruined for a long, long time. And, worst case, the processor at least gets to sell the debt to collections, and make a note to never offer you credit again!
All and all, it’s a pretty sweet scam. It explains why MasterCard has more than quadrupled since its IPO a little over a year ago, and why VISA’s upcoming IPO has got people pretty hot and sticky (myself included?).
Yep, pretty sweet indeed. Owning a credit-card company is the closest you can get to printing money without overthrowing a small island nation (or counterfeiting). But it’s weird… generally when you have a scam this sweet the government steps in and makes it illegal so they can start doing it… strangely in this case, the US Treasury is still happily printing trillions of dollars of paper money like they have been every year since 1789.
What If The US Treasury Switched to E-Cash?
I don’t know, call me new-fashioned, but I think it’s about time for that to change. The US Treasury has an annual budget of over $11 billion in 2004. Mastercard’s expenses for running their world-wide transaction system came to just $1.5 billion in 2006.
It seems at least somewhat possible that the US government could set up a nation-wide electronic cash system for about $10 billion less per year than they spend on the current paper one.
And that $10 billion of savings would be the least of the benefits. This new system would be instantly ubiquitous, not based on credit, electronic, and have no transaction fees! We would drop credit cards quicker than you can say “Sweet sassy molassy!” if there were any free electronic payment system that was wide-spread!
With the elimination of paper cash, I wouldn’t be surprised if tax revenues went up as well.. a happy accidental side-effect of the elimination of anonymous transactions!
And I don’t want to hear any “Waa waa waa, I don’t want the government to be able to track my purchases!” Don’t fret: for you we will always save the option of living in a cave in Montana and trading rabbit pelts for your WiMax.
But for the rest of us, it’s fortunate we live in a modern, stable, free, democracy! Get your head out of your tin foil hat and pay your damn taxes like the rest of us! If the government does illegally pry through your transactions one day, tell the media, take them to court, and elect some new congressmen like an AMERICAN!
I don’t know, call me old-fashioned, but it irks me off to no end when somebody, no matter how much or how little they make, tries to under-report income to the IRS…
For example, just this past October, New York City started requiring all taxis to accept credit cards via this new touch screen with news, gps maps, ads, and even rfid! I was pretty excited… it seemed very future-oriented of New York, and I knew having all taxis uniformly accept credit cards would mean bigger tips, quicker transactions, more customers, and just more ultimate overall sweetness.
Well, the taxi drivers disagreed! They even had a STRIKE! They said they didn’t like the “GPS tracking” or the “5% credit card fee”.
Well, the GPS tracking concern is silly… I think they said they were worried about getting caught if they went places that were illegal for them to go anyway?
The credit card fee concern was silly too. First of all, I’m sure it’s more like 2%, and second of all, I wouldn’t be surprised if the average credit card patron tipped a full dollar more than the average cash patron, way making up for that 2% fee easily.
No, the REAL reason they are against credit card fares is because it is impossible for them to not report them on their taxes.
Anyway, it’s soooooo frustrating now… virtually every time you go to pay with a credit card, the cabbie is either like “Oh.. don’t you have any cash? I really prefer cash!” or “Oh, the credit card is ‘broken,’ sorry!” or “Too late, I already ‘cut the meter’… you have to tell me earlier if you want to pay with credit card.”
Which (the last two at least) are just blatant lies! They make it such a hassle that I’ve pretty much given up on even trying my (awesome) MasterCard PayPass anymore for fear of getting verbally (or physically, like actually happened to my friend!) assaulted!
So please, Uncle Sam… do yourself, and us, the cab-riding, chinese-restaurant eating, laundramat-using, public a favor and give up on the greenback! Make inefficiency and tax-evasion a thing of the pass, and only those who are inefficient and who tax-evade will miss it…
…it will be sweet revenge indeed.