CC Question

[shuan24]

companies should make cash discounts policy...that way, everybody wins! (well except for the cc company)

 

[Tom]

Originally posted by: miri
No, the real money comes from the transaction fee.

The transaction fees charged to the vendor are usually around 2%-5% of the purchase price.

Note, how the majority of sales now are on credit card, now imagine making 2%-5% pure profit on everything sold on credit card which is a lot. You know how much money that is? You would be surprised how many people pay their credit card off each month. A huge portion of credit card profits is them charging the vendors 2-5% of each credit card purchase.

the transaction fee most likely barely pays for the cost of maintaining the system, the profit comes from interest on the $8000 AVERAGE household credit card debt.

 

[dullard]

Originally posted by: miri
The credit card fee on average is a lot higher than 1-2% of each sale. More like 2-5%

Miri is correct. For example, see here:
Paypal: $0.30 cents per transaction PLUS 2.9% of each sale goes to paypal. The more you charge, the smaller the percentage, it might go as low as 1.9%.

Others: $0.50 cents per transaction is common. The 1.9%-3.5% claim in that link is typical as well. The actual amount varies with the original setup fee. A small setup fee usually gets you around 3.5%, a large setup fee ($700+) usually gets you around 2.5%.

 

[dullard]

Originally posted by: Tom
the transaction fee most likely barely pays for the cost of maintaining the system, the profit comes from interest on the $8000 AVERAGE household credit card debt.

100% wrong. Switch that around and you'll be correct. I posted the numbers a couple months ago in another thread. Let me look for them.

In the meantime: this is the real result: the interest charged barely covers the cost of maintaining bad debt. All the profit comes from the transaction fees.

 

[Tom]

Originally posted by: dullard

Originally posted by: Tom
the transaction fee most likely barely pays for the cost of maintaining the system, the profit comes from interest on the $8000 AVERAGE household credit card debt.

100% wrong. Switch that around and you'll be correct. I posted the numbers a couple months ago in another thread. Let me look for them.

In the meantime: this is the real result: the interest charged barely covers the cost of maintaining bad debt. All the profit comes from the transaction fees.

You do realize that most retail transactions in the world don't occur through Paypal ?

furthermore- if you were right, then most CC companies would follow the american Express model, which is exactly the opposite of reality.

 

[chuckywang]

Another question: How come Mastercard/Visa are always grouped together? I haven't seen a business that take one, but not the other. Also, why are they so popular?

 

[StageLeft]

Originally posted by: shuan24
companies should make cash discounts policy...that way, everybody wins! (well except for the cc company)

I believe it's illegal to do that, or against the agreement you make with a CC merchant if you own a store. Some stores do not take credit for this reason, and I do not shop at them because of it.

The way I see it is if a store has to slightly raise its prices to break even after the CC costs, if you are NOT using a CC to make a purchase you're getting screwed. Might as well use it 🙂 Anyway, with the rewards now that are increasingly tantalizing, it makes no sense not to put most/all purchases on a CC if you have the discipline (which most don't) to pay it off.

 

[dullard]

Originally posted by: Tom
You do realize that most retail transactions in the world don't occur through Paypal ?

furthermore- if you were right, then most CC companies would follow the american Express model, which is exactly the opposite of reality.

I don't see what Paypal has to do with your comment on fees. Of course I realize that Paypal is not the typical payment method. I linked it simply since I knew it had the data and I could find it quickly.

In 2003 (the last full year reported), Discover made $3.02 billion in revenue from this store charge. Subtract off cash back and other incentives and Discover made $1.01 billion in profit from that store charge alone. For interest and fees, Discover had $1.86 billion in revenues (this is unsurprizingly less than the revenue from the ~4% charge). However, interest and fees ended with a $22 million LOSS after expenses and writeoffs for bad debt). Net income after tax: $636 million. source

 

[dullard]

Originally posted by: shuan24
companies should make cash discounts policy...that way, everybody wins! (well except for the cc company)

They used to do that all the time. Most gas stations were the prime example. You'd drive up and there would be a 4% cash discount at virtually all gas stations. In fact, I still know of a few that do this (Visa only).

Then the CC companies got wiser. MasterCard put a clause in the store agreement that stated the store cannot charge more for CC use. Discover did so too. I don't know about American Express (I assume they did, but I have no proof). Visa is the only one left without that clause. Thus if a store charges more for CC use, they can only accept Visa. My former university did that - Visa only so they could charge the students more if they wanted to pay tuition and fees with a credit card.

Originally posted by: chuckywang
Another question: How come Mastercard/Visa are always grouped together? I haven't seen a business that take one, but not the other. Also, why are they so popular?

They were both originally created by the same group of banks. It was done for the illusion of competition. MasterCard and Visa are almost identical (with a few exceptions as noted above). They are popular since for the longest time they were the best. Discover was rarely accepted (Discover charges the highest transaction fee). American Express for years didn't have a grace period (thus you owed interest even if you paid off in full each month). Thus MC and Visa were the best options for many years.

 

[Vic]

Originally posted by: chuckywang
Another question: How come Mastercard/Visa are always grouped together? I haven't seen a business that take one, but not the other. Also, why are they so popular?

They have similar transaction rules and are usually supplied to merchants by the same vendor. The 2 card systems (once known as BankAmericard and MasterCharge) came about almost at the same time in the mid-60s as competing card processing networks. They were the first cards you could take almost anywhere to shop, with a automated approval system that did not require calling the bank for approval at point-of-sale.

Miri and Dullard are absolutely correct. Transaction costs are generally $0.30 to $0.50 per transaction plus 2%-5% of sale, depending on merchant sales volume (the more volume, the lower the price). This is where credit cards make their money. Interest pays for the loans, where investor margins are tight and defaults high.

 

[shuan24]

and people looked at me funny when I said that one day there will be no more hard cash. Everything will be done through credit cards (or some sytem similar to it).

 

[dullard]

Originally posted by: shuan24
and people looked at me funny when I said that one day there will be no more hard cash. Everything will be done through credit cards (or some sytem similar to it).

Are you wanting every small child to buy a $300+ credit card machine, and to pay for the $0.50 per transaction to sell a piece of bubblegum to his friend? Don't even think of the cost for the phone line/wireless internet required for every man/woman/child.

Maybe someday it'll happen. But it certainly won't happen with the current fees for CC transactions.

 

[C'DaleRider]

I worked at a bike shop for around 7 years as chief mechanic and lead salesperson. We switched merchant banks because they offered a rate of 2.85% per CC transaction for us....and for a small business, that was a GREAT rate!

 

[Vic]

Originally posted by: dullard
They were both originally created by the same group of banks. It was done for the illusion of competition. MasterCard and Visa are almost identical (with a few exceptions as noted above). They are popular since for the longest time they were the best. Discover was rarely accepted (Discover charges the highest transaction fee). American Express for years didn't have a grace period (thus you owed interest even if you paid off in full each month). Thus MC and Visa were the best options for many years.

Not the same group of banks. Visa was created in the late '50s by Bank of America, and Mastercard in the mid-60s by a group of banks headed by First National Bank of California (which later became First Interstate which was later acquired by Wells Fargo). There is no illusion of competition. They are actuall competitors, then and today.
AMEX not only had no grace period, but also required that the balance be paid off in full at the end of each month, and thus was known as a charge card instead of a credit card, as the consumer was never allowed to carry a balance. With no credit limit, this made it desirable to business men on expense accounts, but much less desirable to ordinary consumers.
Discover was created in the 70s by Novus Financial, a division of Sears, as an expanded offshoot of its own store cards, and was seen as a non-prime card for many years. Today, Discover is owned by Morgan Stanley (who also used to be owned by Sears).

 

[Vette73]

Originally posted by: miri
Now you know why a lot of places wont take American Express. American Express usually charges merchants a higher percentage of the sale price than Visa and Master Card.

And example is where I work. The restaurant takes away 3% of our charge tips because that is about what the credit card fee is.

You might want to contact Visa/Mastercard and the state employment office, i think that is against the law, and probable against the CC rules the business agrees to when they accept most CC's.

 

[HardcoreRobot]

lots of people are up to their eyeballs in debt, and yes the interest in outrageous

but, guess what, the CC company will likely never see that money

their profits come from the transaction fee paid by the merchant and indirectly included in your purchase

the amount is small, but the quantity of transactions is mind-boggling

 

[rahvin]

Originally posted by: VicTransaction costs are generally $0.30 to $0.50 per transaction plus 2%-5% of sale, depending on merchant sales volume (the more volume, the lower the price).

IIRC, in the last 5 years, per transaction fees were done away with, this is one of the reasons there is no longer a minimum purchase requirement at the majority of places that take plastic. Now this does depend on who processes your transactions for you but as I understand it Visa/MC dropped the per transaction charges and implimented flat fee percentages based on the fraud percentage, of course this won't match what the processor charges the business unless the business is big enough to avoid the small processor/aggregators.

 

[intogamer]

Thats why some stores require a 10-20 dollar or more purchase.

 

[miri]

Originally posted by: Marlin1975

Originally posted by: miri
Now you know why a lot of places wont take American Express. American Express usually charges merchants a higher percentage of the sale price than Visa and Master Card.

And example is where I work. The restaurant takes away 3% of our charge tips because that is about what the credit card fee is.

You might want to contact Visa/Mastercard and the state employment office, i think that is against the law, and probable against the CC rules the business agrees to when they accept most CC's.

Why would that be against the law? Why should the restaurant have to pay the transaction fee on the servers tip?

 

[RossMAN]

1) Credit card companies charge businesses usually 2-3% to accept cc's.

This is why CostCo does NOT accept credit cards (other than American Express)

2) Interest charges

3) Fees

 

[miri]

Originally posted by: Tom

Originally posted by: dullard

Originally posted by: Tom
the transaction fee most likely barely pays for the cost of maintaining the system, the profit comes from interest on the $8000 AVERAGE household credit card debt.

100% wrong. Switch that around and you'll be correct. I posted the numbers a couple months ago in another thread. Let me look for them.

In the meantime: this is the real result: the interest charged barely covers the cost of maintaining bad debt. All the profit comes from the transaction fees.

You do realize that most retail transactions in the world don't occur through Paypal ?

furthermore- if you were right, then most CC companies would follow the american Express model, which is exactly the opposite of reality.

He is right, the reason why the American Express model works is that they charge the merchant significantly higher merchant fees than Visa/Master Card. That is why a lot of businesses do not do business with American Express.

 

[Vette73]

Originally posted by: miri

Originally posted by: Marlin1975

Originally posted by: miri
Now you know why a lot of places wont take American Express. American Express usually charges merchants a higher percentage of the sale price than Visa and Master Card.

And example is where I work. The restaurant takes away 3% of our charge tips because that is about what the credit card fee is.

You might want to contact Visa/Mastercard and the state employment office, i think that is against the law, and probable against the CC rules the business agrees to when they accept most CC's.

Why would that be against the law? Why should the restaurant have to pay the transaction fee on the servers tip?

Thats like saying what do CC's charge a % of the TOTAL price and not the profit?

The CC is based on the business, NOT the person working. If the business has a high rate of chargebacks or is labeled at risk they get charged more. So the servers have to "pay" for the business?

 

[Tom]

Originally posted by: dullard

Originally posted by: Tom
You do realize that most retail transactions in the world don't occur through Paypal ?

furthermore- if you were right, then most CC companies would follow the american Express model, which is exactly the opposite of reality.

I don't see what Paypal has to do with your comment on fees. Of course I realize that Paypal is not the typical payment method. I linked it simply since I knew it had the data and I could find it quickly.

In 2003 (the last full year reported), Discover made $3.02 billion in revenue from this store charge. Subtract off cash back and other incentives and Discover made $1.01 billion in profit from that store charge alone. For interest and fees, Discover had $1.86 billion in revenues (this is unsurprizingly less than the revenue from the ~4% charge). However, interest and fees ended with a $22 million LOSS after expenses and writeoffs for bad debt). Net income after tax: $636 million. source

I don't see where you come up with a figure of $3 billion in store charges? If you are referring to the non-interest income part of the report, that is not just store charges, in fact it is mostly other things, if you read the whole report you'll see what I mean.

Additionally, according to the report, administering the credit card business costs 1.9 billion, more than the income from store fees, as near as I can tell from that report.

And the category you call a right off of bad debt, which offsets the income from interest, is actually an accounting scheme, I'm pretty sure, because the amount written off shows up as a positive cash flow in another part of the report. I believe it's a way to transfer potential liability to another division or entity, but it doesn't mean all of the stated losses are actually losses, in fact the actual losses are much smaller.


Additionally, Discover card hardly represents the entire credit card industry.

 

[wiredspider]

What are you, eight?😕