Airlines Are Just Banks Now
October 9, 2023 3:08 PM Subscribe
Ah, deregulating an industry made the economy worse. Who could've thought the course of action that always makes things worse would make things worse?
posted by GoblinHoney at 3:27 PM on October 9, 2023 [30 favorites]
posted by GoblinHoney at 3:27 PM on October 9, 2023 [30 favorites]
Is this a good deal for the American consumer? That’s a trickier question. Paying for a flight or a hotel room with points may feel like a free bonus, but because credit-card-swipe fees increase prices across the economy—Visa or Mastercard takes a cut of every sale—redeeming points is more like getting a little kickback. Certainly the system is bad for Americans who don’t have points-earning cards. They pay higher prices on ordinary goods and services but don’t get the points, effectively subsidizing the perks of card users, who tend to be wealthier already.
There was a recent question on AskMe about whether this fuels inflation... Here we are.
posted by They sucked his brains out! at 3:44 PM on October 9, 2023 [7 favorites]
There was a recent question on AskMe about whether this fuels inflation... Here we are.
posted by They sucked his brains out! at 3:44 PM on October 9, 2023 [7 favorites]
Wendover Productions did a video about this almost 2 years ago as well.
posted by cgg at 3:44 PM on October 9, 2023 [4 favorites]
posted by cgg at 3:44 PM on October 9, 2023 [4 favorites]
That's so weird to me. I'm as reasonably well off as someone making a salary (as opposed to owning things) can be, and sometimes feel like I'm the only person in my circles that isn't playing some credit card points game. It never seemed profitable enough to bother with the hassle, but clearly a lot of people think it's worthwhile. Wonder what I am (or they are) missing.
posted by Ickster at 3:48 PM on October 9, 2023 [4 favorites]
posted by Ickster at 3:48 PM on October 9, 2023 [4 favorites]
Ickster, it's possible to get the kickback without playing points games. My credit-union Visa gives me 2% of purchases back, full stop, no games.
posted by humbug at 4:24 PM on October 9, 2023 [14 favorites]
posted by humbug at 4:24 PM on October 9, 2023 [14 favorites]
IIRC the financing arms of GE, GM and some others took on so much risk that they nearly tanked those companies in the aftermath of the 2008 financial crisis. Are airlines repeating others' mistakes?
posted by Popular Ethics at 4:35 PM on October 9, 2023 [5 favorites]
posted by Popular Ethics at 4:35 PM on October 9, 2023 [5 favorites]
Yeah, flying American means you're getting a bunch of sales spiels for their credit card. It's at pretty much every stage. Even the flight attendants have to try to sell them in flight. It's annoying as hell.
posted by azpenguin at 4:36 PM on October 9, 2023 [10 favorites]
posted by azpenguin at 4:36 PM on October 9, 2023 [10 favorites]
Google is an ad tech company, universities and hospital networks are real estate companies, and airlines are credit card companies. It's like a physical/industrialized form of doublespeak
posted by treepour at 4:59 PM on October 9, 2023 [30 favorites]
posted by treepour at 4:59 PM on October 9, 2023 [30 favorites]
I'm as reasonably well off as someone making a salary (as opposed to owning things) can be, and sometimes feel like I'm the only person in my circles that isn't playing some credit card points game
Listen, when I was not reasonably well off, they were happy to tear off my skin inch by inch. I have no problem relieving them of a few hundred bucks from time to time. The threshold's a little higher than it used to be, though.
posted by praemunire at 5:02 PM on October 9, 2023 [4 favorites]
Listen, when I was not reasonably well off, they were happy to tear off my skin inch by inch. I have no problem relieving them of a few hundred bucks from time to time. The threshold's a little higher than it used to be, though.
posted by praemunire at 5:02 PM on October 9, 2023 [4 favorites]
Is there something Congressional going on with CC rewards programs? I got one of those unskippable Youtube political ads about how terrible it would be if Government Regulated Fees. Haven't seen it since, and was kinda weird in its "Walmart would have a big sad if this passes, tell your congressman no!" pitch that seems like, counterproductive?
Bit of googling suggests that was perhaps the most hinged of their unhinged ad spots:
Set in the fictional town of "Point Less, Kansas," the ads released this month highlight residents whose livelihoods have been impacted by the loss of credit card reward points — a fate the group concludes could soon be a reality for millions of Americans should the legislation become law.
The three ads depict a range of scenarios for individuals who are forced to live life without credit card reward points, including a local hotel and airport that have been seemingly abandoned by travelers and guests.
"Would you want to live in a world without points?" the narrator asks before laying out each scenario in two 30-second ads.
But that campaign was last year? Maybe I should just get Youtube Premium to kill the ads.
posted by pwnguin at 5:02 PM on October 9, 2023 [2 favorites]
Bit of googling suggests that was perhaps the most hinged of their unhinged ad spots:
Set in the fictional town of "Point Less, Kansas," the ads released this month highlight residents whose livelihoods have been impacted by the loss of credit card reward points — a fate the group concludes could soon be a reality for millions of Americans should the legislation become law.
The three ads depict a range of scenarios for individuals who are forced to live life without credit card reward points, including a local hotel and airport that have been seemingly abandoned by travelers and guests.
"Would you want to live in a world without points?" the narrator asks before laying out each scenario in two 30-second ads.
But that campaign was last year? Maybe I should just get Youtube Premium to kill the ads.
posted by pwnguin at 5:02 PM on October 9, 2023 [2 favorites]
I do quite a bit of corporate travel, so I end up playing these games quite a bit. Having cards that align with my travel preferences “just makes sense” and the airline (Air Canada) gives a slight priority boost for things like upgrade requests if you’re a cardholder. I’m also closing in on Lifetime Platinum status with Marriott - free breakfasts at participating brands forever! ;)
I’m the end, I can save significantly on our annual “visit family” vacation by doing this - on the order of three thousand dollars. That makes all the being away from home close to acceptable.
posted by clicking the 'Post Comment' button at 5:05 PM on October 9, 2023 [3 favorites]
I’m the end, I can save significantly on our annual “visit family” vacation by doing this - on the order of three thousand dollars. That makes all the being away from home close to acceptable.
posted by clicking the 'Post Comment' button at 5:05 PM on October 9, 2023 [3 favorites]
Literally on a Delta flight as I write this. I no longer have any idea how mileage programs work, but somehow got silver in Delta this year with no idea how. Of course flip side - I expect American Airlines will remove the Million Miler program right about the time I get to 999k.
Also niche concern, but I dread that Vail resorts and Alterra will start the same for Ski resorts. Want Fast Pass access to lifts this season, get the IKON American Express and spend at least 30k on it sort of deal.
*Looks at Vail’s last quarterly results and general struggles for revenue growth* Oh god they are going to do that, aren’t they?
posted by inflatablekiwi at 5:05 PM on October 9, 2023 [3 favorites]
Also niche concern, but I dread that Vail resorts and Alterra will start the same for Ski resorts. Want Fast Pass access to lifts this season, get the IKON American Express and spend at least 30k on it sort of deal.
*Looks at Vail’s last quarterly results and general struggles for revenue growth* Oh god they are going to do that, aren’t they?
posted by inflatablekiwi at 5:05 PM on October 9, 2023 [3 favorites]
praemunire : For now. They just gutted the program so we may see some falling off.
Oh yes, I got the message that they’re “simplifying” the program by hiking the medallion qualifications to 20 bucks on the point and cutting off lounge access. Either continue to pay $250 a year for the Delta branded platinum card that will suck clown shit or pony up almost $700 bucks for the official Amex platinum.
posted by dr_dank at 5:11 PM on October 9, 2023
Oh yes, I got the message that they’re “simplifying” the program by hiking the medallion qualifications to 20 bucks on the point and cutting off lounge access. Either continue to pay $250 a year for the Delta branded platinum card that will suck clown shit or pony up almost $700 bucks for the official Amex platinum.
posted by dr_dank at 5:11 PM on October 9, 2023
Either continue to pay $250 a year for the Delta branded platinum card that will suck clown shit or pony up almost $700 bucks for the official Amex platinum.
I think they're trying to nudge you up to the $550 Delta Reserve, but even that won't have "unlimited" lounge visits anymore, so I don't know what they're thinking.
posted by praemunire at 5:13 PM on October 9, 2023 [2 favorites]
I think they're trying to nudge you up to the $550 Delta Reserve, but even that won't have "unlimited" lounge visits anymore, so I don't know what they're thinking.
posted by praemunire at 5:13 PM on October 9, 2023 [2 favorites]
IIRC the financing arms of GE, GM and some others took on so much risk that they nearly tanked those companies in the aftermath of the 2008 financial crisis. Are airlines repeating others' mistakes?
The airlines aren't issuing cards themselves. Banks pay them for branding rights (and the points and other benefits). Airlines used to issue their own in house credit cards (not an Amex or whatever, but a "store" card) where they were taking on the credit risk, but AFAIK those are all gone now.
It's the opposite of credit risk for the airlines. There is a liability on their books from all the points, which is why they expire much sooner than they used to. Sometimes, they're even an alternate form of financing. Amex bought several years worth of Skymiles at one point when Delta was in the shitter.
posted by wierdo at 5:52 PM on October 9, 2023 [8 favorites]
The airlines aren't issuing cards themselves. Banks pay them for branding rights (and the points and other benefits). Airlines used to issue their own in house credit cards (not an Amex or whatever, but a "store" card) where they were taking on the credit risk, but AFAIK those are all gone now.
It's the opposite of credit risk for the airlines. There is a liability on their books from all the points, which is why they expire much sooner than they used to. Sometimes, they're even an alternate form of financing. Amex bought several years worth of Skymiles at one point when Delta was in the shitter.
posted by wierdo at 5:52 PM on October 9, 2023 [8 favorites]
IIRC the financing arms of GE, GM and some others took on so much risk that they nearly tanked those companies in the aftermath of the 2008 financial crisis. Are airlines repeating others' mistakes?
Just to clarify: despite the catchy headline ("Airlines Are Just Banks Now") and the slightly softened line in the body of the article ("the strange evolution of airlines into quasi-banks"), in terms of any of the bank-like things involved in the credit card debt transactions themselves, the airlines are doing none of it. They're not facilitating it like the credit card companies (Visa/MC/AmEx); they're not issuing the cards and financing the debt like the banks (Chase, CapitalOne, etc.); they're just putting their branding on the cards and getting a kickback for (via the credit cards' actual banks) handing out these mileage points. It's totally risk free, and -- should the public ever accumulate enough unused points to pose any risk -- they can just devalue the points (as they've done before).
The only way the article squints and calls this bank-like is by likening them to a central bank like the federal reserve, issuing currency (the points). Unless I missed it, the article doesn't even really show the extent to which issuing these points might or might not be more central to their business than selling airplane tickets. Maybe the 1% of GDP figure is meant to do that, but that's not the amount flowing through the airlines. Rather, that's the amount flowing through the credit card + actual bank system.
(Okay, wait -- we can try to do that math here ourselves. Delta's total revenue for 2022 was 50.6 billion. The GDP was around 25,744 billion. The 1% of that flowing through the AmericanExpress/[unnamed banks] cards then comes out to 257.44 billion. And if mileage points are roughly equivalent to getting let's say 2% cash back, then that means the amount flowing into Delta's points system is only 5.15 billion. That's just around 10% of their total revenue, not really enough to support the headline, no?)
[One correction before hitting Post Comment, which doesn't change much of the above: I'd forgotten that American Express, unlike Visa and MasterCard, issues a good amount (most?) of its own cards without going through a separate bank. So they're the real bank-like thing in this story. And on preview, wierdo's now covered a bunch of this much more concisely, but I don't have it in me to figure out how to edit this down now to just what's left.]
posted by nobody at 5:58 PM on October 9, 2023 [15 favorites]
Just to clarify: despite the catchy headline ("Airlines Are Just Banks Now") and the slightly softened line in the body of the article ("the strange evolution of airlines into quasi-banks"), in terms of any of the bank-like things involved in the credit card debt transactions themselves, the airlines are doing none of it. They're not facilitating it like the credit card companies (Visa/MC/AmEx); they're not issuing the cards and financing the debt like the banks (Chase, CapitalOne, etc.); they're just putting their branding on the cards and getting a kickback for (via the credit cards' actual banks) handing out these mileage points. It's totally risk free, and -- should the public ever accumulate enough unused points to pose any risk -- they can just devalue the points (as they've done before).
The only way the article squints and calls this bank-like is by likening them to a central bank like the federal reserve, issuing currency (the points). Unless I missed it, the article doesn't even really show the extent to which issuing these points might or might not be more central to their business than selling airplane tickets. Maybe the 1% of GDP figure is meant to do that, but that's not the amount flowing through the airlines. Rather, that's the amount flowing through the credit card + actual bank system.
(Okay, wait -- we can try to do that math here ourselves. Delta's total revenue for 2022 was 50.6 billion. The GDP was around 25,744 billion. The 1% of that flowing through the AmericanExpress/[unnamed banks] cards then comes out to 257.44 billion. And if mileage points are roughly equivalent to getting let's say 2% cash back, then that means the amount flowing into Delta's points system is only 5.15 billion. That's just around 10% of their total revenue, not really enough to support the headline, no?)
[One correction before hitting Post Comment, which doesn't change much of the above: I'd forgotten that American Express, unlike Visa and MasterCard, issues a good amount (most?) of its own cards without going through a separate bank. So they're the real bank-like thing in this story. And on preview, wierdo's now covered a bunch of this much more concisely, but I don't have it in me to figure out how to edit this down now to just what's left.]
posted by nobody at 5:58 PM on October 9, 2023 [15 favorites]
I guess I'm just curious how much free milage flights rewarded to card members [not frequent fliers, that's different] are driving up the cost of flying for everyone. You know those people aren't flying for free, really.
posted by hippybear at 6:06 PM on October 9, 2023 [1 favorite]
posted by hippybear at 6:06 PM on October 9, 2023 [1 favorite]
(Oh, and I should add, my questioning the headline wasn't meant to question its post-worthiness here. The article was a neat read -- most of it spelling out how the airline industry as a whole's gotten so much worse after its 1978 deregulation -- and I probably never would have clicked without the catchy headline, so...the Atlantic editors probably made the right move here?)
posted by nobody at 6:08 PM on October 9, 2023 [2 favorites]
posted by nobody at 6:08 PM on October 9, 2023 [2 favorites]
I guess I'm just curious how much free milage flights rewarded to card members [not frequent fliers, that's different] are driving up the cost of flying for everyone.
No, no, that's the thing. It's driving up the cost of everything for everyone! These (and all the other cards' cash back rewards, amazon points, etc. etc.) are baked into the credit card transaction fees that all merchants shoulder, which they then bake into the regular prices of every single thing we buy in this world, whether or not you're using a credit card to buy them.
(The one exception I've seen is at my laundromat, where a little sign says you can get an x% discount for using cash, underneath which it says to all prices will be added an x% fee. I think because the credit card companies forbid merchants from charging directly for cc use?)
posted by nobody at 6:13 PM on October 9, 2023 [4 favorites]
No, no, that's the thing. It's driving up the cost of everything for everyone! These (and all the other cards' cash back rewards, amazon points, etc. etc.) are baked into the credit card transaction fees that all merchants shoulder, which they then bake into the regular prices of every single thing we buy in this world, whether or not you're using a credit card to buy them.
(The one exception I've seen is at my laundromat, where a little sign says you can get an x% discount for using cash, underneath which it says to all prices will be added an x% fee. I think because the credit card companies forbid merchants from charging directly for cc use?)
posted by nobody at 6:13 PM on October 9, 2023 [4 favorites]
> Google is an ad tech company, universities and hospital networks are real estate companies, and airlines are credit card companies. It's like a physical/industrialized form of doublespeak
it's akin to the enshitificating mission-drift of how that cable tv channel we liked 10 - 30 years ago now only shows something dreadful, offensive, and/or dumb
posted by glonous keming at 6:16 PM on October 9, 2023 [3 favorites]
it's akin to the enshitificating mission-drift of how that cable tv channel we liked 10 - 30 years ago now only shows something dreadful, offensive, and/or dumb
posted by glonous keming at 6:16 PM on October 9, 2023 [3 favorites]
I think because the credit card companies forbid merchants from charging directly for cc use?
They credit card companies used to blanket ban it in the US (and elsewhere were they could). A Supreme Court case in 2017 changed that in the US - and now it depends on which state you are in, and other factors as to if a merchant can charge a credit card surcharge or “convenience fee” for using a credit card.
posted by inflatablekiwi at 6:36 PM on October 9, 2023 [7 favorites]
They credit card companies used to blanket ban it in the US (and elsewhere were they could). A Supreme Court case in 2017 changed that in the US - and now it depends on which state you are in, and other factors as to if a merchant can charge a credit card surcharge or “convenience fee” for using a credit card.
posted by inflatablekiwi at 6:36 PM on October 9, 2023 [7 favorites]
A Supreme Court case in 2017 changed that in the US - and now it depends on which state you are in
Interesting (thanks!). I'm in NY, whose law that case was directly challenging, and so I wonder why extra fees for using a credit card don't seem to be more common, then -- and why my laundromat bothers with the tricksy verbiage (which, now that I think of it, I hadn't noticed prior to 2018 or so, but I think the laundromat may have changed ownership around then, too).
posted by nobody at 6:48 PM on October 9, 2023
Interesting (thanks!). I'm in NY, whose law that case was directly challenging, and so I wonder why extra fees for using a credit card don't seem to be more common, then -- and why my laundromat bothers with the tricksy verbiage (which, now that I think of it, I hadn't noticed prior to 2018 or so, but I think the laundromat may have changed ownership around then, too).
posted by nobody at 6:48 PM on October 9, 2023
"Would you want to live in a world without points?" the narrator asks before laying out each scenario in two 30-second ads.
Come back, zinc!
posted by star gentle uterus at 6:55 PM on October 9, 2023 [9 favorites]
Come back, zinc!
posted by star gentle uterus at 6:55 PM on October 9, 2023 [9 favorites]
This is what happens when you make loan sharking legal. But we're past that now and have moved on to making running books legal. I guess the next thing is making it legal to put hits on people .
posted by srboisvert at 6:57 PM on October 9, 2023
posted by srboisvert at 6:57 PM on October 9, 2023
The KFM version of that gag is much better: Zinc Oxide and You
posted by bartleby at 7:06 PM on October 9, 2023 [3 favorites]
posted by bartleby at 7:06 PM on October 9, 2023 [3 favorites]
I'm not sure but based from vague snark from people in the airline industry I think the FAs who do the credit card announcements sign up for it; they get their own bonus based on number of new accounts. American does push them particularly unrelentingly.
posted by snuffleupagus at 7:08 PM on October 9, 2023
posted by snuffleupagus at 7:08 PM on October 9, 2023
In bad years for the airlines, the money they get from card issuers (and others) buying points is a substantial part of their profit. Excluding the folks who really work at it to extract the maximum value of the points, the amount they get paid far outstrips the incremental cost of redemption. Unless they're losing out on cash somebody would have paid for a seat, which they almost never do, the cost of redemption is near zero. There's a small incremental fuel cost, but it's tiny in comparison to the fixed cost of flying the route. It's in the low tens of dollars while they're getting a hundred or two from the card issuers.
This is why they charge like twice as many points for a short-notice no blackout redemption as they do for a 21 day advance "purchase" limited availability redemption. The latter costs them almost nothing. The former costs them hundreds in lost revenue, so they make damn sure they're charging enough points to still make money on the deal in almost all cases. Points ain't cheap, even when you buy them by the billion.
posted by wierdo at 7:32 PM on October 9, 2023 [2 favorites]
This is why they charge like twice as many points for a short-notice no blackout redemption as they do for a 21 day advance "purchase" limited availability redemption. The latter costs them almost nothing. The former costs them hundreds in lost revenue, so they make damn sure they're charging enough points to still make money on the deal in almost all cases. Points ain't cheap, even when you buy them by the billion.
posted by wierdo at 7:32 PM on October 9, 2023 [2 favorites]
inflatablekiwi: I dread that Vail resorts and Alterra will start the same for Ski resorts. Want Fast Pass access to lifts this season, get the IKON American Express and spend at least 30k on it sort of deal.
[screams quietly in Coloradan picturing lifties hawking card signups while you wait for a chair]
posted by deludingmyself at 7:35 PM on October 9, 2023 [2 favorites]
[screams quietly in Coloradan picturing lifties hawking card signups while you wait for a chair]
posted by deludingmyself at 7:35 PM on October 9, 2023 [2 favorites]
I recall maybe 12 years ago or so an airline miles website that tracked deals and 'price mistakes' found a big one where a flight to Cyprus was for a short time period priced at pennies on the dollar. A bunch of folks bought, the airline honored the price, and for the next 3 years people posted how maybe points they got based on that one mistake.
I guess I didn't realize that in today's market that just isn't possible anymore.
posted by 922257033c4a0f3cecdbd819a46d626999d1af4a at 7:48 PM on October 9, 2023
I guess I didn't realize that in today's market that just isn't possible anymore.
posted by 922257033c4a0f3cecdbd819a46d626999d1af4a at 7:48 PM on October 9, 2023
screams quietly in Coloradan picturing lifties hawking card signups while you wait for a chair
Having low paid Argentinian J-1 workers - who can barely afford to make a living and sleep 6 to a room - pitching us credit cards while we wait in long lines for poorly maintained lifts and runs that are groomed only in the same sense my son’s hair was groomed for school photos this year (quick bit of spit and it will look brushed) is the exciting future of our sport thatVail investors….errrr…guests dream of here in Park City. Experience of a lifetime, etc.
posted by inflatablekiwi at 8:17 PM on October 9, 2023
Having low paid Argentinian J-1 workers - who can barely afford to make a living and sleep 6 to a room - pitching us credit cards while we wait in long lines for poorly maintained lifts and runs that are groomed only in the same sense my son’s hair was groomed for school photos this year (quick bit of spit and it will look brushed) is the exciting future of our sport that
posted by inflatablekiwi at 8:17 PM on October 9, 2023
Pwnguin: Is there something Congressional going on with CC rewards programs?
There was a bill in 2022 aimed at luwering interchange/swipe fees by requiring competition outside of mastercard/visa. It never got to a vote. It's been resurrected in this congress as Senate bill 1838. The banks (probably correctly) say they won't be able to be nearly as generous with rewards if this bill passes.
Nerdwallet does a good job of explaining it. So does BankRate.
posted by toxic at 8:45 PM on October 9, 2023 [1 favorite]
There was a bill in 2022 aimed at luwering interchange/swipe fees by requiring competition outside of mastercard/visa. It never got to a vote. It's been resurrected in this congress as Senate bill 1838. The banks (probably correctly) say they won't be able to be nearly as generous with rewards if this bill passes.
Nerdwallet does a good job of explaining it. So does BankRate.
posted by toxic at 8:45 PM on October 9, 2023 [1 favorite]
That's just around 10% of their total revenue, not really enough to support the headline, no?
Taking your figures at face value, if airline net profit margins are 1.2% of net revenue, them being able to generate an additional 10% of net revenue with zero marginal cost via issuing points is MASSIVE. In my firm today, we are absolutely struggling to try get our EBIT margins up from 7% to closer to about 9% which is the realistic cost of capital (mixture of debt and equity).
Realistically, what you want to do is go into their financial statements, and see how much they're earning directly through selling reward points. Many stores do this with gift cards, for example, where they will sell a $50 gift card to a retailer for $45 knowing that statistically 15% of cards never get redeemed, and even better, get redeemed only years later, by which point they would be way ahead due to cost of capital being 10% per year. The difference is that the gift cards have a direct cash value on them. While airlines can earn billions of dollars selling "points" which don't even have a cash value attached to them - the airline is free to devalue those points if it needs to, restrict when and how the points can be used, etc.
posted by xdvesper at 9:16 PM on October 9, 2023 [2 favorites]
Taking your figures at face value, if airline net profit margins are 1.2% of net revenue, them being able to generate an additional 10% of net revenue with zero marginal cost via issuing points is MASSIVE. In my firm today, we are absolutely struggling to try get our EBIT margins up from 7% to closer to about 9% which is the realistic cost of capital (mixture of debt and equity).
Realistically, what you want to do is go into their financial statements, and see how much they're earning directly through selling reward points. Many stores do this with gift cards, for example, where they will sell a $50 gift card to a retailer for $45 knowing that statistically 15% of cards never get redeemed, and even better, get redeemed only years later, by which point they would be way ahead due to cost of capital being 10% per year. The difference is that the gift cards have a direct cash value on them. While airlines can earn billions of dollars selling "points" which don't even have a cash value attached to them - the airline is free to devalue those points if it needs to, restrict when and how the points can be used, etc.
posted by xdvesper at 9:16 PM on October 9, 2023 [2 favorites]
I wonder why extra fees for using a credit card don't seem to be more common
As a retailer, you really don’t want to throw unusual charges at customers like that. Maybe if Square or other widely-used payment systems started offering it as a feature you would see it more, but I wouldn’t hold my breath. Card processing fees are deeply rooted at this point, they are going to be very hard to dislodge. (And part of that is the widespread consumer addiction to points and “cash back”.)
posted by jimw at 9:35 PM on October 9, 2023
As a retailer, you really don’t want to throw unusual charges at customers like that. Maybe if Square or other widely-used payment systems started offering it as a feature you would see it more, but I wouldn’t hold my breath. Card processing fees are deeply rooted at this point, they are going to be very hard to dislodge. (And part of that is the widespread consumer addiction to points and “cash back”.)
posted by jimw at 9:35 PM on October 9, 2023
I wonder why extra fees for using a credit card don't seem to be more common
As a retailer, you really don’t want to throw unusual charges at customers like that.
In Australia we started out the same as the US where the card issuers wrote contracts forbidding retailers from passing on CC fees. The competition regulator deemed this anti-competitive because it created a hidden cross subsidization effect where customers who paid cash were partially paying the fees for customers who used cards (and got the rewards).
The competition regulator made it illegal for card issuers to dictate retailer pricing. But then the opposite effect occured where retailers started charging extra large fees (5%-10%) for credit card users even though the merchant fees were about 1% to 2%. Interestingly, many users paid the high fees because of the convenience factor, and even for those that switched to cash, many businesses could take advantage of cash transactions to evade tax since there was no paper trail for cash transactions.
So the competition regulator had to step in again, and defined the standard fee pass-through rates per card - the retailer could only pass on the exact amount the merchant charged them. This finally provided transparecy for card transactions - consumers would see that they needed to pay a 2.5% fee to use AMEX, but only 1.25% for Visa and Mastercard credit transactions, 0.75% for their debit transactions, and a mere 0.3% for EFTPOS - and then decide on their choice of card accordingly. Is a 2.5% fee worth it for the rewards or would you rather pay by EFTPOS instead? Or you still want the insurance and consumer protections of Visa / Mastercard but you don't care about points so you use debit instead of credit.
posted by xdvesper at 10:59 PM on October 9, 2023 [5 favorites]
As a retailer, you really don’t want to throw unusual charges at customers like that.
In Australia we started out the same as the US where the card issuers wrote contracts forbidding retailers from passing on CC fees. The competition regulator deemed this anti-competitive because it created a hidden cross subsidization effect where customers who paid cash were partially paying the fees for customers who used cards (and got the rewards).
The competition regulator made it illegal for card issuers to dictate retailer pricing. But then the opposite effect occured where retailers started charging extra large fees (5%-10%) for credit card users even though the merchant fees were about 1% to 2%. Interestingly, many users paid the high fees because of the convenience factor, and even for those that switched to cash, many businesses could take advantage of cash transactions to evade tax since there was no paper trail for cash transactions.
So the competition regulator had to step in again, and defined the standard fee pass-through rates per card - the retailer could only pass on the exact amount the merchant charged them. This finally provided transparecy for card transactions - consumers would see that they needed to pay a 2.5% fee to use AMEX, but only 1.25% for Visa and Mastercard credit transactions, 0.75% for their debit transactions, and a mere 0.3% for EFTPOS - and then decide on their choice of card accordingly. Is a 2.5% fee worth it for the rewards or would you rather pay by EFTPOS instead? Or you still want the insurance and consumer protections of Visa / Mastercard but you don't care about points so you use debit instead of credit.
posted by xdvesper at 10:59 PM on October 9, 2023 [5 favorites]
The funny thing about that particular scheme is that EFTPOS and possibly debit transactions are then subsidizing people who pay in cash. Yes, accepting cash costs money, even ignoring the possibility of shrinkage. You gotta count it, you have to pay someone to transport it to the bank, and you gotta pay the bank to accept large amounts of cash.
This is why it's not uncommon in the US for chains to offer free cash back on debit transactions and some chains even go so far as to put ATMs in their stores that they stock with the cash they take in. Brinks ain't cheap.
20 years ago when 2.5-3% was considered super high, I didn't find myself concerned with the situation for that reason. Cards just weren't substantially more expensive except for very small stores and most people weren't sporting rewards cards anyway, so the average cost to the stores was way lower.
One of the things that bugs me the most today is that it's impossible for the retailer to know what they're going to pay for any given transaction. That Visa card might cost them 1.2% or it might cost them nearly 4%. Who knows? And who can say if they're actually being charged the correct amount. The retailer just has to assume that their processor isn't lying. I guess Square and the like are a little better since they charge x% regardless of card type, but x is much higher than other processors charge, so...
posted by wierdo at 11:57 PM on October 9, 2023 [3 favorites]
This is why it's not uncommon in the US for chains to offer free cash back on debit transactions and some chains even go so far as to put ATMs in their stores that they stock with the cash they take in. Brinks ain't cheap.
20 years ago when 2.5-3% was considered super high, I didn't find myself concerned with the situation for that reason. Cards just weren't substantially more expensive except for very small stores and most people weren't sporting rewards cards anyway, so the average cost to the stores was way lower.
One of the things that bugs me the most today is that it's impossible for the retailer to know what they're going to pay for any given transaction. That Visa card might cost them 1.2% or it might cost them nearly 4%. Who knows? And who can say if they're actually being charged the correct amount. The retailer just has to assume that their processor isn't lying. I guess Square and the like are a little better since they charge x% regardless of card type, but x is much higher than other processors charge, so...
posted by wierdo at 11:57 PM on October 9, 2023 [3 favorites]
There's another aspect of how credit card use has changed over the last many years--how big or how small is the purchase you're making?
When I was a lot younger, it was considered kind of ridiculous to use a credit card at, say, Burger King. Why would you use a credit card for something that small? The credit card was for purchases you wanted to pay for over a bit of time, but not big enough to get bank financing for. Piece of stereo equipment, say.
Over the years, that changed, and today, most people don't really think twice about using a card for a coffee order.
Now, even more recently, there are changes at the other end of the market. It's becoming more common to use cards to pay for larger transactions. I had a fairly comprehensive HVAC project done on my house last year: the contractor asked me if I wanted to put it on a credit card. (I didn't, fwiw, I paid for it with a HELOC loan.) I know of at least one person among my acquaintances who claims to have charged a new roof on his house to a credit card, and then used the earned points to get free airfare and hotel on an overseas vacation.
At the lower end, we've seen people use Visa/MC/Amex credit cards instead of cash--but at the top end, I think we're seeing more people use cards instead of what would have been bank financing a decade or two ago. What the proportions are there, how many users or dollars in each market segment, I don't know.
The difference when people use cards on those big purchases: those bank loans were generally secured with collateral. Credit cards generally aren't. The other difference: those bank loans were probably at much lower interest rates.
The profiles of individual users who use cards probably vary pretty widely, too. People who have the ability to charge a new roof, pay it off right away, and pocket the points are getting a sweet deal. People who charge big purchases up because that's their only option may get stuck with criminally high interest rates as they pay it off. (But a bit of cold comfort--maybe those unsecured card debts can be blown away in a bankruptcy.)
posted by gimonca at 4:24 AM on October 10, 2023 [3 favorites]
When I was a lot younger, it was considered kind of ridiculous to use a credit card at, say, Burger King. Why would you use a credit card for something that small? The credit card was for purchases you wanted to pay for over a bit of time, but not big enough to get bank financing for. Piece of stereo equipment, say.
Over the years, that changed, and today, most people don't really think twice about using a card for a coffee order.
Now, even more recently, there are changes at the other end of the market. It's becoming more common to use cards to pay for larger transactions. I had a fairly comprehensive HVAC project done on my house last year: the contractor asked me if I wanted to put it on a credit card. (I didn't, fwiw, I paid for it with a HELOC loan.) I know of at least one person among my acquaintances who claims to have charged a new roof on his house to a credit card, and then used the earned points to get free airfare and hotel on an overseas vacation.
At the lower end, we've seen people use Visa/MC/Amex credit cards instead of cash--but at the top end, I think we're seeing more people use cards instead of what would have been bank financing a decade or two ago. What the proportions are there, how many users or dollars in each market segment, I don't know.
The difference when people use cards on those big purchases: those bank loans were generally secured with collateral. Credit cards generally aren't. The other difference: those bank loans were probably at much lower interest rates.
The profiles of individual users who use cards probably vary pretty widely, too. People who have the ability to charge a new roof, pay it off right away, and pocket the points are getting a sweet deal. People who charge big purchases up because that's their only option may get stuck with criminally high interest rates as they pay it off. (But a bit of cold comfort--maybe those unsecured card debts can be blown away in a bankruptcy.)
posted by gimonca at 4:24 AM on October 10, 2023 [3 favorites]
When I was a lot younger, it was considered kind of ridiculous to use a credit card at, say, Burger King. Why would you use a credit card for something that small?
I wonder what the breakdown of debt/credit cards is for that sort of transactions. I would never put Burger King on a credit card, but on a debit card sure. Also the death of checks has been a major driver here, limiting options on the go to either cash on hand or a debit or credit card.
posted by jmauro at 5:30 AM on October 10, 2023
I wonder what the breakdown of debt/credit cards is for that sort of transactions. I would never put Burger King on a credit card, but on a debit card sure. Also the death of checks has been a major driver here, limiting options on the go to either cash on hand or a debit or credit card.
posted by jmauro at 5:30 AM on October 10, 2023
Yep. Capital One Mastercard. I pay everything with it (except utilities, which I suppose I could do...), groceries and all. Rarely ever use cash anymore. Then I pay the balance every month on time. Never a dollar in interest or fees, and I can use the points towards air travel.
What's great about it is I just use it to buy plane tickets—any plane tickets—then when they appear on the credit card bill, I go online and get a refund for the cost of the tickets. I used to call and do it, but they've even made their website really easy to use. Any airline, going anywhere, any day of the year. Sounds like an ad for Capital One and I guess it it sorta is... I have never had a problem with them, they've been good about weird charges/minor fraud issues and if you buy plane tickets a couple times a year? It's fantastic. I haven't "paid" for plane tickets in years, though I don't fly very often.
You just have to pay the balance on time, every month.
posted by SoberHighland at 5:49 AM on October 10, 2023 [4 favorites]
What's great about it is I just use it to buy plane tickets—any plane tickets—then when they appear on the credit card bill, I go online and get a refund for the cost of the tickets. I used to call and do it, but they've even made their website really easy to use. Any airline, going anywhere, any day of the year. Sounds like an ad for Capital One and I guess it it sorta is... I have never had a problem with them, they've been good about weird charges/minor fraud issues and if you buy plane tickets a couple times a year? It's fantastic. I haven't "paid" for plane tickets in years, though I don't fly very often.
You just have to pay the balance on time, every month.
posted by SoberHighland at 5:49 AM on October 10, 2023 [4 favorites]
What's great about it is I just use it to buy plane tickets—any plane tickets—then when they appear on the credit card bill, I go online and get a refund for the cost of the tickets
Wait, there's clearly something I obviously don't understand here, so a dumb question from me... you buy a ticket for $1,000, then you refund a ticket for $1,000, and then.... what? What do you gain out of it?
posted by xdvesper at 6:36 AM on October 10, 2023 [1 favorite]
Wait, there's clearly something I obviously don't understand here, so a dumb question from me... you buy a ticket for $1,000, then you refund a ticket for $1,000, and then.... what? What do you gain out of it?
posted by xdvesper at 6:36 AM on October 10, 2023 [1 favorite]
As in, the way their program works is to redeem the points you buy the fare normally using the card, and then that transaction is reimbursed. Rather than having to book fares with points, through some portal; or go through some other conversion process with various gotchas.
posted by snuffleupagus at 7:07 AM on October 10, 2023
posted by snuffleupagus at 7:07 AM on October 10, 2023
When I was a lot younger, it was considered kind of ridiculous to use a credit card at, say, Burger King
We accepted credit cards at my first retail job in the early 90s. The process for accepting a credit card involved manually writing a charge slip and using the slider to take an imprint (CHUNK CHUNK). And then using the one shared modem terminal to get an approval code from the processor. I think we were a little behind technologically, but this was a national chain.
Whereas tap-to-pay is now the fastest payment option available. Attitudes didn't just change spontaneously.
posted by Horselover Fat at 7:29 AM on October 10, 2023 [6 favorites]
We accepted credit cards at my first retail job in the early 90s. The process for accepting a credit card involved manually writing a charge slip and using the slider to take an imprint (CHUNK CHUNK). And then using the one shared modem terminal to get an approval code from the processor. I think we were a little behind technologically, but this was a national chain.
Whereas tap-to-pay is now the fastest payment option available. Attitudes didn't just change spontaneously.
posted by Horselover Fat at 7:29 AM on October 10, 2023 [6 favorites]
When I was a lot younger, it was considered kind of ridiculous to use a credit card at, say, Burger King.
I was just thinking about this the other day--that the many hours in my youth I spent working the front at a fast food chain involved no credit cards whatsoever. Just cash. I was a cash-dispensing macheeeeen. Now, as a customer (thank god), it seems strange to use it.
posted by praemunire at 8:12 AM on October 10, 2023
I was just thinking about this the other day--that the many hours in my youth I spent working the front at a fast food chain involved no credit cards whatsoever. Just cash. I was a cash-dispensing macheeeeen. Now, as a customer (thank god), it seems strange to use it.
posted by praemunire at 8:12 AM on October 10, 2023
In the past few years I've started carrying more cash on me than I had in the past decade or so. That's because some of the restaurants I frequent the most have started adding a surcharge for card usage. I guess my state (New Jersey) has recently started allowing the surcharge. It's interesting to see which places have and have not instituted the surcharge. I wonder how that will change in the next few years as well.
posted by mollweide at 8:41 AM on October 10, 2023
posted by mollweide at 8:41 AM on October 10, 2023
Points are not "earned" just like money from investments is not "earned".
Acquired, perhaps. Or accumulated.
posted by aniola at 9:19 AM on October 10, 2023 [1 favorite]
Acquired, perhaps. Or accumulated.
posted by aniola at 9:19 AM on October 10, 2023 [1 favorite]
Wait, there's clearly something I obviously don't understand here, so a dumb question from me... you buy a ticket for $1,000, then you refund a ticket for $1,000, and then.... what? What do you gain out of it?
Not sure what you're asking. Maybe I didn't explain it well? I buy the tickets with that credit card. Then, once the charge appears on my statement, I use accrued "points" from that same credit card (Capital One in this case) to eliminate the charge for the plane tickets.
So my plane tickets are "free" to me. This only works because I usually only fly once or twice a year... especially recently with Covid. But the Points I accumulate will pay down even portions of the air fare cost. It doesn't have to cover the whole price. So I can always use however many Points I have to pay down at least part of the air fare cost.
I think it works really well for a person like me. You just have to pay your balance every month, which I have been doing since I was in my early 20s. I don't over spend, I don't go into debt. And at least with the card I use, there's no annual fee of any kind.
They rely on people carrying balances and charging interest on that to make the billions that they make. I never carry a balance past its due date.
posted by SoberHighland at 9:28 AM on October 10, 2023
Not sure what you're asking. Maybe I didn't explain it well? I buy the tickets with that credit card. Then, once the charge appears on my statement, I use accrued "points" from that same credit card (Capital One in this case) to eliminate the charge for the plane tickets.
So my plane tickets are "free" to me. This only works because I usually only fly once or twice a year... especially recently with Covid. But the Points I accumulate will pay down even portions of the air fare cost. It doesn't have to cover the whole price. So I can always use however many Points I have to pay down at least part of the air fare cost.
I think it works really well for a person like me. You just have to pay your balance every month, which I have been doing since I was in my early 20s. I don't over spend, I don't go into debt. And at least with the card I use, there's no annual fee of any kind.
They rely on people carrying balances and charging interest on that to make the billions that they make. I never carry a balance past its due date.
posted by SoberHighland at 9:28 AM on October 10, 2023
Ickster It never seemed profitable enough to bother with the hassle, but clearly a lot of people think it's worthwhile. Wonder what I am (or they are) missing.
I mean, do you need another hobby?
posted by vitabellosi at 12:17 PM on October 10, 2023 [1 favorite]
I mean, do you need another hobby?
posted by vitabellosi at 12:17 PM on October 10, 2023 [1 favorite]
I think the thing with the Capital One card is you can use the points to zero out any purchase? This might not be that card, might be a card that only applies to airline miles, but there are Capital One cards where you earn points and you can just apply them to your balance any time you want.
The real bonus here is that you don't have to go through a portal or redemption process to convert the points to something you can use, you go to where you go to the CC place you go to regularly and just cancel out the purchase.
The hassle of using other airline points often feels like a deliberate barrier they put in place to keep those points from being spent by people who aren't willing to deal with the bother. This is sort of the opposite of that.
posted by hippybear at 2:08 PM on October 10, 2023
The real bonus here is that you don't have to go through a portal or redemption process to convert the points to something you can use, you go to where you go to the CC place you go to regularly and just cancel out the purchase.
The hassle of using other airline points often feels like a deliberate barrier they put in place to keep those points from being spent by people who aren't willing to deal with the bother. This is sort of the opposite of that.
posted by hippybear at 2:08 PM on October 10, 2023
I am restricted to using it on airfare (and certain other things), but it doesn't matter which airline or date/time.
There are other things I could use the points on, but I have never seen anything I am remotely interested in using the points for (though I never really looked deeply into it, I think rental cars, certain hotels, etc). The air fare thing is so completely easy. I haven't paid for a plane ticket in years, just because I buy groceries and pay restaurant tabs, electronics, my various streaming services, my Apple Music account, etc. with one single card... and always pay off the balance.
I guess I could use it on hotels, but they specify certain hotel chains... then you have to make sure you book specific hotels versus cheapest, best location, etc. It's so bloody easy for airfare that I just use it for that and that only.
posted by SoberHighland at 2:18 PM on October 10, 2023 [1 favorite]
There are other things I could use the points on, but I have never seen anything I am remotely interested in using the points for (though I never really looked deeply into it, I think rental cars, certain hotels, etc). The air fare thing is so completely easy. I haven't paid for a plane ticket in years, just because I buy groceries and pay restaurant tabs, electronics, my various streaming services, my Apple Music account, etc. with one single card... and always pay off the balance.
I guess I could use it on hotels, but they specify certain hotel chains... then you have to make sure you book specific hotels versus cheapest, best location, etc. It's so bloody easy for airfare that I just use it for that and that only.
posted by SoberHighland at 2:18 PM on October 10, 2023 [1 favorite]
I’m still very much a person who prefers cash (yes, yes, throw your stones, light your torches), but Costco is the one that got me. They hounded me about their executive membership for a while, escalating to directly calling me (in English, no less, which just doesn’t happen in Japan), and when I tried to say I don’t spend nearly enough there to justify the price, the unbelievably patient woman on the line said, “Sir, you spent close to ¥700,000 here last year.” At the time, that was nearly $6,000, and yes, I use Costco’s meat section to supply my semi-legal meat club with better bacon and sausage than is otherwise available here, but damn, I was more than a little taken aback.
So, we signed up. We get points for non-Costco purchases as well, so we pretty much only use the Costco Mastercard. We’ve got ¥60,000 worth of points to use up by the end of the year, and I’m looking at buying a new washing machine with it. Last year, we finally replaced our 14 year old tv with points.
I still prefer cash, but cash isn’t funding our household appliance purchases.
posted by Ghidorah at 2:56 PM on October 10, 2023 [2 favorites]
So, we signed up. We get points for non-Costco purchases as well, so we pretty much only use the Costco Mastercard. We’ve got ¥60,000 worth of points to use up by the end of the year, and I’m looking at buying a new washing machine with it. Last year, we finally replaced our 14 year old tv with points.
I still prefer cash, but cash isn’t funding our household appliance purchases.
posted by Ghidorah at 2:56 PM on October 10, 2023 [2 favorites]
semi-legal meat club
I'm delighted by this every time you mention it and would watch the indie documentary
posted by snuffleupagus at 4:12 PM on October 10, 2023 [1 favorite]
I'm delighted by this every time you mention it and would watch the indie documentary
posted by snuffleupagus at 4:12 PM on October 10, 2023 [1 favorite]
Thanks snuffleupagus + SoberHighland + hippybear for the clarification... I've not personally come across such a scheme in Australia, hence my puzzlement. It sounds like a great idea! When I heard the word "refund" I thought you cancelled the flight entirely.
Where I am we just get points to convert to gift cards to use at various retailers.
posted by xdvesper at 4:55 PM on October 10, 2023 [1 favorite]
Where I am we just get points to convert to gift cards to use at various retailers.
posted by xdvesper at 4:55 PM on October 10, 2023 [1 favorite]
Australia is a waste land for points accumulation. This is an absolute travesty since Australians use their cards so much. You even have to PAY to get credit cards that get you points instead of shopping around for the best options.
posted by jadepearl at 10:39 AM on October 11, 2023
posted by jadepearl at 10:39 AM on October 11, 2023
jadepearl, I paid for my card, but my logic was that the $139 annual fee was less than I’d otherwise pay in luggage fees for the flights I’d book with points (one of the card benefits is that the first bag for up to eight passengers is free), so I would instantly come out ahead (and then there were the bonus points and so on).
Oh, and I didn’t even have to pay for the flight with the card - I ordered the card weeks after the booking!
posted by clicking the 'Post Comment' button at 5:13 PM on October 11, 2023
Oh, and I didn’t even have to pay for the flight with the card - I ordered the card weeks after the booking!
posted by clicking the 'Post Comment' button at 5:13 PM on October 11, 2023
See, I got burned by Qantas on luggage and air miles for international. It irks me that you pay the fee, and need to accumulate a large amount of points to be unable to book dates using points with salt to the wound of very crappy service from Qantas.
The US allows more competition for cards not requiring payment and benefits such as, points or a percentage back on purchases. I was surprised my Australian Costco card did not provide rebates as in the US.
posted by jadepearl at 4:08 AM on October 12, 2023
The US allows more competition for cards not requiring payment and benefits such as, points or a percentage back on purchases. I was surprised my Australian Costco card did not provide rebates as in the US.
posted by jadepearl at 4:08 AM on October 12, 2023
The only way the article squints and calls this bank-like is by likening them to a central bank like the federal reserve, issuing currency (the points). Unless I missed it, the article doesn't even really show the extent to which issuing these points might or might not be more central to their business than selling airplane tickets. Maybe the 1% of GDP figure is meant to do that, but that's not the amount flowing through the airlines. Rather, that's the amount flowing through the credit card + actual bank system.Delta reported that Skymiles brings in about $5 billion from their share of the Amex credit card fees and other member miles purchases. That's 10% of their annual revenue. Given that Delta's 2022 net income was about $1.1 billion you could argue that Skymiles is a large component of them being profitable.
Also, the crux part of the scheme that's mentioned in the article and hasn't been talked about in this thread is that, in 2020, when COVID froze air travel and starved the airlines for cash, the airlines sought loans using their rewards programs as collateral.
Airline used a synthetic currency (flight points) and got banks to give them real hard cash for it. Airlines have also been able to generate additional revenue by allowing passengers to buy points from them. That's another method of turning a completely virtual asset into real currency, and that's not all that different from exchanging dollars for, say, Euros.
Bitcoin and cryptobros can only dream of that sort of liquidity for their assets.
posted by bl1nk at 7:42 PM on October 12, 2023 [1 favorite]
As an American who spent 2 weeks in Australia this summer ... it was so much easier to wave my card and pay for things without having any idea of what I was charged. Paying a living wage means not really looking at the total. I took cash out at the airport, but it seemed really awkward to spend it anywhere.
posted by armacy at 8:25 PM on October 12, 2023
posted by armacy at 8:25 PM on October 12, 2023
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posted by praemunire at 3:24 PM on October 9, 2023 [3 favorites]