I was expecting this about disrupting the MasterCard/Visa duopoly and sure was I disappointed.
All fintech relies on two things: A bank and a payment network (Mastercard/Visa). This makes fintech an inferior product and most fintech I have tried have an abysmal customer service. Also, because fintech does its verification thing over the Internet, it seems that they rely more on their AI to block/ban people than a phone call. Fintech also seems to be more down to lick regulation, banks and mastercard feet at the expense of their customers.
This explosion of credit cards/offers/rewards is hardly innovation. It has already happened with banks (every big store has its own credit card) and it's usually a bad deal for customer as it requires "loyalty" to that brand.
That's it folks. The market has been cornered by a couple guys and it seems the regulatory barriers have been lifted high enough that nobody can enter again. Remember when MasterCard/Visa used to send these cards for free without any KYC whatsoever?
This sounds exactly why people like Jack Dorsey are pushing for bitcoin + lightning network adoption. They've experienced first hand how much gatekeeping has developed in the space (via Square + CashApp in his case) that make true innovation almost impossible.
An open, permissionless, and GLOBAL monetary network for final settlement and small payments (and micropayments) which no single competing nation state has unilateral control over would be a game changer for fintech innovation. The function of everything from Visa/Mastercard, Fedwire, SWIFT, Paypal, Western Union, etc, all rebase onto one global network with countless businesses competing on top of it to provide the most appealing user experience.
For small payments, lightning is instant and extremely low fee. For larger payments that you want certainty of settlement, even a few hours confirmation time is drastically superior to traditional settlement networks that take days if not weeks internationally. FYI, your credit card payments are instant, but not finally settled. That happens in periodic bulk batches between banks.
Eh, in the UK I already have instantaneous bank transfers that are free for normal retail customers to use.
Money arrives instantly, and as far as a retail customer is concerned, it settles instantly. Under the hood their regular batch settlement between banks, but that doesn’t matter to a retail customer, because the money is instantly withdraw-able, and covered by government deposit protection the moment the faster payment appears on your bank statement (which is milliseconds after the payment is initiated by the sender).
Why would I want to mess around with Bitcoins, when I already have access to fast, secure, cheap, money transfers to any UK bank account?
Sometimes you need to pay someone outside of the UK. Maybe you want to purchase something online. Perhaps you don't want to share your bank account with a stranger.
> Perhaps you don't want to share your bank account with a stranger.
Or else what? They'll deposit some money into your account? The biggest reason bank accounts are semi-secret in the US is free-for-all ACH pulls; a minimal threat in other countries due to the fundamental differences on who is liable for unauthorized withdrawals (not the depositor!)
SEPA gets me most of Europe, and open banking lets me use bank transfer rails for online purchases.
What’s wrong with share bank details? You can’t do anything with them, except send me money.
Most countries have similarly capable local payment systems. The US is the only developed nation I’m aware of that’s missing such basic financial infrastructure.
With the exception of stores that are cash only, 100% of my money movements in the past 10 years have been digital, from my perspective. The actual money movement technology doesn't really matter to me, as long as I can do it online. Excluding settlement times (which I don't notice, unless I'm doing a wire transfer), as a consumer there's no difference.
> without fees
With bitcoin, you're paying fees per-transaction for bitcoin itself, and both parties are paying fees to move money to/from fiat. Wire transfers for large transfers may be slower, but they're absolutely cheaper than bitcoin. Bitcoin is considerably more expensive for small payments.
> with a fair exchange rate
With the fluctuations in price in bitcoin, the exchange rate is rarely fair and almost always worse than fiat. Note that there's lots of cards that don't charge foreign transaction fees, and have quite competitive exchange rates.
To point it out again, using bitcoin requires two fiat exchanges, each of which charge fees and each of which has an exchange rate that the exchange is profiting from. If you're transferring fiat of the same currency, there's no fees and no exchange rate. Even if your transaction is between two fiat currencies, bitcoin is worse, because there's one extra layer of fees and exchange.
> With no limits on transaction sizes
I can't think of a time in which I've hit a transaction size limit. Who is this feature for? Transaction size limits exist primarily to protect people. If my card is compromised, it won't result in 100% of my money immediately (and irreversibly) being transferred away.
> with complete finality
This is an anti-selling point. If my money is stolen, I want to be able to get it back. If I typo an account number when I send a payment, I want to be able to reverse that payment.
Have you tried Wise? I've been using the service (based in the UK, created by Skype's founders). The exchange rate is always shared upfront, extremely cheap with various options provided, many free or dirt cheap, some faster but slightly more expensive. Not too sure about the rest because my use case is very specific. Excellent for international business payments and remittances, I can assure you about that.
Have you considered that people want to transfer money outside the country too? And that this volume is incredibly massive? And is critical to global trade? And that it has been used as a weapon to keep non-compliant countries out of international trade?
Do you actually know people using it to transfer money outside, or it's all in the realm of imaginary possibilities? All people I know used hawala or sometimes the expensive WU/Moneygram, but that's just me.
You are not the protagnist of reality. And one day even you might want to send money easily to somewhere other than a UK account, without jumping through any hoops of middlemen.
I think you meant “non-US centric post”. Most of the world has equivalent financial infrastructure. The US is notable for complete lack of cheap basic money transfer mechanisms.
In rhetoric we call this 'assigning homework' and it's considered deflecting, aka, trying to get out of jail free, aka, poor form, aka, you lost the argument.
I'm sure we can do better than either of these for educational material. If that's the best that exists, which I hope is far from the case, then this is essentially a "git gud scrub" situation and you have yourselves to blame for the unwashed masses still not understanding things.
What factors are holding back adoption of lighting? I’ve come across Bitcoin as a payment option before when making some purchases, but I don’t think I’ve ever seen lightning.
Exchanges are more interested in running their shitcoin casinos and making money off gambling trading fees. Some even skim off their users for withdrawal fees like crypto.com. There's not much incentive to implement something that won't make them money.
> It's been 45 minutes and I'm still waiting for my Bitcoin transaction to go through.
At this point, and given HN's POV on BTC, I can't take these statements serious unless you are willing to post the tx hash?
Most of these criticisms seem to be unfounded and only speculative, or you deliberately put a low priority mining fee and feel the need to blame the protocol for that.
The truth is a 30 cent mining fee was clearing all day in the next block, so I struggle to see how this is the fault of Bitcoin mainchain. With that said, as someone already mentioned, LN txs are instant and near free.
I mean, I'm no crypto-as-in-currency fan (but am an actual crypto fan), but Visa is maintaining an elaborate illusion. It breaks down any number of ways, which you find out the moment you try to spend 40% of your credit limit on one thing, and someone screws up the transaction so it has to go twice. Then you start getting declined at the grocery store for being over the limit when you are in fact at 61% of your limit, but the vendor has reserved 80% of your limit for that 40% transaction.
It might come as a surprise to some, but I had over the years many successful credit card transactions and I also had a few reversed when I called Visa/MC and told them something was not okay. So I have nothing new to propose here, just mentioning a system which already works fine for me.
I’m aware that you can do this with credit cards. I was replying to someone who wanted guaranteed settlement but at the same time the ability to reverse transactions (read: settled transactions). You can’t have both at the same time.
I'd rather have a bunch of gatekeepers than losing money with no recourse if my credit card number is stolen. The trade-off for crypto-style decentralization is complete loss of consumer protection.
You'll continue using a service that obfuscates their use of bitcoin and lightning, like you do now with services that obfuscate their use of Fedwire and SWIFT. They'll provide you with consumer protection services, either for a fee or in exchange for harvesting and selling your data, like they do now.
I'm not suggesting that everyone is going to use raw bitcoin and have to manage their own keys. I'm suggesting that nation states and corporations (and many individuals) will all rebase their money operations on an open network, digital protocol. Bitcoin.
So there's a bunch of existing intermediaries, which is bad, and to fix that we're going to add the exact same set of intermediaries, but on top of bitcoin, which means its good?
> An open, permissionless, and GLOBAL monetary network for final settlement and small payments (and micropayments) which no single competing nation state has unilateral control over would be a game changer for fintech innovation. The function of everything from Visa/Mastercard, Fedwire, SWIFT, Paypal, Western Union, etc, all rebase onto one global network with countless businesses competing on top of it to provide the most appealing user experience.
This is not ever going to happen.
Witness today the Ethereum tumbler getting sanctioned. When a payment method gets significant enough it will either be regulated or squashed by the state.
Some people do compare the relatively free exchange of information on the Internet with cryptocurrencies, but modern democracies regulating commerce isn't anywhere near the intent of dictatorships regulating information.
It is also quite easy for a state to exclude themselves from cryptocurrency networks, to the extent that the only transactions taking places are enabled by black market in person exchanges for cash, and no legal business entity could use that currency so you're left with the only thing bitcoin was really ever good for, evading legal controls to do trivial things or illegal things. Nothing more.
Your argument to all of the problems affecting bitcoin is...don't use bitcoin. Use this other thing, lightning, which is sort of built on bitcoin, but not really. And also not actually used anywhere, yet, even though it's supposed to be so amazing at fixing bitcoin's problems that crypto merchants should have embraced it over night.
That bitcoin's biggest proponents still haven't embraced lightning is a pretty clear admission of defeat by bitcoin apologists that bitcoin doesn't actually solve anything, and isn't actually very useful for anything, even with the fix that was supposed to finally bring bitcoin into the promised land.
Every lightning transaction (or channel update) is a valid Bitcoin transaction that can be broadcasted to the Bitcoin network and settled at any time. Lightning capacity and transactions are growing fast. "Crypto"'s biggest proponents haven't embraced lightning because they have shitcoins to sell.
>By far the most power-hungry crypto in our study, we found that a single Bitcoin transaction uses an average of 1,173 Kilowatt Hours (kWh). If we consider that the average monthly electricity usage for a UK household is 350 kWh, that’s enough to power the typical UK home for more than three months at a cost of roughly £125 ($173), based on a fixed cost of £0.11 ($0.148) per kWh
>In the U.S, it would equate to roughly 6 weeks of electricity based on an average household electricity usage of 877 kWh per month (U.S Energy Information Administration).
Not quite an entire year, but definitely a number of months.
Also according to digiconomist's latest figures, it's currently at around 1500kWh per transaction. So even worse.
Individual transactions don't use energy. The energy is used to secure the entire value of the ledger back to the very first transaction. Each layer 1 final settlement Bitcoin transaction can support potentially limitless transactions on the layer 2 lightning network. Electricity use does not equal emissions. Digiconomist works for the Dutch central bank.
> The function of everything from Visa/Mastercard, Fedwire, SWIFT, Paypal, Western Union, etc, all rebase onto one global network with countless businesses competing on top of it to provide the most appealing user experience.
Even if they do rebase on top of one global network, what incentive do these companies have to change their product offerings or their fees? Consumers will not care what Visa/Mastercard or Western Union use on the backend, could be carrier pigeons as far as most people are concerned.
What would cause fintech to become more competitive? I'd love to see every transaction fee, loan rate, etc. go to zero. But would "one global network" lead to that?
> That's it folks. The market has been cornered by a couple guys and it seems the regulatory barriers have been lifted high enough that nobody can enter again. Remember when MasterCard/Visa used to send these cards for free without any KYC whatsoever?
It’s a fundamentally hard market for anyone else to enter because Mastercard and Visa basically have natural monopolies.
The value that both Mastercard and Visa bring to the table is:
1) if you’re a bank, most merchants accept their cards
2) if you’re a merchant, most banks provide a card from one of them.
So any new network has the classic chicken and egg problem. How do you convince merchants to accept your card (and potentially additional payment processing terminals) when none of the merchants customers have the card. And in the inverse, how you get a bank to invest in integrating with your network, when no merchants accept your card?
The EU tried to force a fox on this issue by creating EuroPay. Which ultimately failed and was bought by… Mastercard. But on the upside, part of the purchase deal require that Mastercard provide “at-cost” access to its network for a new card network to piggy back off, to help solve the above chicken and egg problem. But atlas’s, even that doesn’t reduce the barrier to entry enough, especially when coupled with the EU rules capping maximum interchange fees.
> How do you convince merchants to accept your card (and potentially additional payment processing terminals) when none of the merchants customers have the card.
Well, at least at the national scale, it can and is done. You start with terminal providers or select the niche that doesn't use them at all (online payments). Then you need top 5 banks to support your new method in their mobile apps/transaction systems. All is left is massive advertising campaign, and if it is successful, other banks will join. https://en.wikipedia.org/wiki/Mobile_payment contains a huge list of attempts that worked out (or not).
It is going international where things get very tricky. Even Paypal and Stripe had to be based on Visa/MC, there are no other worldwide options than credit cards. It is a bit better if you want to only cover EU(thanks to PSD2 banks had to provide APIs), but that is all. Google's and Apple's payment systems could become independent from Visa/MC but people just don't want to top up some weird accounts when they can just "connect" a card instead.
> How do you convince merchants to accept your card (and potentially additional payment processing terminals) when none of the merchants customers have the card. And in the inverse, how you get a bank to invest in integrating with your network, when no merchants accept your card?
In Russia banks and merchants were convinced to use the national payment system basically overnight.
In India, RuPay (Rupee+Pay not Russia+Pay) was essentially adopted through a combination of incentives and penalities. Though not overnight, they did manage to get a sizable share of the domestic market in a few years
Congress is poised to force Visa and Mastercard to allow their branded cards to be processed through alternate processing networks. That should be an interesting shakeup, if it pans out.
Because markets are never anti-competitive on their own, oligopolies are only ever due to big bad regulators, right? Uh-huh. Some alternate ideas about why the CC payment processors are an oligopoly:
1. They have a card in every wallet and a reader in every aisle.
2. They can force merchants to hide the fees they charge.
3. They don't just process payments, they arbitrate disputes.
(1) could be addressed by standardization (see: Europe). (2) could be outlawed. (3) could be replaced with better consumer protections or smoother small-claims process.
Most markets have a substantial undergrowth of perverse incentives and anti-competitive strategies. Killing the gardener doesn't make the weeds disappear.
Cryptocurrency is a niche hobbyist area within fintech, nothing more. If it all turned off tomorrow, virtually nobody would notice. Compare that with Visa or SWIFT, which are actual cornerstones.
Let me rephrase — the type of people (consultants, VCs, industry analysts, blockchain bros, etc.) who use the term "fintech" on a regular basis consider crypto/blockchain technologies to be a key area of fintech innovation.
From https://en.wikipedia.org/wiki/Financial_technology: "[Fintech] is the technology and innovation that aims to compete with traditional financial methods in the delivery of financial services. Artificial intelligence, Blockchain, Cloud computing, and big data are regarded as the 'ABCD' (four key areas) of FinTech."
In contrast, the credit card networks which have been with us for decades are considered to be "traditional financial methods". Even Visa thinks about itself as a company that partners with "fintechs" and "fintech enablers" rather than being a "fintech" itself, e.g. "Our worldwide network helped fintechs like Chime, Rappi and Airwallex deliver on their vision". (https://usa.visa.com/partner-with-us/info-for-partners/info-...)
Visa has an SVP of fintech who has a ton of org under him, gives talks about how it’s a fintech company, and has hired tons of people into jobs that have “fintech” in their title. We can argue about whether they’re right, but Visa certainly considers itself a fintech company.
Completely disagree. I have tried 3 fintechs. I still use two as my primary "banks".
They got rid of all the fees and BS the banks had been abusing me with for decades. There have been a few times traditional banking was better so I used a credit union I kept open. All my other traditional bank accounts have been closed for years.
Do they really have any presence? I spend almost all of my time internationally and basically never see AmEx. Had a Discover card years ago when I began traveling but got rid of it because its presence was spotty in the US and nonexistent elsewhere.
I'd expect more out of UniPay at this point -- I do actually see that quite often.
I got one for private use: somehow they swing a deal with US grocers that recovers a significant fraction of the transaction processing fee back to the consumer. no idea why, but that's why i got one.
> The reality of credit card adoption – and we have decades of data to demonstrate this – is that young consumers don’t like credit cards until, suddenly, they do. Older Gen Z consumers are reaching this point.
For me, this is only because I will be locked out of access to certain essential financial products as the result of having no credit history. The advice I hear is to get a credit card and use it like a debit card, always paying off on schedule. Why can't decades of debit card use and living within my means demonstrate the same thing? It seems ridiculous to me. The starter credit cards also offer, in my opinion, rather measly rewards, so there is very little upside. It really feels like I'm just being forced to do a dance for the banks.
And can someone explain why credit scores aren't just visible in every bank's (web) app? I acknowledge that it is ultimately possible to obtain your credit score free of charge, but how is it not anti-consumer that doing this requires you to jump through hoops and use a service like ClearScore?
I believe there's a strong case for saying that credit scores exist in a similar space to criminal records, in that they're often used to further marginalise those most vulnerable in society. Or at the very least, that is the result of their existence.
For the avoidance of doubt, I do not believe myself to be a vulnerable member of society and I do not feel as though credit scores are wielded against me in the way I describe in the paragraph above. I also do not think that the marginalising effect due to credit scores is as great as that of having a criminal record.
> And can someone explain why credit scores aren't just visible in every bank's (web) app?
my 90-years-old credit union shows FICO score in both the web and mobile app (mobile app even plots this over time). actual scores too, from one of the big three: not some second-order estimate.
not namedropping because discussion of this article in particular seems at risk of devolving into promo/self-interested discussion. but if this is a thing you care about when choosing a bank it absolutely is possible to find with a bit of searching.
as for regulations, and why aren’t banks required to display FICO scores prominently: as the article discusses, the link between FICO score and borrowing rates/eligibility isn’t always direct (an 850 FICO doesn’t magically open the door for a $1M home, business, or personal loan: you still need proof of income, etc). i don’t know that FICO is actually encoded into law anywhere: more relevant would be requiring lenders to justify why they do/don’t approve loans, and at what rates, IMO. many do this already to some degree, but i’m not sure to what extent that’s regulated.
Both banks I've used for credit cards recently, Capital One and U.S. Bank, both show regularly updated credit scores. This is a relatively new thing and quite welcome!
> The advice I hear is to get a credit card and use it like a debit card, always paying off on schedule. Why can't decades of debit card use and living within my means demonstrate the same thing?
Having a history of using a debit card to only spend as much money as you have does not really reflect much about how you will behave when given the ability to spend money that you don't have (credit).
I disagree. As someone with a history of blowing past my debit card allotted overdraft amount (though more recently am much better), I think my history with a debit card would show that I was young and foolish, but I have learned better and I wouldn't be a problem now. But I'm only spit balling, you may have more insight to shoot this down.
That's why, in the US at least, overdraft fees have been banned. Allowing overdrafts and then charging exorbitant fees turned debit cards into basically just a worse credit card.
Considering the ease with which credit cards can be obtained, and all the incentives that often come with them, I would argue that argument doesn't nearly carry as much weight here as it would in other cases.
There is an upside to credit cards over debit cards -- you haven't given up your own money until you pay the credit card balance. This is an important way to keep yourself safe.
My wife had her debit card compromised and some money taken and that money is gone. She filed a police report and disputed it with her bank and, after sometime, was able get her money back. If there is fraud on a credit card, the situation is very different because you haven't lost any money. There may be some fraudulent charges that need disputing but during that time you're still entirely whole.
And that applies to any number of goods and services as well. If you paid cash for something and didn't receive what you paid for, you're out that money. On credit card, you're whole until you make a payment.
In my opinion, nobody should be using debit cards if they have the option to use a credit card. It's safer, there's usually some rewards, and there's often added purchase insurance. I broke an expensive phone one week after purchasing it and the repairs were covered by my credit card.
Well, it does though, by raising the average cost of transactions for merchants, a cost that they will pass on to consumers. It means that if you're not using a credit card, then you're paying higher prices in order to subsidize people who do use credit cards. In my observation, it's also becoming more common for merchants to have two different prices for credit card users and others, so you may find yourself paying more if you use credit cards everywhere.
It's against a merchant's credit card agreement to charge different prices for credit cards vs. non-credit cards. A few small merchants will offer "cash discounts" as a way to get around this but it's not common.
I get cash back from my credit card. This is partially paid by the merchant fees. So one way to look at it is that I'm getting a discount at every merchant by using my credit card. Anyone not using a credit card is not getting that discount.
It is insanity that the US still works on a positive credit system. Literally every other developed country in the world has it the other way round, prove you have negative or bad credit with failed payments.
The US system is both inequitable and exploitative.
Sure, if you can prove revenue, income or assets. Same process for someone with good credit in the US - except we don't shut the doors on people who haven't got a fucking credit card like some sort of racket.
I think what the OP was criticizing mostly is that we (Europeans in my case) don't have to build up a credit score, which has to be done artificially (if you are someone who gets X per month and spends X-Y). It's not a criticism of "some credit worthiness beign checked" but this weird notion that if you decide to route all your bills through your credit card you are suddenly credit worthy, whereas if you pay the exact same amount every month in cash, you are not. Which in turn means if you happen to move here you don't have to start working hard at just building this imaginary score.
Of course, the banks don't just give a large loan without due diligence. The difference is that if you don't need both a "good credit report" and proof of income/assets/revenue, you just need the latter (obviously simplifying but your credit report is considered good as long as it's not bad, rather than bad until it's good).
> this is only because I will be locked out of access to certain essential financial products as the result of having no credit history.
Pretty much every bank offers a credit card with a 1% cash-back rewards rate and their underwriters are more generous to their customers with no credit history to help address this exact problem. Get one, use for like 6 months and build up a credit history then go get an AmEx or whatever
>For me, this is only because I will be locked out of access to certain essential financial products as the result of having no credit history.
You mean like, crappy consumer credit products?
Solution: Don't use credit. The double plus extra gold platinum card with cashback isn't really improving your life that much anyway.
A credit card isn't gonna make that big of an impact on the kinds of purchases you truly need credit for (land/housing/business/capital). You're not locked out of accessing those products. They just cost a little more. God forbid that you be forced to be more selective about the kinds of things you buy on credit as a result of this.
Edit:
Unlike most people who spew internet advice my money is where my mouth is. My only credit is my mortgage and my rate was refinanced to the low 2s a couple years ago. The initial loan was low 3s ~6yr ago and I did 20% down by pulling money out of investment funds I had contributed to over the years. "Costing tens of thousands of dollars over the life of the loan" my ass.
> A credit card isn't gonna make that big of an impact on the kinds of purchases you truly need credit for (land/housing).
Yes it will.
I know a few people who avoided credit cards well into their 20s. They ran into trouble with credit checks for renting apartments and buying cars. Imagine being nearly 30 years old with a good income and no debts, but needing to ask your parents to cosign on a car loan simply because you have no credit history of any kind. That does happen.
"Avoiding credit" means no car loans either. Paying cash for such things. Arguably the only loan one should consider (imo) is a home loan. And while many banks are dumb, there are plenty of lenders which will underwrite a loan based on limited credit. Especially, when you can show income with 20% down, etc.
Debt is a useful tool for people who can control themselves.
Dave Ramsey caters to people who need unusually strict financial discipline to avoid getting in trouble. For everyone else, responsibly using debt is often better than paying cash.
For example, paying cash for a car is often worse than taking a low-interest loan. Liquidity is important -- locking up a bunch of money in a car means you can't use it for other things, like investments or emergency savings.
Another example: taking out a loan for a large purchase, rather than liquidating investments to pay cash, can cost less overall because the interest paid on the loan might be lower than the capital gains taxes on the investments.
Not having credit history will absolutely require you to take on a higher interest rate for your mortgage. It's probably 10's of thousands of dollars difference over the length of the loan, depending on how big the mortgage amount is.
> Who knows if this optimism will prove to be wise. All we can say for sure right now is that the companies in the best position to understand the risks and opportunities of investing in the credit card business are investing heavily.
This is kind of a non-statement because every market collapse ever was preceded by "people who appear to understand the market making heavy investments" right up until the crash when it becomes obvious they didn't understand anything.
Basically it's saying "following the herd is smart, unless the herd turns out to have been wrong"
One thing my publicist used to do was make listicles. It would have some competitors in first or fourth spot, myself in the 2nd or 3rd spot and then some other potential solutions.
The purpose wasn’t for engagement, it was just to modify search results and ping a few specific people’s google alerts, specifically the competitor.
One benefit is that the competitor would be intruiged that they were noticed at all, and be keen on being invited to an interview or seen on stage in a fireside chat at a conference, and the continued interaction meant more partnership and deals got done.
The point of all this being that you can collect more resources together. And it doesnt matter that any of our solutions didnt have product market fit. I periodically quizzed my co-founder “we’re still in the ‘make-money’ game, right” just to make sure.
The concept of a credit card is an anachronism that filled a local maximum and is only kept there because those who have the power to change things benefit from the status-quo.
Back in the early days of payment cards, settlement took days or weeks and checking whether the customer had enough balance in real-time wasn't possible. The technology to make a debit card just wasn't there, so it makes sense that payment cards started as being credit.
In this day and age, there is no functional difference between a debit or a credit card - both are processed online in the vast majority of cases, and even debit cards will typically allow offline transactions up to a certain amount if the terminal can't check the balance online. Banks now issue both and your current account and credit card account can very well be rows in the same table of the same DB if you obtained both from the same bank. There are regulatory differences (in regards to fraud protection for example) but those are just because the law didn't catch up (or doesn't want to catch up - see last paragraph) rather than a technical difference.
Nowadays there is no reason why credit should be tied to a specific card & account with very rigid rules regarding repayment schedules and fees. If you want to lend, just put the money into the customer's current account and let them use that amount with their debit card. Even better, we already have real-world implementations of this - most accounts offer an arranged overdraft which allows the balance to go negative and automatically repays itself as soon as you deposit money in. Some banks will even "helpfully" authorize transactions despite the lack of an arranged overdraft, just to immediately slap you with an unarranged overdraft fee. Clearly the technology is there and has been proven.
The reason credit cards persist is because their rigid, often complex, and nonsensical - why should the same bank charge different fees or interest depending on whether it's a CC vs overdraft usage? - rules allow these banks to offer "free" money (in the forms of 0% interest or benefits) to those who know how to play the system to their advantage, subsidized by the poor and less financially-savvy who don't know or can't afford to play the system and end up getting played by said system instead, incurring late payment fees and/or interest.
The main reason why I use a credit card and rarely use my checking account's debit card is that I see the credit card as being a firewall between the world of scammers and my bank account. If someone double charges my credit card or finds a way to engage in some other fraud on it, that's all encapsulated into that account until it is resolved. If they clean out my bank account, I might be able to get most of the money back, but that's going to take time. Meanwhile I have to find a new way of handling cash flows by moving funds out of more long term accounts.
True, but my point is that it's just a regulatory issue - technically there's no difference between credit and debit cards from a scam/fraud point of view (in fact scammers don't know nor care what account type it is as long as it authorizes their fraudulent transaction). There's no reason why the law can't be updated to offer the same protections for debit cards and make it where a single phone call or button in your banking app can immediately reverse a transaction (and thus give you the money back) while it is being investigated.
In addition, keep in mind that when it comes to payment cards, there are 2 levels of fraud protection. One is offered by the card networks and in the vast majority of cases doesn't care about the bank or the account type. This will cover the vast majority of fraud and in most cases fraud disputes end there and thus would also apply to debit cards (I've used debit cards for all my life and the few instances of fraud I've had have been resolved by card networks just fine in a timely manner - in fact if the bank is willing they are able to credit you the amount immediately while they investigate, though unlike on credit cards they aren't obligated to by law).
The second level is country-dependent and usually specific to credit cards - this is where laws enforce stronger protections and would force the lender to eat the transaction even if a card network dispute isn't successful. This is a purely regulatory difference, and there's no reason the law can't be updated to also apply to debit cards.
Same here. My debit card is used only where fees make use of a credit card prohibitive. I haven't used a debit card in day-to-day transactions in over a decade at this point.
Same with how I use my credit cards specifically to keep my credit score. If the playing field was different (laws and standards) credit cards would not be the necessity they are today.
No, it isn't. Having a financial intermediary between you and entities you buy things from is a genuine benefit to you as a consumer: it means you don't have to give everyone you buy things from direct access to your bank account, as a debit card does. It also means that if your credit card info is stolen, you have a third party that deals with the issues involved instead of you, and you don't have your bank account funds tied up while the issue is being resolved, as you would with a debit card.
Of course, in a sane world this genuine service would be sold as what it is--financial intermediation--and the market price of this service would be determined in a free market. It's quite true that we don't live in that sane world, but that doesn't mean financial intermediation isn't a genuine service that is worth having even in the insane world we actually live in.
> In this day and age, there is no functional difference between a debit or a credit card
Yes, there is, there is a huge functional difference. See above. Ask anyone who has had their debit card info stolen and had funds fraudulently taken direct from their bank account.
> it means you don't have to give everyone you buy things from direct access to your bank account, as a debit card does
I disagree that this means "giving someone else access to all your money". First off, you're authorizing a single transaction, and second, your bank is still the one mediating the transaction - if you experience fraud, what's actually happening is that your bank is the one who got defrauded by someone pretending to be you (by stealing your card/PIN/etc) and fraudulently convinced the bank to give them your money.
I disagree that a debit card doesn't involve financial intermediation. The bank is still the intermediary and holds the money, just that the hold duration is seconds instead of a month (well technically settlement or presentment happens a few days after authorization, but that's all transparent to the cardholder). There's no technical difference, the difference is purely regulatory and there's no reason the regulations can't be amended to give debit card holders the same protections as credit card holders.
> Ask anyone who has had their debit card info stolen and had funds fraudulently taken direct from their bank account.
I don't know about you but all instances of fraud I had on my debit cards have been resolved painlessly. Most fraud gets resolved by card network disputes which don't care about the card type. The only time credit cards get preferential treatment is when card network disputes fail and the law forces lenders (but not debit card issuers) to eat the fraudulent transaction anyway, but those instances are relatively rare.
> I disagree that this means "giving someone else access to all your money".
It means giving someone the information that is required to withdraw money directly from your account. Yes, they're only supposed to withdraw the amount you specifically authorized for that transaction, but the fact remains that you have given them direct access to your account. The same risk exists when you write a check. Mitigating that risk by having a financial intermediary involved is, as I said, a genuine service. If you personally don't value that service, then of course you would not use it. But others do value it.
> all instances of fraud I had on my debit cards have been resolved painlessly.
That's fine, but I have known plenty of people who did not have the same painless experience.
> I disagree that a debit card doesn't involve financial intermediation. The bank is still the intermediary and holds the money
But there's still only one transaction involved: the bank pays the merchant directly from your bank account. With a credit card, there are two transactions: the credit card company pays the merchant and you pay the credit card company in a separate transaction (and of course you pay once for multiple purchases made with the card). That's the intermediation that is not present with a debit card.
I beleive it is a US thing - giving access to account with just a card number. I have numerous accounts in European banks, and all online transactions are protected via second factor - SMS to phone or mobile app push notif or TOTP.
Do you have checks in Europe? Do you get an SMS or push notification or TOTP request every time someone cashes a check you've written them?
For cards, I agree 2FA for card transactions is not common in the US (I've never seen it). The US theory for cards appears to be to depend on chip cards, but of course that doesn't help with online transactions, only transactions where the card is physically present at the point of sale.
Never used a cheque in my entire life. Had couple of blanks when opened an account with BofA about 15 years ago, but didn't get the idea. For me cheques are something from Theodore Dreiser novels.
I heard from friends in Israel that there's a fancy custom of writing 12 cheques to landlord when one rents an apartment dated for every month of the rent. This way you never see your landlord for the entire year, which is neat, can't argue with that.
Debit cards and credit cards are very different things, functionally, legally, and practically, though they can be implemented similarly on a technical level.
Debit card transactions, legally and financially, withdraw money from the associated bank account at the time of the transaction. The only limit on the amount that can be debited is the amount of money in the associated bank account. If there is insufficient money, the transaction fails. The debit card user is at risk for losses due to fraud or payment disputes. Basically, a debit card is the same as cash but in a convenient thin plastic card form.
A credit card transaction, legally and financially, withdraws money from the issuing bank, who then adds that amount to a debt ledger of money owed by the card user to the bank. The transaction only fails if the transaction would exceed an arbitrary credit limit as determined by the bank. The credit card user pays back the debt at the end of the month, or over time, based on the terms of the credit card agreement. The issuing bank is at risk for losses due to fraud or payment disputes. Basically, a credit card is the same as a short-term instantaneous loan agreement, but in the form of a single convenient thing plastic card instead of a dozen or more paper loan agreements.
What you mention are all policy/regulatory differences, which can be made to apply to debit cards if there's will to do so. My point is that the credit card concept now survives because there's no will to kill it off since it's a convenient way to siphon money from the pool/less-financially-savvy to the well off.
No, you're still not getting it. They aren't simply policy/regulatory differences.
They are fundamental differences in what debit cards and credit cards are. One is a cash equivalent and one is a loan equivalent, and no amount of handwaving are going to make those the same thing.
My point is that the credit card concept now survives because there's no will to kill it off since it's a convenient way to siphon money from the pool/less-financially-savvy to the well off.
This is simply false and indicates a lack of understanding in what loans are or how credit cards work. Credit cards survive just fine in Europe without the points and other benefits.
> there is no functional difference between a debit or a credit card
There is one huge difference: credit cards the bank or vendor takes the risk/liability of fraud and chargebacks. Debit cards mostly I take the risk/liability (fraud, bad vendor/product).
And a minor difference: credit cards have better integration for selling data about your purchasing patterns. Two of my banks have replaced VISA with Master Card recently: I presume because Master Card is monetising my data stream more effectively (so can afford to give banks slightly better profits).
The only time that matters is when a card-network-level dispute fails. The vast majority of fraud gets resolved at the card network level and would be the same on a debit card. The only time credit-card-specific regulations come into play is when a card network dispute fails - in this case with debit cards you're SOL, with credit cards the law forces the lender to eat the cost.
But again, my point isn't that there currently aren't any advantages to credit card, but rather that those advantages are purely artificial - there's no reason they can't apply to debit cards as well if there wasn't an interest to preserve the status-quo.
Someone has to take the risk. A credit card makes it visible what's happening; a current account offering an automatic overdraft is an ad-hoc, informally-specified implementation of half a credit card. I know which I prefer.
Did you know in most parts of the world, credit cards aren't that popular?
From what I've seen, in Latin America and much of the EU debit or even cash is the default.
Even in the UK, there are no weird, arbitrary reward points programs like in the US - it's standardized.
In my experience only the US and Canada have these crazy credit card deals and programs. Which is good for me I guess, I get my points as I can still use my Visa credit card around the world. But man, unless you do the research and understand your card, credit cards can really be shady (especially exploitative for those with low financial understanding) and I do think we should get rid of them.
The EU strictly limits the interchange fees that card networks and banks can charge. So it’s not possible to offer valuable (and profitable)reward programs in the EU, because banks simply can’t earn enough money on transactions fees to provide those rewards.
In the US, interchange is up to 10x higher than the EU. And interchange + reward programs act as a form of regressive tax where people with low credit scores have to pay the full cost of those high interchange fees. Whereas high value customers with good credit scores (who are normally the most wealthy in society) get a rebate on those interchange fees in the form of rewards.
Only Amex can do this, because they’re both a card network, and card issuer. Allowing them to charge higher interchange fees to merchants than Mastercard or Visa are allowed to in the EU.
Have you any source on the fact that they charge more because of this? Interchange fees are capped in the EU, and the amex fees document based on my reading of it (it's hard to grok) seems in line with the visa one.
Also, from my link it's not just amex. Most of the supermarkets have MasterCard rewards cards, and a few of the "new" "banks" have rewards/time limited rewards (e.g. Chase, curve, revolut).
So no, it's not only amex, and yes these schemes exist in the UK.
I use an amex as my daily card. In the last 30 days I have needed to fall back to my MasterCard to pay my home insurance bill and for the contactless bus service in Edinburgh. All my other bills - coffee out, food shopping, restaurants, PAYG gym, dry cleaning, flight and train, Uber, DIY stores, bars, fuel station, local home dexor/gift shop, even my doggy daycare all accept amex.
Just because a specific skill can help you avoid the pitfalls doesn't mean those pitfalls should be kept around. Just because OSHA and health & safety rules exist doesn't mean we intentionally make power tools and machines have blunt electrified edges to cut/electrocute anyone who isn't "literate" enough and accidentally touches the thing. I'm personally tired of everything in the world being intentionally hostile.
> Just because OSHA and health & safety rules exist doesn't mean we intentionally make power tools and machines have blunt electrified edges to cut/electrocute anyone who isn't "literate" enough and accidentally touches the thing.
The OP called for the abolition of credit cards, whereas you're describing the regulation of power tools which is all well and good albeit inadequate as people still cut their fingers off and break things all the time with power tools. Power tools are still around and no one is calling for them to be abolished, although there are efforts to train people in power tool safety. People need financial safety training too, and not just for credit cards.
Power tools cut off limbs and cause accidents because those tools are designed to cut hard materials that are much harder than human flesh. You could technically make a completely safe angle grinder by completely covering the cutting wheel but that would make it pretty useless.
On the other hand, credit cards' pitfalls are intentional rules that have no other purpose other than to explicitly be "sharp" and "cut" careless people.
> On the other hand, credit cards' pitfalls are intentional rules that have no other purpose other than to explicitly be "sharp" and "cut" careless people.
You already mentioned one way to ameliorate this that worked for power tools, regulation, that doesn't involve abolishing them. That might work, but far better is to reduce the number of careless people through education.
What makes credit cards "credit cards" is not some technical difference but the fee schedule and repayment terms, which are currently intentionally obtuse and "sharp" so that people who get "cut" subsidize perks for those who know how to play the system to their advantage. If you regulate those away it will just become the equivalent of a debit card with an overdraft attached, essentially abolishing them.
> far better is to reduce the number of careless people through education.
Maybe. If there's no safer way to achieve the task at hand (like with power tools - the tool is inherently designed to cut things and will cut limbs if misused), sure. But when the danger is intentionally introduced into the system with no other purpose than to subsidize perks for the well-off, is it worth keeping?
Why not also extrapolate this and make fraud and scamming legal and instead blame victims for their lack of care and education?
I like your optimism. It's not clear to me your average American and his public education are capable of understanding them, regardless of what financial literacy we may or may not be able to inculcate.
> It's not clear to me your average American and his public education are capable of understanding them
Basic financial literacy sufficient to manage credit is well within the abilities of those with average intelligence. If the Public Schools are unable to teach that then we should reform them. It's not like credit cards are the only financial pitfall that people desperately need help to avoid.
> if you ever try to explain how a credit card works to a 14-year-old, you’ll quickly remember just how complicated and strange they are.
Are credit cards really as complicated for most people as this article claims? The explanation I got as a teenager was something like, "Instead of paying with cash you can use credit from a card, then at the end of the month you pay off all of those charges to the bank at once. Technicaly you don't have to pay it off immediately, but if you wait you'll also pay a horrible amount of extra fees; which you never want to do".
It was pretty easy to grok at the time, and is how people should approach credit cards 99.999% of the time.
Once a person gets older and has built up some credit they can look for a card with good rewards, which for most people will just be looking for the highest cash back percent they can get.
Though couldn’t a teenager (older than 14, but still) understand the value that deferring paying for something is useful in context to a part time job? I would only get paid at certain days, and knowing generally what I’ll get at the end of the month after tips and hours, I could budget for that number rather than what I have in the moment.
Then the teenager might ask, sure, that's credit like a bar tab or whatever and credit is convenient for all kinds of reasons, it's just, why do you need a whole other company to get involved and issue a specialized card to do that? Why doesn't the bank just say "we'll let you overdraft up to $4000 without any fuss but you'll have to pay interest on the negative balance"?
Because when your credit card is scammed, its the credit card companies money that has been stolen so they are want to get it back. When its your debit card being scammed, its your money being stolen, and any help to get it back is just a cost center for the bank so they don't really invest in this side of their business like credit card companies do.
Literally every single "weird" or novel feature in this article is also offered by mainstream banks. Those banks are way less likely to collapse and leave their clients out of luck (remember most startups fail). The "weird" features mentioned in the article include: secured credit cards (or charge cards) for those with little to no credit, 'elite' metal cards with bundled subscriptions to Priority Pass and TSA Pre (which you can buy cheaper directly), split repayment, and virtual / one-off account numbers. Yawn.
Citi has done a terrible thing to their offering. Years ago, you could set the total value and its expiration date for a virtual card number. Nowadays you can set only the _daily_ maximum. Which makes them useless.
One Finance (via an FDIC-insured partner bank) offers a physical debit card, a "virtual" card behind that, and the option to create "pockets" that you fill with money, and you can generate additional "virtual cards" or account numbers for each pocket to enable transactions directly from the pockets.
Capital One makes you download a browser extension for some reason which I refuse to do. There is no other way to use them, not online not in the app. It's the craziest thing I've seen.
The website for X1 advertises "End free trials automatically with auto-expiring virtual cards" [0] - if that takes off, would services just start blocking folks from signing up for free trials with X1 cards? Is that a feasible thing to do, to say "yeah, we accept Visa, but not Visa cards issued by X1"? I feel like I've heard something slightly similar recently about Google Ad services blocking payments from virtual cards or other "weird" cards.
Seems like a good way to accidentally get your account sent to collections; disconnecting your payments doesn't necessarily excuse you from any contract you signed.
It can be a LOT easier to cancel some subscriptions that you don't want anymore by pulling the plug on the payment method rather than trying to navigate a byzantine web site or phone tree.
But the parent poster's point is that "pulling the plug on the payment method" doesn't necessarily cancel a subscription/contract. Most companies do cancel the contract, but you're really rolling the dice here.
i got banned from one of the big cloud providers when i was testing my backup client against a bunch of different storage backends. was too lazy to delete all the backups: just deleted the payment info thinking they’d drop my data after the free credits were consumed instead of letting my payment-less account accrue a debt.
maybe banned from multiple providers: not really sure as i only found out years after the fact when i wanted to use this particular vendor for something else.
That non-payment does not exclude you from the rest of the contract. I disagree with this. Why would I, an equal signer in a contract, not be able to void it by ceasing to use it?
Wouldn't a contract that locked you into paying a certain amount per month for a set time essentially be a loan? Are those reported as liabilities on the companies balance sheet? Seems like they are trying to have it both ways.
Then I go after them for fraudulent reports to collections. This has worked.
If I stop paying for a service, and the service is no longer offered to me, but you keep billing me, that's fraud.
> The website for X1 advertises "End free trials automatically with auto-expiring virtual cards" [0] - if that takes off, would services just start blocking folks from signing up for free trials with X1 cards?
I use a Revolut card exactly that way, and it made my life so much easier. No need to phone someone between 8:30 and 9:45 on the first Saturday of the month to cancel subscriptions. No risk of paying for a month extra or lose access for a week after in-subscribing (all of this happened to me). So there are real benefits to this approach.
Now, I use Revolut because I like my online purchase to be completely isolated from my main bank accounts, but both my French and my British (traditional and old-fashioned) banks offer the same single-use virtual cards for a modest fee. So filtering by issuing bank would not be really effective.
I don’t know if these cards have numbers that can be used to recognise them, though, but I never had any trouble using them.
Sounds like our monstrous government consumer protection industry has dropped the ball. The main use of this feature is to bat down scammers that are masquerading as legitimate businesses.
To be fair, though, even without the subscription thing, it’s a useful element of defence in depth when buying stuff online: how secure a random e-commerce website is becomes much less relevant if they haven’t a working card number in the first place.
Don't you just... commit fraud instead of "ending the trial"? Just because they can't charge your credit card doesn't mean you don't still own the company money, right?
Genuine question, I don't know how it works with credit cards. But you can't "cancel a contract" by voiding a direct debit authorization (where you allow a company to charge your bank account directly) and expect everything to be fine, so I would assume that also applies to credit cards?
The premise is you've signed up for a service that advertises zero-risk cancellation after a trial period.
On attempting to cancel - by stopping use of the service, by trying to cancel on the website, by emailing them, by calling them during your work hours and sitting on hold for an hour of my time that's worth more than the entire value I got out of the service, and recording the 2 minute interaction with the 'customer service' agent, by calling again the next month after they still didn't cancel, by escalating to a supervisor and recording that interaction, and getting billed again - it often turns out that it's impossible for mere mortals to cancel.
In that case, cancelling by changing your credit card number is reasonable. Yes, there's a small chance they'll chase you to collections and attempt to harm your credit score if you do actually owe something (if they shipped you something physical, for example), but often they just drop it.
What you are describing is the reason that "reasonable judgement" is a part of basically every law. Also the reason judges and the judiciary branch are so important.
I've definitely heard of times where gyms continue to attempt to charge you, claim that you owe them that money, and then send you to collections after months of failed payments.
This is definitely the case in Germany and Austria. You can't just stop paying your subscription and consider this a successful cancellation thinking everything goes away and sorts itself out naturally.
They'll send the collection agency after you for the missed payments till the end of the contractual agreement, which for most gyms is 3 to 12 months! Gym chains here are absolutely predatory.
The same goes for any other kind of subscription too like, telcos, etc.
Microsoft used to do it for XBox subscriptions as well. I don't know if they still do, but I definitely got caught on it. They ended up forgiving that bit and letting me use my account again without paying for service I never used, but they initially told me I had to pay it before I could use my account again.
Gyms are terrible and often do sneaky things to take your money. But if you agree to a one year contract then you shouldn't be able to get out of it by just not paying.
This gets really close to a straight up loan in my book, which has other implications that the gyms are not thinking of. With a physical good it is quite clear you get the thing and possibly have some contract to pay it back over time, which is a loan. If a gym is selling you a physical one year membership, billed monthly, how is that not a loan? Are they registered lending companies?
It depends on how the contract is written, and nobody reads the T&Cs, so they are probably written to the benefit of the merchant. If you sign a contract that says you will pay $X for service Y each month until canceled, then you are still legally liable to pay that until you cancel as stated in the contract.
unless this part of contract is void due to violation of consumer rights (for example unreasonable way to cancel contract is or should be legally void)
Agreed, but you have "cancel subscription" as the first action. The card provider does not, they just say "end free trials automatically with auto-expiring
virtual cards" and "cancel subscription payments in one click", without having to cancel the actual subscription.
Doing both is fine (and I do the same), but only removing the payment method does not invalidate the subscription contract, right?
I would not assume it to be invalid form of terminating subscription, I would also not assume that it is valid if someone has not even tried official unsubscription method.
No, a merchant can't discriminate by sub-cards within a network - that's a great way to get kicked out of the network and never be able to charge a visa again.
The network may disallow the behavior but networks are slow to regulate and in theory are consumer focused.
That's true, however whoever provided you with the card is responsible for ensuring you are not misusing it.
I once had a trial with a company and added my Privacy.com card that would expire in a day. I've canceled that trial and forgot about it. Then some time later I had to use the same company, but I've totally forgotten that I had an account with them (I've also changed the email I use). Anyways, privacy.com suspended my account because using their cards to get trials over and over again is against their ToS.
A merchant can't discriminate, but the payment processor, credit card network, or issuer can under several conditions including "an immediate fraud threat." Virtual credit cards being used to violate contracts could very well be considered to be a fraud threat.
Could you link to something backing up what you are saying? I'm curious about the facts of the matter, and also why a comment like yours (factually correct or incorrect it is pretty innocuous) appears downvoted.
Much obliged! I can see what the original person was referring to, but that segment (and thank you for such a lovely and specific reference) includes enough caveats in limited space that I'm not confident my reading is correct.
Doesn’t Google (Cloud and Ads) discriminate against “privacy” and “virtual” card numbers? I feel like I’ve heard of that being an issue with Apple Card and Privacy.com on here in the past.
Google will never actually give you a stated reason for account closure, people have just deduced that it's privacy cards that are getting closed. So yeah even if it's against terms-of-service (based on what's been said here) they're smart enough not to just say it.
Your only recourse would be filing a complaint with Visa, and hoping they investigate, but "google closed my account" is not gonna be something that's super high on their priority list to investigate, I'm guessing.
That I don't know about and that could be allowed depending on the network. I know Privacy.com has restrictions on their side (you can't use their cards on some porn sites for instance) but that would be the issuer doing the limiting which is almost always allowed.
Many banks have been providing auto-expiring virtual card numbers. This is a 10 year old feature. They also let you set a small credit limit for each number.
20 year old feature. Discover used to have a flash app on their website for generating unique card numbers linked to your account on their site. It saved me from more than a few shady websites and breaches.
They discontinued it with the rationale that they didn't need it anymore because their fraud prevention worked well enough by itself or something.
“It’s [a credit card] a way to pay for things that’s a loan, but it doesn’t have to be a loan if you pay it back on time but it can be a loan if you need money in an emergency.”
This seems overly pedantic. It’s still a loan regardless of whether one pays it back within the grace period. A better way to describe it is a 0% interest loan that escalates to a usurious rate once the grace period date is reached.
> This has been the competitive dynamic within banking, when it comes to product innovation – tiny variations on a theme.
> Fintech is painting way outside the lines and consumers are benefiting from the resulting innovations.
I am baffled at both assertions - that banks have barely invented any new financial products in the past century, and that Fintechs are creating new financial products. Both statements seem so far out of line that I suspect the author has little to no knowledge of the financial sector and believes the tiny number of products used by most retail consumers represent the full universe of financial products.
The reality is that banks have been extremely creative in creating new products in the decades up to the financial crisis (MBSs, CDOs, CDSs,...). And if you look what happened to those products, you'll be thankful that they've mostly been kept away from retail clients. The 1.5 decades since the crisis have seen less innovation from banks because regulators put their foot down. I've yet to see a genuinely new product offered by a Fintech (unless you count crypto/DeFi among Fintech, which is usually considered to be separate).
> The downside to these cards’ safe design is that the use of these cards doesn’t generate repayment data that is all that useful for lenders
Oh no! Anyway[1]... :)
But on a serious note, personally I'm glad that those fintech pseudo credit card products exist. I would be happy to be able to just pay with my normal bank / debit card everywhere on the web. I can't, not even with a third-party like PayPal, but I can with a virtual fintech "credit card", without needing a "real" credit card.
From my experience PayPal sucks for paying anything as (at least for me) it constantly triggers fraud alerts and then blocks whole account for days.
Currently I have virtual Visa card provided by my bank in EU. I can load this card into Google Pay and pay with NFC in phone, use it on Amazon/AliExpress/other eshops etc.
paypal can be problematic for receiving money, but i have no problem with paypal to pay my hosting and i used it for airbnb from my debit-card/bank account. the only time i had a problem was when i received money, and paypal wanted to see a bank statement to verify my identity i think.
where is your money coming from? and where is it going?
Boss in company had setup following chain: company bank account -> PayPal debit card -> Digi Key order.
Worked once, payment refused ever since. Randomly locked and needed to call support to unlock it, so it can be locked again after few days. Similar problem with all other eshops for ordering parts/material.
After an argument with the boss, I have forced using of virtual debit card directly from a bank account, never had any problem since.
From experience which I got, I don't even understand how anybody can take PayPal seriously.
part of paypals problem is that it seems so inconsistent, and difficult to understand why it works when it does and why it fails. i would not be using paypal if i had another option, so i am glad my usecase works. i am definitely not happy having to use and support a company that treats its customers arbitrarily like that.
Unless this is something different I think most people want to generate that information -- "look I'm a trustworthy borrower, give me good credit score!"
Like the credit score system is dumb, sure, but I don't make the rules and playing the game can save me about a hundred thousand bucks off my mortgage.
But they do generate that information - they just don't have a choice to decrease their score, as they can't be behind their payments (thus "isn't all that useful for lenders") - right? That's the whole schtick behind "credit builder cards", use them to build up your credit score, isn't it?
The cited part in the article "mourns" that part, that consumers get better scores even though they didn't have an "actual" credit card, doesn't it?
The author's criticism of these cards is not that they don't build an individual's credit record, but that they reduce the decision-making power of the credit scoring system as a whole. Given the unpleasant and coercive nature of the credit scoring system, that seems like a good thing
Yeah it benefits the users, by in some sense artificially inflating their credit scores.
Also benefits society in general -- injecting junk into the credit agencies data should reduce the viability of their parasitic business model (although unfortunately it is only a tiny amount of junk).
India has done a phenomenal job of getting rid of the mastercard/visa duopoly in India by introducing Rupay. Some people may say it is just another monopoly but being owned by govt has its own perks for both consumers and merchants AND Banks, end of the day everyone wins. They are simplifying and inviting newer technology to spread credit products across India.
Just like UPI, Rupay is taking over India like wildfire. US can take a page out of India's technology adoption ( except may be for crypto )
The explosion of credit cards over the last 25 years reminds me of an article I once read about the psychology of casinos, in particular the mental detachment of money. Basically, casinos figured out a long time ago that a person will gamble a lot more in chips than actual cash, because cash is emotionally connected to food, rent, clothes, etc., whereas chips are detached from that emotional connection, and thus casino customers are more inclined to gamble more with chips than actual cash.
I'm probably being Captain Obvious, but seems to me the credit card industry took this psychology and ran with it, essentially creating the modern consumer experience, which is basically this: https://www.youtube.com/watch?t=64&v=EAyJmIXcyMg
I always thought that credit cards were for poor people, since why would I ever need a loan with 15-20% interest.
Then recently I hired a car and they forced me to take the zero-excess insurance (50% of the cost of a one week hire for a convertible) because I didn't have a credit card.
I'm now in the market for a credit card, but I have no interest in any of the credit features, I just need it to be accepted as a credit card worldwide. Unfortunately all comparisons online focus on the interest rate that I couldn't care less about.
Just get a card with wide acceptance and no annual fee: any basic Visa or Mastercard from any bank.
Keep it simple and just get one from the bank you already use for checking -- then you will only have one online banking portal to use for both your card and your checking account.
Set up autopay for one of your monthly bills to use the card. Set up another autopay from your checking account to pay off the card's balance every month.
Do that, and you will have a credit card that is regularly used, with a history of paying the bill on time, without spending any money you would not have spent anyway.
> Americans opened 233 million new credit card accounts during the second quarter
The Internet says “US adults age 18 and over, grew to 258.3 million in 2021” (paraphrased).
I presume there is some power law where some residents have many cards, but there is presumably a constraint on the most cards (bank credit checks, number of different cards).
Aside: i wonder who in the US has the maximum number of credit cards assigned to them in one year, or concurrently?
There exists a very strange group of people who practice "churning", something I don't fully understand. It involves opening as many accounts as possible to get sign-up bonuses, promotions, etc, then transferring balance back and forth between accounts, then closing accounts.
it's pretty easy to do, and there's even a flowchart for people getting started on that subreddit. Hitting a minimum spend threshold with a "good card" within 90 or so days will net a signup bonus ($500-$1000+ in cash or more in travel rewards). Most people opt to get the sign up bonus, then stop using the card, and later repeat with another card.
Free cash, travel credits, hotel stays, lounge access when travelling etc. just by diversifying your credit card portfolio, spending the money you would anyway.
There are lots of websites are out there focused on this topic, but most of them are optimized to shill affiliate links since credit card companies pay out $75-150+ per card signup. doctorofcredit.com is a good site I reference that doesn't shill links, but they have a lot of good curated content.
Personally I have 20 cards, most of which were aquired over a couple of years ~8 years ago. You can apply for 6 cards every 6 months or so (2 per bureau assuming they only do one hard pull) without significantly reducing your credit score for the next year.
I'd guess the limit is ~400 right now since you'd have to start collecting decades ago.
A much better question is why pare some back? Closing credit cards that don't have an annual fee has zero benefits.
That said, I'll answer your question: One component of your credit score is AAoA (average age of accounts) and it takes a hit when you close an account and it gets deleted from your credit history after a couple of years. So if you wanna minmax an 850 and get very favorable terms (well below inflation) on every loan (cards, cars, mortgages, etc), having very old accounts with a small/zero balance is optimal.
(For the same reason, closing recently opened accounts can improve your score after they get deleted from the credit report a couple of years after you close them)
The article didn’t mention hybrid banks/credit builder for new businesses. Brex used to be in this category and they helped me build my business credit score. Unfortunately they now only support customers with $1 MM+ revenue per year. I am grateful to them though, for helping me build credit for my business and having great customer support
Thought about this at the gas pump yesterday that told me I'd pay more if I used a 'credit card' versus a 'check card.' I thought: why can't I just have one card that can do both?
One thing to note is that X1 points have fairly limited redemption options [1].
There are several cards that offer no annual fee + straight 2% cash back, like PayPal Mastercard, Citi Double Cash, Wells Fargo Active Cash, etc. Also, they tend to have better sign up bonuses ($100-$200) compared to just a few more points.
So I'll bet that cash back was always a lower rate. Their terms are rather evasively written, but my reading is that they have two different redemption categories, both called "statement credit":
From the link you provided, they tell you that 2) can be a lower rate, but they don't tell you what that lower rate is. But I did see the recent reddit discussion saying that it's 0.7 points.
I've never had a card with an annual fee, honestly never really even considered it. I am FLOORED people are willing to get one that's $550. How does it work, if I go to sleep on 12/31 with a $0 balance, do I wake up on 1/1 owing $550?
That chase card and its american express equivalent (the platinum card) give pretty nice rewards for people who travel often. This includes airport lounge access, credits for dining or taking uber/lyft, access to helpful services, status at hotels etc.
There are rewards cards across the price spectrum (some are free, some have an annual fee of $100, $250 etc).
Often for anything except the higher cost credit cards, making up the fee in rewards is trivial. American express has a CC that gives 6% back on groceries up to $6,000 annually. The annual fee is $100. That's pretty easy to make back and then some as an individual let alone as a couple or even a family.
Let’s see, I get the first $300 returned as a travel credit so now the net fee is $250, a chase point has about a $0.015 value, and you probably earn 2 points per dollar (but varies based on your spend mix), which equates to about 3% cash back on your spend or $8,333 dollars break even spend to make the $550 worth it (not including all the extra benefits that I’ve ascribed zero value to). If your spend mix skews more to travel and eating out, and you optimize for high value reward spend, you can get the equivalent of 4-10% cash back, so paying a net $250 to earn $400-$1,000 for every $10,000 I spend seems like a good deal
Those ultra high annual fee cards tend to have substantially better rewards than cheaper cards. For the sort of person who might spend $50,000 or more on travel in a year for example, it can make sense.
Exactly. In the case of the CSR, there’s a big general travel credit (maybe $200 or $300 off the top of my head), so that makes the net price less ridiculous. The target market with that kind of travel rewards card spends enough on travel for the rewards and statement credits to easily outweigh the annual fee. I don’t spend anywhere near enough for it to make sense for me, but it’s not quite as crazy as the $550 price tag makes it seem.
> You have lower rewards (about half) and fewer perks.
I'm not sure you're reading it right. From what I can tell, I can make tax and rent payments and get 3% statement credits. These two categories are typically at the lowest tier, and come with convenience fees. But at 3 percent, that cancels out and then some.
Because there is a littany of regulations that narrowly define what is possible...and ALL innovations have to comply. The most innovative solutions require a backing bank that can expand/adapt their underwriting--the only place where there is wiggle room.
Also this transfer should be handled by a branch of the government - in the US, this would probably be a new Bureau of E-Bucks that sits alongside the Mint and the Bureau of Printing and Engraving as parts of the Department of Treasury.
Running all this transaction infrastructure and dealing with fraud and whatnot costs money, but so does making coins and bills. There's no reason the digital equivalent should be for-profit business aside from "this is how it happened and now the companies occupying this niche have a lot of money to wave at elected officials who could deprive them of their ability to skim a couple percent off of 75% of the transactions in the entire US economy".
"I don't want the government to know what I'm doing with my money" is not a valid objection to this plan unless you can lay out a convincing argument that a couple of entirely for-profit companies knowing what you're doing with your money is any better, and that they will not roll over and provide transaction records the instant the government asks them to.
edit: oh wow it looks like this is finally coming in the next year or two, according to another reply to the parent comment! https://www.moderntreasury.com/learn/what-is-fednow I will be delighted to stop giving the credit card companies a few pennies of every single transaction I make, and return them to their original role of providing a line of credit if I want one.
"I don't want the government to know what I'm doing with my money" is not a valid objection to this plan unless you can lay out a convincing argument that a couple of entirely for-profit companies knowing what you're doing with your money is any better, and that they will not roll over and provide transaction records the instant the government asks them to.
My arguments are:
- A for-profit company can't put me in prison
- A for-profit company has an incentive to keep the government out of their business
Facebook just gave cops a dump of a teen's private messages so they could prosecute her for getting an abortion in a state that just made those illegal. That incentive to keep the government out of their business is working just fine.
It will shortly (testing phase is in progress since 2022Q1). FedNow instant payment rails go live next year and payments are required to settle within ~8 seconds. Transaction cost the Fed charges is 5 cents, up to $500k per transaction ($100k while it shakes out initially).
(Tangentially, [Transfer]Wise is very compelling for moving value internationally, and is instant in a lot of cases; they also plug into instant transfer rails in local currencies whenever possible)
Oh wow, I just wrote a reply to the parent comment opining that the government should be providing electronic transactions instead of letting a handful of private companies skim a few percent off of every transaction in 75% of the economy. I'm looking forwards to this!
> The FedNow Service is designed for the end-to-end transfer to be completed in a matter of seconds, as described in the 2020 Notice. This means that the beneficiary's bank would agree, as provided in proposed subpart C, that it will make funds available to the beneficiary immediately after it has accepted the payment order.
Feel free to address what I've actually typed. You can address the imaginary person who wants to discuss instant money transfers some other time, perhaps.
As you note, you already broadly have the ability to do this via debit card for most day-to-day things (with fees, for seller). What can't you do that want to?
> We already have 'instant' transfers, it's called paying with a debit card at a grocery store.
Actually not instant! Debit transactions can not settle for several hours, and even up to a few days (though usually much faster). Though your bank is typically able to say that they have the available money, settlement may not occur for quite some time.
No good, you need a capable party for KYC/KYB to ensure compliance with international sanctions, terrorist watchlists, crime investigation, etc. This is an expensive apparatus to maintain.
We have a progressive tax system that taxes individuals according to their reported incomes. How does the PoS agent know the tax liabilities of the person purchasing the item?
All fintech relies on two things: A bank and a payment network (Mastercard/Visa). This makes fintech an inferior product and most fintech I have tried have an abysmal customer service. Also, because fintech does its verification thing over the Internet, it seems that they rely more on their AI to block/ban people than a phone call. Fintech also seems to be more down to lick regulation, banks and mastercard feet at the expense of their customers.
This explosion of credit cards/offers/rewards is hardly innovation. It has already happened with banks (every big store has its own credit card) and it's usually a bad deal for customer as it requires "loyalty" to that brand.
That's it folks. The market has been cornered by a couple guys and it seems the regulatory barriers have been lifted high enough that nobody can enter again. Remember when MasterCard/Visa used to send these cards for free without any KYC whatsoever?