What does that graph tell you? Because I think patio11 wanted to send one message and people accidentally misunderstand the graph.

That's the interchange income corresponding to wealthy people. Interchange is paid by the card-accepting business, not by the buyer. The buyer pays interest and other fees and that graph looks very different.

From that original study the full picture table says in % of ADB that the "poorest" (below 620 FICO) pay ~45% interest and fees but bring only 2% additionally in interchange income. The wealthy (at 800+) pay ~10% interest and fees but bring another almost 10% interchange income, on 4 times higher spending, and 3 times higher rewards (so the wealthy get ~12 times higher rewards in $ value than the "poor").

Just the percentages paid by each group more than offset the difference in spending. There are also way more "poor" accounts than wealthy accounts. Intuitively you can tell that the banks are effectively subsidizing the fees and interest for the wealthy with the income from the poor, for the sake of the interchange income which is mostly generated by the wealthy but doesn't come from their pocket.

Those poorest of people (<620 FICO) pay more interest and fees (percentage and absolute terms) than any other group. There's a range in the middle on the wealth scale where the customers are actually a net loss for the banks (the 660-760 FICO range).

I think that's out of date. He links to a study showing interchange revenue net of rewards showing up to 3% by high FICO scores. (Just at a gut check that seems crazy to me, since interchange revenue doesn't really go much above 3%!). But that's from 2013. I remember when Fidelity launched its 2% flat cashback AmEx back in 2003. People didn't really know if it would be sustainable. Now 2% is a dime a dozen.

The most recent I've seen otherwise is this Federal Reserve study[0] from 2022. It finds that the marginal return on swipes is actually slightly negative because of how juicy rewards have gotten, and 80% of their profitability comes from interest (with most of the rest fees):

> we find that, on average, the credit function makes up approximately 80 percent of the credit card profitability, whereas the contribution of the transaction function is slightly negative, as rewards and other expenses on credit card transactions outpace banks' interchange revenues.5 In addition, fees—in particular late fees—comprise approximately 15 percent of credit card profitability.

[0] https://www.federalreserve.gov/econres/notes/feds-notes/cred...

Credit card companies make 3/4 of their revenue from interest. From Capital One's 10k, Net Interest Income vs. Total Net Revenue:

  2023: 79.5%
  2024: 79.8%
  2025: 80.2%

That "intuition" is agreeing with the parent.

Discussion of Patrick's article:

https://news.ycombinator.com/item?id=39928604

I gave up on optimizing and just use the Robinhood Gold 3% cashback card everywhere (except Amazon/WF, where I use their 5% Chase card). I can probably get more than 3% cashback in some categories on other cards, or more ROI by switch to points, high-tier cards like Chase Sapphire, and churning, but I just don't care.

The gain of a few thousand per annum is not worth the mental distraction.

I've generally tried to stay with cash back rewards in categories that don't change, that's been the best way to balance complexity with rewards for me while not nudging me to buy stuff I don't actually need. I don't like messing with points or rotating categories or included subscriptions. With one exception I avoid annual fees as well.

So like, I have a card that's 6% on groceries, another that's 3% on gas and restaurants, Apple Card does 2% on Apple Pay transactions, and I have a 1.5% card for everything else.

The rewards differences can be significant. Eg 4% vs 1% cash back is $3k difference on an annual spend of $100k.

On the one hand, relative to our income it's not so important, but on the other it feels bad leaving $3k on the table.

> It feels like a weird situation, those that stand to gain the most from credit cards are also the ones that should feel a difference of under $100 in rewards the least.

It’s expensive to be poor. Higher interest rates, no credit card rewards, higher unit prices at places like Dollar General, etc.

I don't bother with rewards either, be it cards or memberships or whatnot - too much hassle if you're also working full time. BUT: one thing I use the credit card for and that is for the pay and travel insurance attached to it. Could I get it otherwise? Maybe, no idea. But if you don't carry debt (and I never do) there's no downside.

In the US you have several legal safeguards that are not provided by debit cards. Fraud liability limitations, chargebacks, and so on.

You can still implement “if I can’t afford something, I don’t buy it” with a cc. I pay mine off every month so it’s financially the same s a debit card but use a premium card for its purchase benefits.

If you shop at places where many customers user credit cards, and those places don't change an extra credit card processing fee to customers, then you are effectively paying for those credit card fees whether or not you use one.

Opting out doesn't save you from those costs.

Try to pay for SaaS online. Tons of them accept nothing but credit cards; and then some of them accept direct withdrawals from bank account but it takes days to verify. Services using Stripe seems to be the worst at this. (I’ve never carried a credit card balance my whole life.)

Whole Europe does this.

I never understood why whole nation wants to live in debt just to have one extra month of cash flow (which they’ll probably squander soon).

Honorable but foolish. You could effectively get a discount and still use it the same way as your debit card.

I assume you've somehow gotten access to stable housing though via that bank account (possibly a home loan, or something else), or accessed a large line of credit before 'modern' credit scoring came into play (FICO scores and the Big Three).

I see many commercials for local banking up here that pulls out 30-40+ year members of the banks boasting about the prosperity the bank provided them, but at the same time, when they'd walked into the bank back in the day A Guy just said "yeah he's good for it" and wrote out the loans they needed.

You can't opt out of the modern credit scoring system and if you fuck it up even once with a bad line item you're out of the running for quite a few things and become virtually poor.

I’ll never understand this credit card debt thing... and why should businesses eat the credit card commission cost? Is it 5%? You pay for it, why should I?

Lol because in order to get 2.625% cashback at BoA you need to have $1,000,000 in your BoA accounts, maybe that's why it's hard?

Agreed. I have my rewards configured to automatically convert to cash to reduce my bill. The button was buried deep in the website, but once I found it, I've never had to go back to the rewards site again.

Imagine a world where the pipeline from extra fees back to hoop-hopping cashback didn't exist and your services were just cheaper by the same percentage points instead. It's designed to make money off people slipping up instead of serving customers.

You're not paid by the banks you're paid by other, usually poorer, customers

If you use a credit card, but can’t pay it immediately then you pay interest. It’s a trap the less wealthy fall into.

The relationship is that the service and rewards you get are subsidised by generally poorer people who mess up their financial planning.

This isn't correct, rewards and benefits are not 100% funded by interchange fees. They wouldn't be possible without many customers paying interest.

> The merchants think so, too, or they wouldn’t accept the processors that let their banks hand out these cards.

Visa / Mastercard / American Express all have lines of premium credit cards (Visa Infinite, World Elite Mastercard, Amex Platinum), and they're very much too big to ban. You'd just be left with one processor in the US (Discover, now owned by Capital One).

There's plenty of time: the time you waste by not spending money you don't have. You have to wait longer until you make more money in order to spend more without interest.

> similar to how taxes are added after the fact

That is not a positive. I'm fine with splitting up a price if you want to show how much tax gets added, but having to continuously do the mental math of "no this item is 10.99 it's 10.99 + tax" is very frustrating. When I pick up a $11 item, I want to spend $11.

> especially in places like Europe where they’ve foolishly and enthusiastically started forcing everyone into digital payment

In Europe (or at least the EEA, but the UK and I think Switzerland have their own capping) card interchange is capped at, generally, 0.3%.