Discounts for Using Cash

The Wall Street Journal's Brett Arends recently produced a great article titled "The Death of The Rewards Card."

As you probably already know, when you use a credit card to pay for a purchase, a small cut goes to the bank that issued your card. An even smaller cut goes to the "middle-man" bank, the bank that handles the processing. Invariably, these fees are paid by the retailer. When dealing with volume, these small fees add up fast. In fact, many retailers complain that these fees are so burdensome that they can't afford to hire new workers, and help this limping economy get back to prosperity.

With credit card banks like American Express and Discover, the processing is not handled by another party (no middle-man.) This doesn't mean that transactions handled by these banks are cheaper for the merchant. In fact, if you ask a merchant if the fees associated with accepting American Express are higher than those associated with accepting Visa or MasterCard, the merchant is likely to tell you: yes, they are. In my own real world experience, however, I found that accepting American Express cost me about the same. That's because my transaction volume was very low, and the middle-man bank I was using for Visa and MasterCard payments was charging me a hefty fee for keeping my merchant account active.

I canceled my merchant account 2 years ago. Got too expensive for my meager volume. I now use PayPal for credit card payments, as it's very convenient, and the fees are manageable.

OK, enough with the primer. Onto this article by Mr. Arends.

Legally, all types of merchants who accept credit cards, from gas station owners to web designers, have always had the freedom to offer a discount for paying with cash instead of a credit card, thus eliminating the fees associated with accepting credit cards.

Most merchants, however, were not in the habit of pursuing this money-saving option because the payment networks used "restrictions" to discourage the practice.

The Dodd–Frank Wall Street Reform and Consumer Protection Act(1), which is now law, eliminates those "restrictions" and gives retailers true freedom to offer discounts for using cash over a credit card.

Mr. Arends contends that this could spell the end for the rewards credit card. Mr. Arends predicts that consumers will eschew using a rewards card and take the discount for using cash instead. Bottom line: credit-card rewards are great, but cash is better. Mr. Arends' thesis statement goes something like this:

"...Plastic is so over. The new cash is, er, cash...."

I totally disagree.

My position:

• Consumers like using cards. In my opinion, most people would not be comfortable carrying around wads of cash so as to enjoy discounts offered by retailers and other merchants. Using credit cards is much safer, and convenient. Would you be comfortable carrying $1,800 in cash when you go to buy that new flat-screen TV you've always wanted? I don't think so. I know I wouldn't. What if I was in NYC visiting family and fell asleep in a super crowded subway car (I used to doze off on the subway all the time when I lived there)? I might wake up and find that my cash has been "borrowed." On the other hand, if I accidentally dropped my credit card on a subway train, all I'd have to do is make a quick, toll-free call to my credit-card bank, and all would be fine.
  
  
• Has Mr. Arends forgotten about purchase protection? How much protection do you get with cash? Zero. Recently, someone tried to cheat me by selling me a broken laptop LCD backlight inverter, which was supposed to be brand new. I tried to get the problem resolved but the retailer didn't answer his phone, and didn't respond to emails. Solution was easy: let my credit-card bank deal with it. Got my money back.
  

However, I do agree with the author's statement, that:

"...Credit cards are bad for your wealth..."

No doubt, this is true for anyone who carries even a small balance from month-to-month, and pays interest on it. But for those who know how to use credit wisely, credit cards are...well...cool.

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60% APR On A Credit Card In Mexico

Lots of folks like to complain about how American credit-card banks make big profits by charging high interest, fees and penalties. It's true: before the new credit card rules became law this year, some banks were charging unreasonable fees and interest, mostly to those who have bad credit or no credit history.

But imagine if you lived in Mexico, where the typical APR on a credit card is 30%! Ouch!

And get this: Banco de Wal-Mart, which operates in Mexico (a.k.a WalMex), has a credit card that has an annual percentage rate of 60%. Let me spell that out in case you think it's a typo: sixty percent annual percentage rate.

That 9.99% APR credit card in your wallet isn't looking so bad now, is it?

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Credit Card Offers Continue to Improve Despite Weak Economy

To be perfectly honest, I don't see how the American economy can continue to expand while there are still some major economic hurdles to overcome:

• Unemployment is still high, and will probably eventually settle at a rate much higher than Americans are used to. It's a whole new economy, no doubt. Anyone waiting for the jobless rate to drop below 6% is an anachronism. Tomorrow's July employment report from the Labor Department: expect ugliness.
  
  
• Banks and corporations are hoarding billions in cash. Result: banks aren't lending the way they're supposed to, and companies aren't hiring like they used to. Banks are still collapsing at an alarming rate, while businesses of all sizes have been enjoying significant productivity gains since cutting back on labor during the Great Recession; they don't want to give those gains up.
  
  
• Home prices aren't improving in any meaningful way. Moreover, the residential foreclosure crisis is still going strong.
  
  
• The national debt is unimaginably high, and there is no political will to bring it down while the jobless rate is painfully elevated.
  
  
• The very real threat of deflation likely means that a return to sustainable growth and prosperity are years away.
  
  
• Distressed commercial real estate (commercial properties that are delinquent, in default, in bankruptcy, in foreclosure or are bank-owned) are rising fast.
  

Double-dip recession? I certainly don't want to see it happen, but I know it could easily become a reality. Here's what former Labor Secretary Elaine Chao had to say about it in a recent TV interview:





Yet, despite the dismal economic climate, credit card offers continue to improve.

Discover recently came out with the Black card, which has the best 0% Intro APR on both transferred balances and new purchases of all Discover cards, and also has the best cashback rewards program. We've always liked Discover's cashback program because it's easy to use and it's one of the most generous cashback programs in the American consumer credit card market.

Just as appealing as the Black Card, Discover has another new card: the Discover More Card with a $75 cashback bonus. This card is great because it offers the same 12 month interest-free period on transferred balances as the Black Card, but also adds a bonus $75 on top of it's already generous rewards program. In order to qualify for the $75 bonus, cardholders have to make $500-worth of new purchases within 3 months. Not hard, really.

Chase is also coming out with new, attractive offers. Chase has the standard Freedom Card, which is a great rewards credit card, but it also has 2 special variants of Freedom: Freedom with a $100 cashback bonus and Freedom with a $50 cashback bonus:

• With the Freedom $100 cashback bonus card, the cardholder must spend $799 on new purcahses with the card in order to qualify for the bonus. Not as easy as the Discover cashback bonus card, but, then again, the bonus is $25 higher with this Chase card.
  
  
• With the Freedom $50 cashback bonus card, the bonus is easy to earn. You get $50 after making one purchase with the card. Sweet.
  

There's also the new Chase Slate credit card, which offers 0% intro APR on new purchases and transferred balance for 12 months (Elite pricing, i.e. reserved for those with excellent credit.)

0% intro APR, no fee balance transfer credit cards are alive and well in the UK. When they'll return to the American market is anybody's guess. Hopefully soon. Thanks for reading.

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