This is false. https://x.com/patio11/status/1902555603534295115
If you're going to claim "the general consensus", [citation needed]. A more likely claim is "more people have read the misinformation from the Atlantic than have read the correct refutation from a domain expert on credit cards", which is sadly probably true.
And Twitter doesn’t show threads unless you’re logged in btw, so you just linked Patrick’s opinion.
(Also, the argument is not "credit cards are fair". The argument is "credit card reward programs are not a subsidy of the rich by the poor".)
> And Twitter doesn’t show threads unless you’re logged in btw, so you just linked Patrick’s opinion.
Fair point, thank you.
Some highlights of the thread, assuming that each directly linked tweet can be loaded:
Citation for people with more money spending more: https://x.com/patio11/status/1902556736956903589 (linking to https://www.bls.gov/cex/tables.htm ).
The rich are paying far more of the "payment system overhead" of merchants than the poor are: https://x.com/patio11/status/1902556925826416841 and https://x.com/patio11/status/1902557078222176449 and https://x.com/patio11/status/1902557151807119735 and https://x.com/patio11/status/1902557413275775295
Identifying the key question: https://x.com/patio11/status/1902557654603415768 and https://x.com/patio11/status/1902557795800498477
Quoting and questioning the Atlantic's claim that rewards programs aren't funded by interchange: https://x.com/patio11/status/1902558008283992313 and https://x.com/patio11/status/1902558055310434325
Citation refuting this: https://x.com/patio11/status/1902558157169152158
Quoting relevant charts and data from the citation: https://x.com/patio11/status/1902558268070711311 and https://x.com/patio11/status/1902558360530002094
Claim (not specifically citation-backed) that in fact one group getting a subsidy is lower-income consumers during macroeconomic shocks: https://x.com/patio11/status/1902559088631771397 and https://x.com/patio11/status/1902559166729802088
Observation that while wealthier people get higher-reward cards supported by interchange, poorer people get free checking supported by interchange: https://x.com/patio11/status/1902559216214134798 and https://x.com/patio11/status/1902559349655982387 and https://x.com/patio11/status/1902559372758155325 and https://x.com/patio11/status/1902559469470412913
Refutation of another part of the Atlantic article (article claims credit-card companies "make lucrative deals with airlines and hotel chains", but credit card companies pay for those deals, not the other way around): https://x.com/patio11/status/1902559896400203987 and https://x.com/patio11/status/1902560051644002726 and https://x.com/patio11/status/1902560160632963217 and https://x.com/patio11/status/1902560257282335024 and https://x.com/patio11/status/1902560386395545603 .
Patrick doesn't really dispute this, but tries to argue that this doesn't matter because rich people pay more in absolute terms, so they're not getting "subsidized". Maybe this is just word lawyering over what "subsidize" means, but most people would characterize this arrangement as at least "unfair", even though rich people are paying more in absolute terms.
He also points to some graphs about how from the point of the view of card issuers, the middle customers are actually the ones being subsidized, not the rich or the poor. That might be true, but is totally unrelated to the original original point, which is about what effective price (ie. price paid - cashback) consumers are getting at shops. Moreover, the fact that they're getting a subsidy from the card issuer doesn't preclude from them getting a subsidy from the store itself.
And the thread counters that in several ways: rich people spend more in total at the store so their interchange costs are more than made up for by actual spending; and poor people are getting different rewards in exchange for the interchange system, such as free checking/banking (which was made free by using interchange fees to subsidize it so there aren't monthly fees).
To be clear, I'm not suggesting that the financial system overall is particularly fair. If you want cases where it's extremely unfair, a target-rich environment would be bank accounts that have fees that just so happen to disproportionately affect poorer people (e.g. overdraft fees).
But credit card reward programs aren't a case of transferring money from poor individual cardholders to rich individual cardholders; credit cards are a case of transferring money from poor and "rich" cardholders to ultra-rich credit card companies. The right target for the ire, there, is the credit card company, not the "rich" individual cardholders. This is a standard divide-and-conquer tactic: better to pit low-income and high-income people against each other, rather than cast attentions on the very large companies that have constructed a system to profit heavily from both of them.
Suppose people making $1M+ are taxed at 20%, and everyone else is taxed at 25%. Ignoring the small segment of people making just under $1M, most people would at least characterize this as unfair. You could plausibly this isn't a "subsidy", because the $1M earners are paying more taxes in absolute terms. However it doesn't really refute the argument that the $1M earners are paying "less". Maybe "subsidy" is the wrong word for this, but it's pretty clear this is what detractors of credit card are pointing out.
That model is not analogous to the credit card situation, in multiple ways. Among other things, it's framing this as a "tax" (which isn't inherently the right model), and presupposing that the origin of the "tax" is the credit card interchange, and mapping the "rewards" programs to a discount on the "tax" but not mapping anything else (e.g. free checking or the availability of credit instruments that wouldn't otherwise be available) to that, with a lot of assumptions about which parts of the overall system to include and map, and which parts to leave out. The net result seems like a cherry-picked conclusion to fit an agenda. If you decide in advance what you want the model to show, you can make a model to show it, but that doesn't mean that model is an accurate representation of the system.
When I said "rich people spend more in total at the store so their interchange costs are more than made up for by actual spending", I mean that on balance, they are not "costing" the merchant more, they are giving the merchant more money.
Card companies/issuers charge interchange so that the credit card company makes money; they don't do it with the primary goal of funding rewards programs, or free checking, or the other things they do for marketing purposes. That would be like saying "the primary reason this company charges for their product is to spend money on marketing programs". Credit card companies didn't pick their interchange rates on the basis of funding reward programs, specifically; they set their rates to make money for themselves.
Also, to the best of my knowledge, current law no longer allows credit card companies to prohibit merchants from charging a premium for using credit cards, or for using specific credit cards. (Credit card companies used to do this, which effectively made them a cartel engaging in price-fixing.) e.g. there is nothing preventing merchants from charging less to people with cards that cost less to accept, such as debit cards or less "premium" credit cards. In theory, doing so might create competition for cards with lower interchange, or incentives for people to stop using rewards cards. In practice, however, merchants don't do this. Given that, you could just as easily portray this as a model where merchants are choosing to value the custom of higher-income people (e.g. because they spend more) over the custom of lower-income people. I don't think that's an accurate model either, though.
I think it is reasonable to observe that credit card companies have way way way too much power to set prices for merchants, and treat that as a problem worth solving. I don't think pitting low-income and high-income people against each other is a productive way to solve that. The point of my previous comment, and of the thread I linked, was that neither low-income nor high-income people are on net "making money" from the existence of interchange or from any form of rewards programs. Credit cards make money from both low-income and high-income people alike, and make more money from high-income people, and neither one is subsidizing the other.
(Also, I'm very rapidly reaching my limit for how much energy it's worth investing into a conversation. Frankly, at this point I think anyone interested in the evidence or the accuracy of any particular model has that information available, and anyone interested in pre-deciding a conclusion without caring about the evidence has had that option the whole time, and I don't see much value in continuing. There doesn't seem to be disagreement here on the point that credit card interchange is too high, and that's not a good thing. There's disagreement on whether it's either accurate or useful to frame that as a subsidy from poor people to rich people. By "accurate" I mean "is it actually an accurate model of how the system works, for the purposes of understanding and changing the system", and by "useful" I mean "does that model actually help effect change, rather than just provoking outrage". I don't particularly think the framing as a "subsidy" serves either of those purposes.)
