OT: Credit card policies (was Re: Dear Linkedin,)

Sun Jun 10 19:23:42 UTC 2012

On 10-Jun-12 14:01, Robert Bonomi wrote:
>> From: Jay Ashworth <jra at baylink.com>
>>
>> Even Further Off-Topic, isn't "debit" supposed to be "cash"?  Why do 
>> I pay the Credit price for it?
> It is, and *ISN'T*, 'cash'.
>
> Unlike cash (and like a credit card), it is simply an instruction to a third party to pay the retailer a specified amount.  And as such, is subject to the terms of the contract between -those- parties as to how payment is made an what charges are imposed.
>
> Unlike a credit card, the money _is_ immediately dedecuted from your bank account.

All of the above is completely irrelevant to the merchant.

> Like a credit card, it is the third-party clearinghouse that gets the mone from you, and passes it on to the retailer.  AFTER extracting their charges for the service they provide.

FWIW, this is known as the "discount" rate.

> You pay the 'credit' price, because the card issuer, and the clearinghouse operations _charge_ the merchant the same amount for those transactions as for 'credit' ones.  Thus the merchant does not receive any of the benefits of a 'cash' transaction, so there is no 'discount' to pass on to the buyer.

The merchant's discount rate varies between card types.  That's why many
merchants don't accept AmEx, DC, CB and Nexus: their discount rates are
higher than Visa and MC.  For a low-margin business, the difference in
rates can make the difference between profit and loss on a given sale.

> At one point, VISA, charged -more- for debit transactions than credit ones.  Despite the fact that there was -zero- risk to them on the debit transaction.

Wrong.  Even debit cards present a risk of chargeback due to fraud. 
However, the fraud rates are lower due to the us of PINs, so the
discount rate is also lower.

> VISA got sued over the matter, since (at that time) it was impossible to tell whether the card number presented was debit or credit.

It's still impossible to tell, which is why most card terminals ask
whether the card is credit or debit.  If you press the "credit" button,
even if the card is a debit card, it is processed as a credit card--with
the credit card discount rate.  That's why Visa's advertising and
contests promote customers using signature (i.e. "credit") transactions:
Visa gets more money that way (at the cost of their merchants).

> As a result of the lawsuit, the cost differential between credit and debit transactions was eliminated.

... except it's still there, though perhaps in the other direction.

The discount rate for "debit" transactions is lower, but a PIN must be
used to get that rate.  The exact rates vary between card networks, card
processors and even merchants, but a few years ago the numbers I heard
were 4% for "credit" (i.e. signature) transactions and 1% for "debit"
(i.e. PIN) transactions.  That is why those nifty PIN terminals appeared
everywhere virtually overnight: saving 3% on every "debit" transaction
easily paid for all those new terminals.

S

-- 
Stephen Sprunk         "God does not play dice."  --Albert Einstein
CCIE #3723         "God is an inveterate gambler, and He throws the
K5SSS        dice at every possible opportunity." --Stephen Hawking

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