Credit Card Solution

Credit Card Rewards: Reverse Robin Hood?

Robin Hood used to steal from the rich in order to give to the poor. Now a public policy discussion paper from the Federal Reserve Bank of Boston gets close to suggesting that credit card rewards programs achieve much the same–except in reverse.

The paper, published last Wednesday, says: “On average, each cash-using household pays $151 to card-using households and each card-using household receives $1,482 from cash users every year.” And it goes on to show that it’s low-income households that tend to use cash and high-income families who receive most through using their credit cards.

Credit Card Companies and Swipe Fees

The Fed’s hypothesis is based on how “interchange fees” (also known as “merchant fees” and “swipe fees”) are levied and funded. These interchange fees are the cut of the transaction value paid by merchants to credit card companies every time a card is swiped. And the paper’s authors argue that merchants pass the fees to all customers in the form of higher prices. They contend:

This retail price markup for all consumers results in credit-card-paying consumers being subsidized by consumers who do not pay with credit cards… cash buyers must pay higher retail prices to cover merchants’ costs associated with the credit cards’ merchant fees. Because these fees are used to pay for rewards given to credit card users, and since cash users do not receive rewards, cash users also finance part of the rewards given to credit card users.

Credit Card Rewards and You

Whether or not you believe the swipe fees system is fair, it is the system. Government can yet change it (it’s been on the agenda for some while), but, in the meantime, there seems little point in your denying yourself the benefits that a good rewards program can bring. So here are three cards that could be of interest:

• Chase Sapphire Card. This card has no annual fee and a generous rewards program that gives you 10,000 Bonus Points after your first purchase. You also get double points on all airfare purchases booked through Ultimate Rewards. And there are no blackout dates, earning caps, or point expiration periods.
• Chase Freedom Card. This card, too has no annual fee. You can earn $100 Bonus Cash Back if you spend $799 on purchases in the first three months you have the card. And there’s five percent cash back on some popular categories and a full one percent on everything else.
• Iberiabank Visa® Platinum. This could be the card for you if you sometimes carry forward a balance, because its rates can be as low as 9.25% APR. You earn a bonus point for every dollar in qualifying purchases, which you can redeem as hotel, gift, or experience rewards. No annual fee with this one either.

Credit Card Use Overseas

On Monday, this blog mentioned the difficulties that some Americans experience when trying to use a U.S.-issued credit card overseas because so many other countries have dumped swipe-and-sign cards in favor of chip-and-pin ones. As the latter’s name implies, these cards have replaced the magnetic strip so familiar over here with a microchip. Some retailers and virtually all automated payment machines can no longer handle American cards. The exception is ATMs, which should still work.

The Kansas City Star addressed this issue Wednesday, and suggested that it may be possible in some countries for tourists and business travelers to obtain–possibly from their hotels–a prepaid card. The card is loaded with euros and contains a chip, which could solve this problem. Why not ask your concierge or check when you book your room?

It’s not yet clear whether American credit card companies are likely to adopt chip-and-pin technologies. A payments risk analyst at the Atlanta Fed wrote a blog earlier this week that suggested that fraud would be cut significantly were they to do so, but also quoted one industry estimate of the likely cost–$8.6 billion. That’s a big investment, although making credit card use easier and safer would be a valuable prize.

Most popular / best credit cards according to IndexCreditCards.com visitors:

1. 1. Discover® More Card – 0% APR on balance transfers for 12 months & 6 months on purchases, 5% cashback bonus in popular categories, up to 1% cashback bonus on all other purchases
   
2. 2. Chase Freedom Card – 0% Intro APR and no Annual Fee, 5% bonus cash back in popular categories , 1% cash bank on everything else
   
3. 3. Citi^® Platinum Select^® MasterCard^® – 0% on purchases & balance transfers for Up to 18 months, APR as low as 9.99% variable. $30 statement credit.
   
4. 4. Blue Cash^® from American Express – Earn up to 5% cash back on gas, groceries and drug store purchases, and up to 1.5% back on all other purchases, no annual fee, fast approval under 60 seconds
   
5. 5. Slate ^SM from Chase – 0% Intro APR, Now with Blueprint, patented fraud protection
   
6. 6. American Express® Gold Card – 10,000 American Express Membership Rewards bonus points when you use the card for at least $500 in purchases within the first 3 months.
   
7. 7. TrueEarnings® Business Card from Costco & American Express – 4% cash back for annual gas purchases up to $6,000, 3% restaurants, 2% travel, 1% everywhere else, 0% APR on purchases for first 6 months
   

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