Visa/MC gift cards - what a racket

[Monkey Uncle]

I was headed to the grocery store this morning and my wife asked me to pick up a gift card for my son's anniversary so he and his wife can maybe go out to dinner or something.  I looked at a $50 Visa gift card.  Printed on the cardboard backer it said "$4.95 activation fee."  Needless to say, I did not buy it.  I'll just give my son and his wife cash or write them a check.

I've never bought a gift card before, so perhaps I'm marveling over something that is old news to everyone else.  But think about it for a moment.  They charge the purchaser of the card 10% of the face value.  Then, when the card gets used, they also charge the merchant another 2-3% to run the card.  So you're giving THEM a short term loan, and THEY get to charge 12-13% interest on it!  And that's not an APR, that's 13% over the term of the loan, which likely isn't going to be more than a few weeks or months.

Nice work if you can get it.  Is there any legitimate reason why anyone would buy one of these cards?  The only thing I can think of is criminal activity that needs untraceable funds.

[TheGrimSqueaker]

I was headed to the grocery store this morning and my wife asked me to pick up a gift card for my son's anniversary so he and his wife can maybe go out to dinner or something.  I looked at a $50 Visa gift card.  Printed on the cardboard backer it said "$4.95 activation fee."  Needless to say, I did not buy it.  I'll just give my son and his wife cash or write them a check.

I've never bought a gift card before, so perhaps I'm marveling over something that is old news to everyone else.  But think about it for a moment.  They charge the purchaser of the card 10% of the face value.  Then, when the card gets used, they also charge the merchant another 2-3% to run the card.  So you're giving THEM a short term loan, and THEY get to charge 12-13% interest on it!  And that's not an APR, that's 13% over the term of the loan, which likely isn't going to be more than a few weeks or months.

Nice work if you can get it.  Is there any legitimate reason why anyone would buy one of these cards?  The only thing I can think of is criminal activity that needs untraceable funds.

I can think of a few.

(1) Enablers who want an arm's length distance from the people they enable
(2) Identity theft victims who have credit so bad they can't obtain any kind of credit card or bank account but still need to use "cashless" activities such as toll roads
(3) People who do not wish to be traced or tracked if they use the card for toll roads and other "cashless" activities
(4) People who want to limit how much a robber or skimmer can take from them, if the grocery store or gas station they use skims their account information and starts making false charges
(5) People who are in the country illegally due to having been brought there by their parents as children, and who therefore cannot obtain a bank account or card
(6) People who are fleeing an abusive ex who is capable of tracking them down through bank card, phone, or credit card use (law enforcement exes often do this)
(7) People who have recently been a victim of a crime or similar disaster and who don't have identification so they can't access their usual accounts
(8) People who lose their ID while traveling, or whose ID is stolen
(9) People who are buying an obligatory gift for someone they don't know very well

None of the people I describe are criminals. Most have been the victim of a crime, or are trying to avoid becoming victims.

[chemistk]

As a "side gig" (if you can call it that), I participate in market research studies, opinion surveys, product evaluations, focus groups, etc.

I've been doing this for well over a decade and for whatever reason, compensation is almost always one of two options - merchant specific gift cards, and Visa/MC gift cards (either virtual or physical, depending on the research administrator). Very occasionally do they also offer the option of direct PayPal transfer.

I think this is largely due to them needing verification that the participant received their compensation, since you aren't at a physical location where they know that you are getting a check or cash, but I've received many dozens of these cards over the years. It's a win-win because like you point out, the CC company makes plenty of money off it.

Otherwise, @TheGrimSqueaker covers all the normal uses for those display kiosk cards.

[Monkey Uncle]

I was headed to the grocery store this morning and my wife asked me to pick up a gift card for my son's anniversary so he and his wife can maybe go out to dinner or something.  I looked at a $50 Visa gift card.  Printed on the cardboard backer it said "$4.95 activation fee."  Needless to say, I did not buy it.  I'll just give my son and his wife cash or write them a check.

I've never bought a gift card before, so perhaps I'm marveling over something that is old news to everyone else.  But think about it for a moment.  They charge the purchaser of the card 10% of the face value.  Then, when the card gets used, they also charge the merchant another 2-3% to run the card.  So you're giving THEM a short term loan, and THEY get to charge 12-13% interest on it!  And that's not an APR, that's 13% over the term of the loan, which likely isn't going to be more than a few weeks or months.

Nice work if you can get it.  Is there any legitimate reason why anyone would buy one of these cards?  The only thing I can think of is criminal activity that needs untraceable funds.

I can think of a few.

(1) Enablers who want an arm's length distance from the people they enable
(2) Identity theft victims who have credit so bad they can't obtain any kind of credit card or bank account but still need to use "cashless" activities such as toll roads
(3) People who do not wish to be traced or tracked if they use the card for toll roads and other "cashless" activities
(4) People who want to limit how much a robber or skimmer can take from them, if the grocery store or gas station they use skims their account information and starts making false charges
(5) People who are in the country illegally due to having been brought there by their parents as children, and who therefore cannot obtain a bank account or card
(6) People who are fleeing an abusive ex who is capable of tracking them down through bank card, phone, or credit card use (law enforcement exes often do this)
(7) People who have recently been a victim of a crime or similar disaster and who don't have identification so they can't access their usual accounts
(8) People who lose their ID while traveling, or whose ID is stolen
(9) People who are buying an obligatory gift for someone they don't know very well

None of the people I describe are criminals. Most have been the victim of a crime, or are trying to avoid becoming victims.

Ah, so in addition to enabling criminal activity, Visa/MC are taking advantage of people who are down on their luck.

[Monkey Uncle]

As a "side gig" (if you can call it that), I participate in market research studies, opinion surveys, product evaluations, focus groups, etc.

I've been doing this for well over a decade and for whatever reason, compensation is almost always one of two options - merchant specific gift cards, and Visa/MC gift cards (either virtual or physical, depending on the research administrator). Very occasionally do they also offer the option of direct PayPal transfer.

I think this is largely due to them needing verification that the participant received their compensation, since you aren't at a physical location where they know that you are getting a check or cash, but I've received many dozens of these cards over the years. It's a win-win because like you point out, the CC company makes plenty of money off it.

Otherwise, @TheGrimSqueaker covers all the normal uses for those display kiosk cards.

I guess that does qualify as legitimate.  In the old days, companies would just cut a check for such miscellaneous payments, but I guess now they'd rather just pay the fee than deal with the paperwork/mailing hassle.  Although I'm guessing those merchant-specific cards probably don't have such high fees.

[solon]

Every once in a while Staples has a sale where they waive the fee. So a $200 gift card costs $200. I use those to meet minimum spend on credit card offers.

Here's one now: https://www.doctorofcredit.com/staples-no-purchase-fee-on-200-visa-gift-cards-10-31-11-6-limit-5/

[lifeisshort123]

Sometimes gift cards can be bought at less than cost.  I’m not sure about the MC/Visa gift cards, but maybe.

A lot of people like giving these in corporate settings in lieu of a cash or check. 

[sailinlight]

Back in the early 2000s the cool kids who were on Fatwallet Finance forums would use them to manufacture spend and get CC bonuses.

[MoneyTree]

Back in the early 2000s the cool kids who were on Fatwallet Finance forums would use them to manufacture spend and get CC bonuses.

This is STILL a used method of manufactured spend for cc bonuses, especially if you can jump on one of the deals where they waive the fee. Anecdotally, whenever I have tried to go to Staples when they offer to waive the fee, they are ALWAYS sold out. So quite a lot of people buy these things.

My grocery store will sometimes have an offer to waive or reduce the fee. Since I use a credit card which gets 6% rewards on grocery purchases, its a no brainer to buy these when the fee is waived. Free money.

[PDXTabs]

(6) People who are fleeing an abusive ex who is capable of tracking them down through bank card, phone, or credit card use (law enforcement exes often do this)

Or maybe even without any abuse during your six year divorce where your soon-to-be ex-spouse gets all your banking records because of discovery you just want a little bit of privacy for your online dating apps.

[Dicey]

Some months ago, we received a Visa Gift Card from a friend as a thank you for some work we'd done. I winced when I opened it. We still haven't used it, which means it's eworth even less...

When I want to send a GC, I usually buy one from Target or Costco. No service charge and easy to use.

[Monkey Uncle]

Back in the early 2000s the cool kids who were on Fatwallet Finance forums would use them to manufacture spend and get CC bonuses.

This is STILL a used method of manufactured spend for cc bonuses, especially if you can jump on one of the deals where they waive the fee. Anecdotally, whenever I have tried to go to Staples when they offer to waive the fee, they are ALWAYS sold out. So quite a lot of people buy these things.

My grocery store will sometimes have an offer to waive or reduce the fee. Since I use a credit card which gets 6% rewards on grocery purchases, its a no brainer to buy these when the fee is waived. Free money.

Yeah, I'm guessing a fee waiver is the only way that would be cost effective.

[sonofsven]

Some months ago, we received a Visa Gift Card from a friend as a thank you for some work we'd done. I winced when I opened it. We still haven't used it, which means it's eworth even less...

When I want to send a GC, I usually buy one from Target or Costco. No service charge and easy to use.

It's not worth less to you, though. You should use it.

[Omy]

Also, people who aren't frugal and aren't paying attention to money buy them to give as gifts. My broke SIL sends them to us as presents. I cringe every time...and beg her not to spend money on us and to save it instead.

[achvfi]

While fuming about gift cards fee of one time $4.95, remember every credit card transaction is costing you 2.5-3.5% of the transaction.

Lets say you spend $40000 a year in credit card purchases, without feeling pinch you paid visa/mastercard and the banks that give you credit card about $1400 a year. You pay this year after year and even better this goes up with inflation. Think about that. That is the forever money  racket for these companies.

Most people never give this a thought, credit cards are almost indispensable in normal peoples lives. Credit card companies and banks have such a incredible business model.

[sailinlight]

While fuming about gift cards fee of one time $4.95, remember every credit card transaction is costing you 2.5-3.5% of the transaction.

Lets say you spend $40000 a year in credit card purchases, without feeling pinch you paid visa/mastercard and the banks that give you credit card about $1400 a year. You pay this year after year and even better this goes up with inflation. Think about that. That is the forever money  racket for these companies.

Most people never give this a thought, credit cards are almost indispensable in normal peoples lives. Credit card companies and banks have such a incredible business model.

Well they're providing a service- ability to float for at least a month, fraud protection, chargeback ability in case of a dispute...

[solon]

While fuming about gift cards fee of one time $4.95, remember every credit card transaction is costing you 2.5-3.5% of the transaction.

Lets say you spend $40000 a year in credit card purchases, without feeling pinch you paid visa/mastercard and the banks that give you credit card about $1400 a year. You pay this year after year and even better this goes up with inflation. Think about that. That is the forever money  racket for these companies.

Most people never give this a thought, credit cards are almost indispensable in normal peoples lives. Credit card companies and banks have such a incredible business model.

Well they're providing a service- ability to float for at least a month, fraud protection, chargeback ability in case of a dispute...

Also I didn't pay it, the merchant did. So if my annual spend was $40,000, that's it, that's all it was. It wasn't $40,000 + 1,400.

[Psychstache]

Nice work if you can get it.  Is there any legitimate reason why anyone would buy one of these cards?  The only thing I can think of is criminal activity that needs untraceable funds.

It fills the consumer need for people who are fundamentally incapable of giving cash as a gift, but also don't know what gift to give.

[Michael in ABQ]

While fuming about gift cards fee of one time $4.95, remember every credit card transaction is costing you 2.5-3.5% of the transaction.

Lets say you spend $40000 a year in credit card purchases, without feeling pinch you paid visa/mastercard and the banks that give you credit card about $1400 a year. You pay this year after year and even better this goes up with inflation. Think about that. That is the forever money  racket for these companies.

Most people never give this a thought, credit cards are almost indispensable in normal peoples lives. Credit card companies and banks have such a incredible business model.

I will be paying five figures in credit card/payment processing fees for my business this year. It's just the cost of doing business.

If you want to save a merchant money, use a debit card. The fees are usually less than 1%. Also, American Express fees are higher, as are reward credit cards. So that Chase Sapphire Reserve which gets you a bunch of miles, is paid for with an interchange fee of say 3.25% instead of 2.5% on a plain vanilla Visa Card.

However, a lot of smaller merchants using Square, or PayPal pay a fixed percentage (typically 3.49% + a small flat fee). I was able to negotiate for interchange fees (the non-negotiable fees Visa, Mastercard, Discover, etc. charge for using their network) plus a percentage with my payment processor. It still works out to about 3%, but even saving half a percent is thousands of dollars.

[achvfi]

Well they're providing a service- ability to float for at least a month, fraud protection, chargeback ability in case of a dispute...

Yes they are providing a service. It doesn't cost that much to process transactions like 50 years ago, technology has come a long way. Its an very expensive service is my point and its a great business model.

Lets imagine a world where you pay for privilege of using a credit card for all the services they provide you at the end of the year, would you be willing to fork out $1400 on $40000 spend?

May be another year $3500 on $100000 spend?

Also I didn't pay it, the merchant did. So if my annual spend was $40,000, that's it, that's all it was. It wasn't $40,000 + 1,400.

The service is not provided free by merchant. Merchant already added interchange fee to the price of the product averaged out between cash and credit card transactions. You just don't feel the friction and pain of paying $1400 when when it is divided over a hundreds of transactions.

Ultimately you pay for it. Have no illusions about it.

[sailinlight]

The service is not provided free by merchant. Merchant already added interchange fee to the price of the product averaged out between cash and credit card transactions. You just don't feel the friction and pain of paying $1400 when when it is divided over a hundreds of transactions.

Ultimately you pay for it. Have no illusions about it.

The merchant has to pay for a cash service to take their cash to the bank, take a loss on employees stealing the cash, pay an employee to deposit checks at the bank, pay for customers that wrote bad checks. You are paying those costs too, and they are likely a lot higher than the 3% credit card fee

[Monkey Uncle]

Also, people who aren't frugal and aren't paying attention to money buy them to give as gifts. My broke SIL sends them to us as presents. I cringe every time...and beg her not to spend money on us and to save it instead.

My point exactly, and the reason I posted this in the "wall of shame" sub-forum

[Monkey Uncle]

While fuming about gift cards fee of one time $4.95, remember every credit card transaction is costing you 2.5-3.5% of the transaction.

Lets say you spend $40000 a year in credit card purchases, without feeling pinch you paid visa/mastercard and the banks that give you credit card about $1400 a year. You pay this year after year and even better this goes up with inflation. Think about that. That is the forever money  racket for these companies.

Most people never give this a thought, credit cards are almost indispensable in normal peoples lives. Credit card companies and banks have such a incredible business model.

Correction: it's costing everybody 2.5-3.5%, whether they actually use a credit card or not.  I'd be nuts not to use my rewards credit card for purchases when it doesn't cost me any more than using cash.  There is the rare merchant that still gives a small discount for using cash.  I will almost always pay those merchants in cash.  Also, sometimes out of the goodness of my heart, I will pay a local small business in cash, even though they don't let me keep the credit card processing fee.  But for the most part, those credit card processing fees are spread equally among all buyers, and there is no point in not using a card that pays me back 1.25% of the cost of whatever I'm buying.

[Gronnie]

While fuming about gift cards fee of one time $4.95, remember every credit card transaction is costing you 2.5-3.5% of the transaction.

Lets say you spend $40000 a year in credit card purchases, without feeling pinch you paid visa/mastercard and the banks that give you credit card about $1400 a year. You pay this year after year and even better this goes up with inflation. Think about that. That is the forever money  racket for these companies.

Most people never give this a thought, credit cards are almost indispensable in normal peoples lives. Credit card companies and banks have such a incredible business model.

Correction: it's costing everybody 2.5-3.5%, whether they actually use a credit card or not.  I'd be nuts not to use my rewards credit card for purchases when it doesn't cost me any more than using cash.  There is the rare merchant that still gives a small discount for using cash.  I will almost always pay those merchants in cash.  Also, sometimes out of the goodness of my heart, I will pay a local small business in cash, even though they don't let me keep the credit card processing fee.  But for the most part, those credit card processing fees are spread equally among all buyers, and there is no point in not using a card that pays me back 1.25% of the cost of whatever I'm buying.

If you are ever getting < 2% back you are using the wrong card.

[Paul der Krake]

Visa and Mastercard charge flat activation fees because there is no sticky retail banking relationship to subsidize the account. When you get a debit card from Chase, you'll stay with them something insane like 22 years on average, and you'll be sold all sorts of product during that time. Not you specifically, advanced penny-pinching Mustachians, but the general cohort of retail customers you belong to, certainly.

With a prepaid card it's a one and done. They still need to maintain all the infrastructure that makes payments an afterthought for consumers, offer customer support, split revenue with the issuer, etc. They're not making 2-3% per swipe on those products either, because prepaid/debit has much lower costs than credit.

That being said, I agree that giving someone those as gifts is cringe.

[Dicey]

While fuming about gift cards fee of one time $4.95, remember every credit card transaction is costing you 2.5-3.5% of the transaction.

Lets say you spend $40000 a year in credit card purchases, without feeling pinch you paid visa/mastercard and the banks that give you credit card about $1400 a year. You pay this year after year and even better this goes up with inflation. Think about that. That is the forever money  racket for these companies.

Most people never give this a thought, credit cards are almost indispensable in normal peoples lives. Credit card companies and banks have such a incredible business model.

This is flat-out wrong.  For the vast majority of transactions, it's baked into the price everyone pays, no matter what form of payment they use. And it's difficult to travel hack cash, whereas any mustachian worth their whiskers can take advantage of cash back, free flights, hotels, rental cars, etc. There's a whole thread about it here.

Case in point: at 10:30 last night family member was stranded and needed a hotel room. I used my cheap-ass phone to book them a free-to-them room. How? Credit Card rewards. Sure, the card has a $49 annual fee, but it includes a free night each year, plus points for more free stays. I earn those points buying the stuff I normally would, as the places I normally shop. [Hint: not Whole Foods.] Oh, and the hotel was at an airport. The room would have cost them $250+ tax and fees. The feel-goods for being able to help them wisely? Priceless.

[TomTX]

Nice work if you can get it.  Is there any legitimate reason why anyone would buy one of these cards?  The only thing I can think of is criminal activity that needs untraceable funds.

Sure. The ratios get better with larger gift cards. Here's an example:

I have the Chase Freedom. Once a year I can get 5% back at grocery stores up to $1500. Buy $1500 in GC for $1515, end up with $1500 in GC plus $75 in points.  Net is $60.

One of my local grocery stores sometimes runs a deal where if you buy at least $50 in Visa gift cards, you get a $10 grocery store gift card free. So buy each $500 individually. Net is now $90.

Is it worth the hassle? Depends on your situation.

[TomTX]

The service is not provided free by merchant. Merchant already added interchange fee to the price of the product averaged out between cash and credit card transactions. You just don't feel the friction and pain of paying $1400 when when it is divided over a hundreds of transactions.

Ultimately you pay for it. Have no illusions about it.

You also pay for the friction of cash transactions - it's not magically frictionless because there's no direct interchange fee.

Employee time spent counting out the register, shrinkage,  transferring cash to the safe, getting change from the safe, bank dropoffs, getting change at the bank, added security precautions, etc.

[achvfi]

While fuming about gift cards fee of one time $4.95, remember every credit card transaction is costing you 2.5-3.5% of the transaction.

Lets say you spend $40000 a year in credit card purchases, without feeling pinch you paid visa/mastercard and the banks that give you credit card about $1400 a year. You pay this year after year and even better this goes up with inflation. Think about that. That is the forever money  racket for these companies.

Most people never give this a thought, credit cards are almost indispensable in normal peoples lives. Credit card companies and banks have such a incredible business model.

This is flat-out wrong.  For the vast majority of transactions, it's baked into the price everyone pays, no matter what form of payment they use. And it's difficult to travel hack cash, whereas any mustachian worth their whiskers can take advantage of cash back, free flights, hotels, rental cars, etc. There's a whole thread about it here.

Case in point: at 10:30 last night family member was stranded and needed a hotel room. I used my cheap-ass phone to book them a free-to-them room. How? Credit Card rewards. Sure, the card has a $49 annual fee, but it includes a free night each year, plus points for more free stays. I earn those points buying the stuff I normally would, as the places I normally shop. [Hint: not Whole Foods.] Oh, and the hotel was at an airport. The room would have cost them $250+ tax and fees. The feel-goods for being able to help them wisely? Priceless.

You are not wrong but can't see the forest for the trees. I myself use credit cards this way and am advocate for using credit cards. I work in the financial industry as well, its great for our business.

What I am saying is these products cost us all 3.5% of almost every transaction we as a society make. Raising price of all the products we use by at least that much permanently.

Some of us can take better advantage of the system than the most. Even then you are paying for this service, you just don't feel like you do.

[Dicey]

While fuming about gift cards fee of one time $4.95, remember every credit card transaction is costing you 2.5-3.5% of the transaction.

Lets say you spend $40000 a year in credit card purchases, without feeling pinch you paid visa/mastercard and the banks that give you credit card about $1400 a year. You pay this year after year and even better this goes up with inflation. Think about that. That is the forever money  racket for these companies.

Most people never give this a thought, credit cards are almost indispensable in normal peoples lives. Credit card companies and banks have such a incredible business model.

This is flat-out wrong.  For the vast majority of transactions, it's baked into the price everyone pays, no matter what form of payment they use. And it's difficult to travel hack cash, whereas any mustachian worth their whiskers can take advantage of cash back, free flights, hotels, rental cars, etc. There's a whole thread about it here.       

Case in point: at 10:30 last night family member was stranded and needed a hotel room. I used my cheap-ass phone to book them a free-to-them room. How? Credit Card rewards. Sure, the card has a $49 annual fee, but it includes a free night each year, plus points for more free stays. I earn those points buying the stuff I normally would, as the places I normally shop. [Hint: not Whole Foods.] Oh, and the hotel was at an airport. The room would have cost them $250+ tax and fees. The feel-goods for being able to help them wisely? Priceless.

You are not wrong but can't see the forest for the trees. I myself use credit cards this way and am advocate for using credit cards. I work in the financial industry as well, its great for our business.

What I am saying is these products cost us all 3.5% of almost every transaction we as a society make. Raising price of all the products we use by at least that much permanently.

Some of us can take better advantage of the system than the most. Even then you are paying for this service, you just don't feel like you do.

Pretty sure I'm seeing the forest *and* the trees with clarity. There are tons of costs that are baked into the price of goods and services. Geez, that's how it works! If you want a far better example of an "Incredible business model", consider the entire US medical system...

The central tenet of mustachianism is to figure out the system, then use it to best advantage to meet one's goals. Beat it and get out in order to live your best life. Nobody has time to tilt against windmills.

[achvfi]

While fuming about gift cards fee of one time $4.95, remember every credit card transaction is costing you 2.5-3.5% of the transaction.

Lets say you spend $40000 a year in credit card purchases, without feeling pinch you paid visa/mastercard and the banks that give you credit card about $1400 a year. You pay this year after year and even better this goes up with inflation. Think about that. That is the forever money  racket for these companies.

Most people never give this a thought, credit cards are almost indispensable in normal peoples lives. Credit card companies and banks have such a incredible business model.

This is flat-out wrong.  For the vast majority of transactions, it's baked into the price everyone pays, no matter what form of payment they use. And it's difficult to travel hack cash, whereas any mustachian worth their whiskers can take advantage of cash back, free flights, hotels, rental cars, etc. There's a whole thread about it here.       

Case in point: at 10:30 last night family member was stranded and needed a hotel room. I used my cheap-ass phone to book them a free-to-them room. How? Credit Card rewards. Sure, the card has a $49 annual fee, but it includes a free night each year, plus points for more free stays. I earn those points buying the stuff I normally would, as the places I normally shop. [Hint: not Whole Foods.] Oh, and the hotel was at an airport. The room would have cost them $250+ tax and fees. The feel-goods for being able to help them wisely? Priceless.

You are not wrong but can't see the forest for the trees. I myself use credit cards this way and am advocate for using credit cards. I work in the financial industry as well, its great for our business.

What I am saying is these products cost us all 3.5% of almost every transaction we as a society make. Raising price of all the products we use by at least that much permanently.

Some of us can take better advantage of the system than the most. Even then you are paying for this service, you just don't feel like you do.

Pretty sure I'm seeing the forest *and* the trees with clarity. There are tons of costs that are baked into the price of goods and services. Geez, that's how it works! If you want a far better example of an "Incredible business model", consider the entire US medical system...

The central tenet of mustachianism is to figure out the system, then use it to best advantage to meet one's goals. Beat it and get out in order to live your best life. Nobody has time to tilt against windmills.

Again you are not wrong :)

[ender]

Can we not pretend that cash/check are 100% guaranteed either and that credit card companies are somehow evil for charging a fixed transaction fee?

Plenty of people write checks that bounce, have fake money, require the company to manage cash/change, slower checkout times, etc.

[sonofsven]

This is why I love the SUB racket, banks give out free money.
Right now I have a bank paying me 5% for borrowing $5k from them. Sure it's not a lot of money, but it's the principle ;-)
If a business is not charging 2-3% extra for using a cc then you are indeed paying 2-3% "too much" if you are paying via cash/check/debit. It's a missed opportunity no matter how you slice it.

[TheGrimSqueaker]

I was headed to the grocery store this morning and my wife asked me to pick up a gift card for my son's anniversary so he and his wife can maybe go out to dinner or something.  I looked at a $50 Visa gift card.  Printed on the cardboard backer it said "$4.95 activation fee."  Needless to say, I did not buy it.  I'll just give my son and his wife cash or write them a check.

I've never bought a gift card before, so perhaps I'm marveling over something that is old news to everyone else.  But think about it for a moment.  They charge the purchaser of the card 10% of the face value.  Then, when the card gets used, they also charge the merchant another 2-3% to run the card.  So you're giving THEM a short term loan, and THEY get to charge 12-13% interest on it!  And that's not an APR, that's 13% over the term of the loan, which likely isn't going to be more than a few weeks or months.

Nice work if you can get it.  Is there any legitimate reason why anyone would buy one of these cards?  The only thing I can think of is criminal activity that needs untraceable funds.

I can think of a few.

(1) Enablers who want an arm's length distance from the people they enable
(2) Identity theft victims who have credit so bad they can't obtain any kind of credit card or bank account but still need to use "cashless" activities such as toll roads
(3) People who do not wish to be traced or tracked if they use the card for toll roads and other "cashless" activities
(4) People who want to limit how much a robber or skimmer can take from them, if the grocery store or gas station they use skims their account information and starts making false charges
(5) People who are in the country illegally due to having been brought there by their parents as children, and who therefore cannot obtain a bank account or card
(6) People who are fleeing an abusive ex who is capable of tracking them down through bank card, phone, or credit card use (law enforcement exes often do this)
(7) People who have recently been a victim of a crime or similar disaster and who don't have identification so they can't access their usual accounts
(8) People who lose their ID while traveling, or whose ID is stolen
(9) People who are buying an obligatory gift for someone they don't know very well

None of the people I describe are criminals. Most have been the victim of a crime, or are trying to avoid becoming victims.

Ah, so in addition to enabling criminal activity, Visa/MC are taking advantage of people who are down on their luck.

Exactly.

In other news, water is wet.

This is why we (Mustachians) systematically do our best to extract every possible dollar from institutional lenders, credit companies, etc. within the limits of the law, without being charged any interest. It's a sport, directed against an opponent that desperately deserves it. There's a certain moral benefit to doing so.

The Knights Templar did not hunt (a popular sport for nobility at the time), unless they were hunting lions. Mustachians do not gouge, unless we are gouging predatory institutions. It's a sport, but hopefully with less drama around October 13th when it falls on a Friday.

[Telecaster]

You are not wrong but can't see the forest for the trees. I myself use credit cards this way and am advocate for using credit cards. I work in the financial industry as well, its great for our business.

What I am saying is these products cost us all 3.5% of almost every transaction we as a society make. Raising price of all the products we use by at least that much permanently.

Some of us can take better advantage of the system than the most. Even then you are paying for this service, you just don't feel like you do.

But merchants don't have to take credit cards, right?  Although consumers ultimately pay all of the merchant's expenses, if the merchant can lower her costs she gets to keep the delta in the form of increased profit and transaction costs are an expense paid by the merchant, just like the heat bill.

The reason why credit cards gained traction in the first place is that consumers spend more, which makes the merchant more money.   And of course eliminates the cash transaction costs.   We're seeing more and more places go to credit card only.   Clearly, they think credit cards are saving them money. 

[Morning Glory]

I especially hate the small denomination visa/mc e-gift cards that some rebate companies use. The only easy way I've found to use them is Amazon balance reloads and I almost never want anything from Amazon.

[Paul der Krake]

I think instantly less of a merchant that breaks out the components of their prices and makes it difficult to comparison shop.

IDGAF about your living wage surcharge, or your connectivity fee, or your franchise costs. If I wanted to take a look at your books, I'd become your CPA.

[eyesonthehorizon]

I think instantly less of a merchant that breaks out the components of their prices and makes it difficult to comparison shop.

IDGAF about your living wage surcharge, or your connectivity fee, or your franchise costs. If I wanted to take a look at your books, I'd become your CPA.

Are you saying they don’t still show a bottom line charge? If they still show the total final price but they also show all that other information, it makes it much easier for me to comparison shop because then I have insight into their actual costs & can make better-educated guesses about where other merchants are cutting corners, overspending, what might be a loss leader, etc. I’d be more likely to shop there, not less.

[Paul der Krake]

I think instantly less of a merchant that breaks out the components of their prices and makes it difficult to comparison shop.

IDGAF about your living wage surcharge, or your connectivity fee, or your franchise costs. If I wanted to take a look at your books, I'd become your CPA.

Are you saying they don’t still show a bottom line charge? If they still show the total final price but they also show all that other information, it makes it much easier for me to comparison shop because then I have insight into their actual costs & can make better-educated guesses about where other merchants are cutting corners, overspending, what might be a loss leader, etc. I’d be more likely to shop there, not less.

No there's still a bottom line charge, but it's either after clicking through 5 pages of checkout, or after the meal is concluded, or after I've seen the doctor.

Regardless of how exactly the breakdown happens it's cumbersome and/or misleading.

[Telecaster]

I think instantly less of a merchant that breaks out the components of their prices and makes it difficult to comparison shop.

IDGAF about your living wage surcharge, or your connectivity fee, or your franchise costs. If I wanted to take a look at your books, I'd become your CPA.

Co-signed.  Just tell me the price. 

[By the River]

I think instantly less of a merchant that breaks out the components of their prices and makes it difficult to comparison shop.

IDGAF about your living wage surcharge, or your connectivity fee, or your franchise costs. If I wanted to take a look at your books, I'd become your CPA.

We went to brunch this weekend with in-laws and a couple of their friends (the friends picked up the tab because of a favor we had done for them).  At this place, you order at the counter and receive a number for the table and the food is delivered.  The sign behind the counter was electronic with the prices listed for each entree.  At the bottom of the sign was a line "A 3% surcharge will be added due to rising costs".  Why couldn't they just update each individual price?  (I'm sure its psychological reasons)

[Morning Glory]

I think instantly less of a merchant that breaks out the components of their prices and makes it difficult to comparison shop.

IDGAF about your living wage surcharge, or your connectivity fee, or your franchise costs. If I wanted to take a look at your books, I'd become your CPA.

We went to brunch this weekend with in-laws and a couple of their friends (the friends picked up the tab because of a favor we had done for them).  At this place, you order at the counter and receive a number for the table and the food is delivered.  The sign behind the counter was electronic with the prices listed for each entree.  At the bottom of the sign was a line "A 3% surcharge will be added due to rising costs".  Why couldn't they just update each individual price?  (I'm sure its psychological reasons)

It's the same reason that sales tax isn't figured into the price in most places in the US: they can get away with tacking it on after the transaction and advertising a lower price than the customer actually pays.