We have "rewards" on our credit cards. Rewards aren't free, so they increase the fees.
>For banks, the $91.2 billion in fees they earn on credit-card portfolios is now more than the interest they charge on the loans.
The fees are ridiculous. Profit margins at restaurants are often 3-5% (per Google). There is still a cost to handling cash, but if cash cost ~1% all-in, their profits would go up 20-30%, just like that, assuming consumption stayed the same.
Fast food venues didn't accept credit cards for a long time, but eventually found people spent more paying with a card than cash. A $300 TV and a $5 hamburger "feel" exactly the same with cards, which certainly doesn't help consumerism in the US.
As an example, when I pay my property taxes, I can either pay by sending a check in the mail, doing an electronic check (ACH transfer that takes 2-3 business days to clear) and paying $0.25, or pay a 2% transaction fee. Stamps are $0.50, eventually I'll need to reorder checks (at a cost), so I do the ACH transfer.
I’ve been all in on using my banks bill pay system for a number of years now for property tax / water bill / etc. Stamps & check books cost money, but scheduling someone else to cut the check, stamp and envelope it, and stick it in the mail on a certain date is free. It boggles the mind.
Your bank's bill pay involves someone sending a physical check?
In Canada, we have "bill pay" for utility, property tax, credit card, etc. but all that happens is your bank transfers money to the biller's account. The biller pays a bit for this service but evidently much less than the cost of handling physical checks as I've never seen a surcharge for it. Even the small town of 3,000 I live in is set up to receive property tax and water payments through this system.
I think it depends, banks can have an established relationship with a utility or service that will accept bill pay as an ACH. At least with my bank, I can setup a bill pay for anybody. I just need to provide a name, address and account number. If I do this for someone the bank isn't familiar with, they send a check in the mail.
In the early 2010s I worked for Fiserv, who at the time provided "online bill pay" services to about 80% of US banks (I don't recall if they're in Canada or not). The overwhelming majority of the bank customers using that service held beliefs similar to what you expressed... it's an online payment through my bank, why on earth would it be a paper check?? They were wrong. The really fun thing about that system was that the customer had absolutely no way to tell what kind of payment the system was going to send to a given payee. A payment that processed electronically for years could suddenly go as a physical check for any number of reasons. Maybe the customer changed something that was slightly incorrect... maybe they should have changed something but didn't... maybe the system just had a hiccup that day.
Regardless of who makes your bill pay service or exactly how it works, my main advice if you use any bill pay service is to ready the fine print very closely and be sure you understand what you have to do to be covered (late fee reimbursement, etc) if a payment does get screwed up.
Don't read the fine print, it's always bad ("we'll charge a fee if we want") and you can't avoid it (no free market for competitors) and knowing it only increases your risk liability.
It’s hit or miss, some utilities/bills are handled in the bill pay system as bank transfers, but other utilities they fall back to issuing checks. For me I’d say it’s 50/50, in a 500k person county.
We have a national payment card system in Denmark (Dankort). Depending on the number of transactions a business has. A business can pay down to $0.03 per transaction.
Obviously, Visa and Mastercard are trying to see if they can ruin the system.
Several of my credit cards rebate at 2%, so I’ll use the card for anything that charges a credit card processing fee up to 2%, even more if I can avoid a stamp, envelope, and the time involved mailing it.
I just paid some property taxes with one instead of ACH; keeps all of my accounting in one place in the card, and the payment is immediate instead of waiting for the ACH payment to wind its way through the antiquated Fed plumbing. Anyone who won’t take a CC, I’ll use Plastiq; they cut a check, I pay the CC fee, but it’s still rebated back.
Your property taxes don't charge a credit card fee? That's graft of the higher order, handing tax payments over to payment processors. In my state that's illegal.
They are negotiating with very few entities: just 2 (Visa and MasterCard) account for most card holders. Throw in Amex, and Discover if you want and you've covered nearly 100%.
Merchants don't have a lot of negotiating power, so they are really not in a position to dictate prices. Visa and MasterCard are in a position to dictate prices.
Depends on the territory. In Hong Kong all major credit cards plus several local payment processors plus WeChat and AliPay are accepted at McDonald's, for example.
They regularly do crossovers and promotions to encourage people to use the cheaper ones.
No one trusts their landlord or the software vendors they choose with a direct connection to their bank account. That's just asking for a cascade of overdraft fees.
It's not a "direct connection" in the sense that the other end has any control. The typical way to set this up is that you create a repeating payment to (say) pay your rent electronically on the same day every month, and you can stop or alter the payment at any time.
I thought it was great until I watched someone get buried in fees by it. They forgot about the automatic payment while dealing with the crisis that used up all their money.
They sorted through the fees and got things turned back on by explaining the situation, but it was a nightmare. Precarity is hard to understand if you've never been in or near it, or if it's a distant memory for you. It's overwhelming on a good day.
It seems VERY unlikely they forgot that they didn't have to pay rent all of a sudden?
The way it works fore me here in the EU is that bills land in my bank account and I log in on mobile, select the ones I want to confirm, and sign the transfer.
We also have bank to bank instant transfers for free (useful for paying back 1/2 pizza etc) without external private middlemen. US banking feels so legacy, much more so than the COBOL I work on.
U.S. banking is not as bad as some make it out to be. Every bank I've delt with offers the same things you describe. Here, it is less dependent on the bank and more dependent on the biller. All my credit cards (even those from other banks) offer ebilling, and bills are visible in my online banking each month. Utilities like electric and internet, medical providers, etc., generally don't. But I can pay them all through the bank anyway, and I don't have to worry how it happens; the bank chooses ACH or they mail a bank check. Either way, I know exactly when it will clear, and exactly how much it will cost me: $0. I can also use the bank's mobile app to send money from person to person, instantly and with no fee.
Well, there certainly are banks in the US that don't, and why are apps like Venmo a thing over there if the same thing can be done already? =/
I guess it's because of the bank you chose, since the one my relatives use don't have any of that, and are those apps bank-specific? Do people not having your bank also receive the money instantly?
Most of the medium to large banks have that option. Many partner with Zelle because it is not bank specific, though I once had a credit union account that let me do ACH transfers to other accounts. But as you point out, there's also PayPal and Venmo. My Amex lets me split purchases by calculating the portion and sending PayPal or Venmo requests on my behalf. I think the largest difference may be that there's no one way to do a thing, while at least to me as an outsider, it feels like Europe has One True Way.
It happens like this: you can pay rent without penalty up to say, the fifth of the month. Auto pay is set to come out of your account on the first. Sometimes you need the extra few days to get everything in line, but because everything is so tight and hectic, you forget that you won't actually get to flex those few days, and the payment comes out earlier than you expected.
The timing of payments can be a real burden when you're on the edge. I wrote about a time something similar happened to me a few years back https://news.ycombinator.com/item?id=6424493 This is about overdraft fees, specifically, but it's the same principle.
You’re always going to have trouble if you forget about any aspect of your money. I use automatic payments to pay my cell phone bill and yet I have a monthly reminder on my calendar to make sure the payment went through without a problem. Yeah, it’s more work than just forgetting about it but now I know I won’t be buried in fees either for overdraft or for not paying my bill.
Anyone who knows your ABA and account number has a direct connection to your bank account. This is why I never write checks unless I absolutely have to. Everything a would-be thief needs is right there in the clear.
I didn't mean to suggest a landlord might do it on purpose. Everyone can go in with the best of intentions and still find themselves on one side of this scenario.
So why are middle men taking a cut in the US that other countries don't have?
Why electronic payment costs money in the US? That's the cheapest way to pay and process payments. In Finland that cost's nothing and it's the default for paying large bills and payments.
In most European countries SEPA and its predecessors have taken this role for most people. I’m 34 and have never had a personal cheque book; there’s just no need.
It is a cultural thing to an extent though; there are EU countries where they’re still used to some extent despite the presence of a modern banking system.
I'm not european, so am unfamiliar: would you use a SEPA transfer for, say, a $1000 tv from a small business retailer? What about buying a $3000 used car from an individual?
I bought my last two cars via SEPA, the first from an individual, the second from a dealership. Both were used, but still significant sums. In both cases I of course had a signed contract in hand before sending the money, and have done a bit of due diligence on my business partner (I met the private individual at their home address, and checked out how long the car dealership has already operated there and whether there were any signs of imminent bankruptcy). And of course I got hold of the vehicle immediately after the transfer went through (which is guaranteed in a single business day nowadays; when I bought the first car it was still in the area of 2-3 days).
As for the $1000 TV, I would probably pay that at an electronic payment terminal with a debit card. If buying from a retailer, that's usually the way to go, no matter how small.
In many EU countries, you'd buy that tv using a debit card if at a physical retailer. Online, credit card purchases are the default.
Buying a used car form an individual might happen in cash. Some countries will not allow cash transactions over 3000€. So depending on the price, it might also happen with a SEPA transfer.
Most people would use a card for the TV, at least in person (online it’s very country dependent; probably card in the UK or Ireland, but could be SEPA, something like SOFORT or various other things in Germany, say). Not necessarily visa/mc; many countries have national networks, which are typically cobrandec with visa/mc.
Car could be SEPA (or equiv in non-Eurozone countries), bank draft, or even cash, though cheque is possibly less likely due to fraud concerns. Some people do it by actually physically going to a bank with the seller, I think (I don’t drive, so have never done his myself).
For in person stuff, where you live plays a role too; only a minority of countries currently have SEPA Instant, though that should change soon. For everyone else, it’s a day or so delay from when you send the payment in the bank app.
For larger transactions, ACH is becoming much more desireable. A bank I do business with currently offers originating next day ACH for $1 a transaction. When you add up the dollar cost of a stamp, check, and envelope, and the time expense of printing, mailing, and waiting for it to clear, ACH is highly affordable. I'm surprised taxing authorities still charge fees for getting paid faster when ACH is so cheap.
This might be a stupid question, but do you have to pay a fee for transferring money from one bank to another bank when both banks are located in the US?
Because the banks charge a fee (well, some of them do).
I know that sounds stupid but it's the truth. There is no law against banks charging fees like this, banks like to make money (don't we all!), and (significantly) banks don't seem to lose customers by charging these fees.
They're still commonly used to pay bills for stuff like rent, though it's less common now than say a decade ago. For things like electric bills the provider is typically big enough to automatically deduct from your account, but there aren't really commonly available systems to do stuff like that with a private landlord. If you're renting from a big company they may have an electronic rent payment system and it probably charges you a fee to use it.
I currently pay my rent via wire transfer, which is I guess better than a check because it's electronic but is also worse because there's a fee. When I first moved away from home for a job I had to pay rent with cashier's checks (which meant going to the bank and paying a fee first to get the check).
>For things like electric bills the provider is typically big enough to automatically deduct from your account,
While Virginia Natural Gas is large enough, they handle their credit card payments via Western Union and the customer pays a fee to do it. It's the only check I write every month.
What's the problem with US payment system? People still use checks?
I have seen those only in movies. I think they were out in the 80s in Finland.