Sunday, July 25, 2010

Actually, it makes sense to me...

With the passage of the "finreg" bill, credit card companies are looking at the business model and going, "Dang!".  To the surprise of many, they are considering actually charging folks who receive the benefits of cards - not just those who they can exploit.

Though industry experts say the case is extreme, it illustrates the challenges credit card companies face. Issuers typically generate revenue from two sources, interest rates and fees. Congress has clamped down on both of those channels this year, including banning interest rate hikes on outstanding balances and curtailing penalty fees for late payments and over-limit purchases. The new rules are estimated to cost the industry at least $12 billion annually, according to law firm Morrison & Foerster, and issuers have long warned that customers in good standing could wind up paying the bill.
"A lot of people thought they were blowing smoke, but they were spot on," said John Ulzheimer, head of consumer education for "Now something has to give."
Many issuers have homed in on fees that typically accompany rewards cards as a potential moneymaker. The Pew study, which was to be released today, found that about 14 percent of bank credit cards have annual fees, about the same as last year. But the median annual fee for the 12 largest banks' cards rose 18 percent, to $59, over the past year. The cost of cash advances and balance transfers also rose from 3 percent to 4 percent.
Some consumers say they feel penalized for what they thought was good behavior. D.C. resident Alanna Sobel said she pays her balance in full each month and was surprised to get a letter from Chase, the nation's largest card issuer, notifying her that the annual fee on her Freedom card would be $30. The letter stated that the fee had been waived the previous year and would allow her to receive 3 percent cash back on gas and grocery purchases. If she did not pay the fee, she would have to settle for fewer perks. [More]
Many of us thought we were doing Citibank (in my case) a favor by allowing them to extend me ~30 day loans when I swiped my card at Sam's.  But that economic dog don't hunt.  I have been a freeloader on the system except for those aggravating days when I failed to pay the balance due to umm....lethargy.

But as protection for less liquid users roll into place, those of us who like not having to carry cash probably should pick up some load.

While many still are convinced "cash" has intrinsic value (It's a piece of paper, folks!), mostly they enjoy the sense of moral superiority left over from the Great Depression that still attaches to currency. Not withstanding, the hassle of cash is increasingly obvious.
The realistic prospect of an entire country abandoning cash illustrates the direction in which world commerce is headed. A whole host of forces (from government policy to consumer trends) is conspiring to make cash less and less relevant to daily economic life.
In fact, new transaction methods are popping up every day. Cell phone-based payments, for instance, have become widespread overseas in recent years and are now a standard means of paying for just about anything in Japan. The Times Online notes that of Japan’s six competing cashless payment systems, “many” are built into wireless phones. In total, Japanese consumers are estimated to carry some 120 million cashless payment chips.
In the United States, companies like PayPal are making it easy to make purchases and swap money using only a mobile phone. Rather than trying to replace credit and debit cards, American companies like Square and GoPayment are equipping phones to work with them. As the New York Times explains, the credit and debit card issuers “stay in the middle, extracting a fee with each swipe or bump” of the mobile phone. It may take a while for consumers to abandon cash completely, but in many ways, even here in the U.S., we already are a cashless society. [More]
While I can appreciate the fear many have that some government official or bad guy could wipe out their wealth by hacking a file, we passed that point long ago.

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