<story><title>Anatomy of a credit card rewards program</title><url>https://www.bitsaboutmoney.com/archive/anatomy-of-credit-card-rewards-programs/</url></story><parent_chain><item><author>gosub100</author><text>While we&amp;#x27;re in this topic: why is unsecured credit card debt NOT tax deductible but secured debt like HELOC is?&lt;p&gt;Fwiw I don&amp;#x27;t really care what the technical reason is, it&amp;#x27;s a rhetorical question to add to the ways the credit system holds back the poor.</text></item><item><author>matthewdgreen</author><text>The only thing I would add to your comment is that &lt;i&gt;merchants&lt;/i&gt; aren’t the ones being forced to pay these stupid fees, it’s their customers (and primarily their poorer and often non-card using ones) who are being quite heavily taxed to fund a marketing scheme for rich customers. Most competitive businesses can’t afford to fund such an elaborate targeted marketing campaign directly out of their fees without some competitive pushback: hence the actual question you should ask is why the entire system exists, and the answer has to do with a pile of inefficiency and rent collection based on regulatory capture.</text></item><item><author>nkurz</author><text>An interesting article, but it doesn&amp;#x27;t sufficiently emphasize  the lede:  When you use a reward card, the merchant is charged a higher fee than if you used a &amp;quot;normal&amp;quot; card.  Simply by putting a different branding on the plastic you pay with, the credit card issuer gets more money from each transaction.&lt;p&gt;The article goes on to ask the question &amp;quot;Why isn’t every card a rewards card?&amp;quot;, meaning why doesn&amp;#x27;t every card pay cash back, but I think the more interesting question is why every card isn&amp;#x27;t branded in a way that makes the issuer more money.  Why do they bother to issue cards where they get paid less?  Why not brand every card as a &amp;quot;Signature Preferred&amp;quot; and then pocket the money instead of giving it to the less discerning customers?&lt;p&gt;And the most interesting question only gets a handwave: &amp;quot;The basic intuition underlying rewards cards as a product is that highly desirable customers have options in how they spend their money.&amp;quot;  But how far does this go in explaining why merchants &amp;quot;choose&amp;quot; to participate in this program.  The obvious answer would seem to be that they get no benefit from the system as it exists but have no real choice, but maybe there is a better answer?&lt;p&gt;I liked the topic, but wished the author could have given more insight on what&amp;#x27;s happening behind the scenes to produce the outcome we see.</text></item></parent_chain><comment><author>keltex</author><text>You used to be able to deduct any consumer debt. But that stopped in 1986. The reason was &amp;quot;Congress believed deductions for personal interest encouraged people to consume and stifle savings.&amp;quot;&lt;p&gt;&lt;a href=&quot;https:&amp;#x2F;&amp;#x2F;www.telegram.com&amp;#x2F;story&amp;#x2F;news&amp;#x2F;local&amp;#x2F;worcester&amp;#x2F;2007&amp;#x2F;03&amp;#x2F;25&amp;#x2F;reagan-axed-tax-deduction-for&amp;#x2F;52945177007&amp;#x2F;&quot; rel=&quot;nofollow&quot;&gt;https:&amp;#x2F;&amp;#x2F;www.telegram.com&amp;#x2F;story&amp;#x2F;news&amp;#x2F;local&amp;#x2F;worcester&amp;#x2F;2007&amp;#x2F;03&amp;#x2F;...&lt;/a&gt;</text></comment>
<story><title>Anatomy of a credit card rewards program</title><url>https://www.bitsaboutmoney.com/archive/anatomy-of-credit-card-rewards-programs/</url></story><parent_chain><item><author>gosub100</author><text>While we&amp;#x27;re in this topic: why is unsecured credit card debt NOT tax deductible but secured debt like HELOC is?&lt;p&gt;Fwiw I don&amp;#x27;t really care what the technical reason is, it&amp;#x27;s a rhetorical question to add to the ways the credit system holds back the poor.</text></item><item><author>matthewdgreen</author><text>The only thing I would add to your comment is that &lt;i&gt;merchants&lt;/i&gt; aren’t the ones being forced to pay these stupid fees, it’s their customers (and primarily their poorer and often non-card using ones) who are being quite heavily taxed to fund a marketing scheme for rich customers. Most competitive businesses can’t afford to fund such an elaborate targeted marketing campaign directly out of their fees without some competitive pushback: hence the actual question you should ask is why the entire system exists, and the answer has to do with a pile of inefficiency and rent collection based on regulatory capture.</text></item><item><author>nkurz</author><text>An interesting article, but it doesn&amp;#x27;t sufficiently emphasize  the lede:  When you use a reward card, the merchant is charged a higher fee than if you used a &amp;quot;normal&amp;quot; card.  Simply by putting a different branding on the plastic you pay with, the credit card issuer gets more money from each transaction.&lt;p&gt;The article goes on to ask the question &amp;quot;Why isn’t every card a rewards card?&amp;quot;, meaning why doesn&amp;#x27;t every card pay cash back, but I think the more interesting question is why every card isn&amp;#x27;t branded in a way that makes the issuer more money.  Why do they bother to issue cards where they get paid less?  Why not brand every card as a &amp;quot;Signature Preferred&amp;quot; and then pocket the money instead of giving it to the less discerning customers?&lt;p&gt;And the most interesting question only gets a handwave: &amp;quot;The basic intuition underlying rewards cards as a product is that highly desirable customers have options in how they spend their money.&amp;quot;  But how far does this go in explaining why merchants &amp;quot;choose&amp;quot; to participate in this program.  The obvious answer would seem to be that they get no benefit from the system as it exists but have no real choice, but maybe there is a better answer?&lt;p&gt;I liked the topic, but wished the author could have given more insight on what&amp;#x27;s happening behind the scenes to produce the outcome we see.</text></item></parent_chain><comment><author>Spooky23</author><text>It was! Auto leases were deductible too which was a big subsidy for the auto industry.&lt;p&gt;Once rich people figured out how to get poor people to be angry about things like higher marginal tax rates for rich people and “death taxes”, we raised taxes on the suckers to benefit the richer people.</text></comment>