Yes, you have this exactly right. It is one of the most diabolical scams ever. It is essentially a 2-3% private tax on the entire retail economy. If the government did that, the torches and pitchforks would come out in an instant. But because the cost is hidden behind regular retail prices, no one cares. (Well, that's not quite true. The merchants care. But they are too busy running their businesses to organize an effective opposition.)
You may be too young to remember when a person had to carry a significant amount of cash around all the time, and/or a checkbook, to pay for routine purchases. When every payday involved going to the bank, waiting in a queue to deposit your check and get enough cash to get through to the next payday. It was a PITA.
Compared to the convenience of direct deposit, ATMs, and card transactions, most people would think it's well worth slightly higher retail prices.
It's both. The cash-back part is a scam. They take 3% out of your back pocket and hand you back 1% and you think you've gotten a good deal.
Modern technology enables secure money transfer to be provided at an order of magnitude less cost than the credit card companies charge. Competition is supposed to take care of egregious inefficiencies like this, but the banks have an effective monopoly, enough regulatory capture to keep out competition, the ability to fob all the risk of fraud onto the merchants (who pass it on -- tacitly) to the consumer, and hence no incentive to change, and so they don't. That is the scam.
Credit cards do more than just move money around, though. And capping fees isn't ever going to be practical without shifting the risks around.
I pay for most things with a credit card. Here are the value-adds that I receive in exchange:
* net-25 payment terms (eg free short term credit)
* anti-fraud: the money isn't actually taken from my account until I make a payment at the end of the month. This gives processors some skin in the game to solve fraud.
* warranty extensions
* risk of losing cash, either by loss or theft
* centralized accounting. No data entry.
I'm not saying the system is perfect. It can definitely be improved. But, personally, that's a pretty nice set of value that I receive in exchange for using the cards.
Is 2-3% excessive? Probably could be cut back. But if I'm getting 1% back, we're now talking 1-2% that it costs me. Seems likely that a big chunk of that is due to fraud, which isn't something that would disappear by legislating lower rates. (additionally, it opens the opportunity for me to churn cards. I haven't done the math, but I open 2-4 accounts per year and receive ~$500 in rewards. $1k in signup bonuses is at least 3-4% of my credit card spend. For those who are able to safely take advantage of the system, you actually can be net-positive PLUS receive the benefits above)
I do understand the frustration for people using cash, because they typically pay for these features regardless of whether they want to. I also sympathize with folks who want their purchases to remain more anonymous.
For me, however, the value is greater than the cost.
I don't want to legislate lower rates, I want to remove the regulatory barriers to entry for competition. And yes, credit cards do more than just move money around. This is part of the problem. Sometimes I want to just move money around, but in the U.S. it is actually impossible to do it in a way that is 1) fast, 2) cheap and 3) secure. There is no technological limitation to this. It's purely a result of regulatory capture by the banking and traditional money-transfer industry (e.g. Western Union) serving as a very effective barrier to entry for any competition.
Venmo and the like are pretty effective at all 3 for personal use. Acts as a trusted intermediary so you don't give your bank info to anyone you're paying/receiving payment from.
Nope. If you really think that, you'd totally support the merchant putting the exact cost of the credit card transaction on the receipt. Free markets require all parties have all information, but right now this is largely obfuscated so people aren't making informed choices.
Yes, you have this exactly right. It is one of the most diabolical scams ever. It is essentially a 2-3% private tax on the entire retail economy. If the government did that, the torches and pitchforks would come out in an instant. But because the cost is hidden behind regular retail prices, no one cares. (Well, that's not quite true. The merchants care. But they are too busy running their businesses to organize an effective opposition.)