(An interesting market opportunity for banks is specializing in people whose circumstances are specialized such that the technology which enables the last tweet, such as credit reports and FICO scoring, does not correctly bucket them as low-risk but where they still borrow lots.)
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(Should insert a *plausibly* before "contributes" because there are actually a lot of different interchange rates the issuer could be receiving depending on product, jurisdiction, card brand, regulation, etc, and I should clarify "I'm being very handwavy on math here.")
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This is why Amex let’s me hit any merchant I want with a chargeback anytime I want - even if they end up eating a few themselves it’s a cheap price to pay to keep me on their card
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Amazing thread! Also interesting to frame how regulatory/competitive environments (of key industries) can play a huge role influencing individuals and firms’ behaviour. In Europe, interchanges are much lower, and then the lending element has much more weight
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I run almost all my expenses through my card. They must be making money on me because they pay me 2% to use it.
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Related incentive: the Durbin amendment to Dodd–Frank reduced debit card interchange fees for large banks, but not credit card fees. So a large bank may prefer B to use a credit card they pay off every month (even with some cashback), instead of a debit card.
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I think you're forgetting about credit card rewards. Interchange fees can be (for simplicity) $0.10 + 2%. CC rewards for customer (B) can easily be 1.5%. Getting to the top of the wallet often involves paying customer B most of that $2.5-3k.
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