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patio11's profile
Patrick McKenzie
Patrick McKenzie
Patrick McKenzie
@patio11

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Patrick McKenzie

@patio11

I work for the Internet, at @stripe, mostly on accelerating startups. Opinions here are my own.

東京都 Tokyo
kalzumeus.com
Joined February 2009

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    1. Patrick McKenzie‏ @patio11 Jan 23
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      That is also downstream of the increasing computerization of user spending behavior: previously, the jargon was literally "We want to be 'top of wallet'; the card our customer habitually reaches for first." The expectation is all other cards are a short distance away in wallet.

      1 reply 0 retweets 13 likes
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    2. Patrick McKenzie‏ @patio11 Jan 23
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      When your business runs transactions monthly on AWS or you personally have a card installed on Apple Pay, though, the difference between "top of wallet" and the next card is *gigantic*. Your "next card" isn't on the system charging you money and probably isn't on *you* either!

      1 reply 2 retweets 22 likes
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    3. Patrick McKenzie‏ @patio11 Jan 23
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      You'll note that "Ahah, they are trying to trick you into spending more than you can afford" is a very different narrative from "Ahah, they are hoping you concentrate more of your transactions on them this month, pay back quickly, and come back for more next month."

      1 reply 7 retweets 24 likes
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    4. Patrick McKenzie‏ @patio11 Jan 23
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      There exists a heterogeneity of strategies and a wide distribution in customer behavior. Some banks (and some products at a particular bank) might be caricatured as being more of the first, and some more of the second. And some are both, for different people.

      1 reply 1 retweet 8 likes
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    5. Patrick McKenzie‏ @patio11 Jan 23
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      Financially unsophisticated people, including very smart financially unsophisticated people, often believe "Banks can't make any money from you if you are a responsible user of credit. They want you to get in over your head." This is false as stated.

      2 replies 2 retweets 34 likes
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    6. Patrick McKenzie‏ @patio11 Jan 23
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      Banks sell financial services. Sometimes the pricing is a little opaque to the end user, because it is subsidized by someone else. If you consume a lot of financial services, and banks are eagerly courting your business, it is *probably not* because they're bad at math.

      2 replies 6 retweets 37 likes
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    7. Patrick McKenzie‏ @patio11 Jan 23
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      A concrete example: which of the following two customers is more lucrative? A: Spends $10k. This strains them; they can pay back the minimums, but it will take them years to pay off, at a 15% APR the whole while. B: Spends $10k monthly. Never pays a cent in interest.

      2 replies 6 retweets 35 likes
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    8. Patrick McKenzie‏ @patio11 Jan 23
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      Answer: depends *almost entirely* on what it cost the bank to acquire and keep B's business, because B is *printing money* via interchange. A contributes about ~$1.3k of revenue per year (plus $200~$300 in month 1). B contributes about $2.5~$3k annually.

      7 replies 7 retweets 50 likes
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    9. Patrick McKenzie‏ @patio11 Jan 23
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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.")

      8 replies 0 retweets 20 likes
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    10. Luis Colunga‏ @sinnet3000 Jan 23
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      Replying to @patio11

      Really interesting assumptions though! Is this knowledge a by product of being with Stripe?

      1 reply 0 retweets 1 like
      Patrick McKenzie‏ @patio11 Jan 23
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      Replying to @sinnet3000

      I had weird hobbies prior to joining Stripe, too, and I could have done that math in 2006, but suffice it to say my appreciation for interchange has not gone down as a function of my current job.

      10:42 PM - 23 Jan 2020
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      1 reply 0 retweets 16 likes
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        2. Patrick McKenzie‏ @patio11 Jan 23
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          Replying to @patio11 @sinnet3000

          Most secrets about how the world works aren’t secrets, they’re just knowledge unevenly distributed.

          5 replies 33 retweets 128 likes
        3. Pedro Pregueiro‏ @pedropregueiro Jan 24
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          Replying to @patio11 @sinnet3000

          @patio11 great thread as usual! I wonder if you have any go-to resources for learning more about this “unevenly distributed knowledge” in banking?

          1 reply 0 retweets 2 likes
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