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.
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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!
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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."
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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.
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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.
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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.
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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.
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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.
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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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Replying to @patio11
Meanwhile I'm just searching your feed for an explanation of interchange.
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When you pay for something via a credit card, the business you’re buying from pays for that transaction. For historical reasons, this is called “interchange.” It’s split between the payment processor(s), the bank which issued the credit card, and the card network.
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Replying to @patio11
Thomas "If in doubt, don't go out" Clarke Retweeted Patrick McKenzie
Thanks, but frankly, I'm now 30 tweets into this thread, and still considering over the ramifications of this.https://twitter.com/patio11/status/1208907813600276480?s=19 …
Thomas "If in doubt, don't go out" Clarke added,
0 replies 0 retweets 0 likesThanks. Twitter will use this to make your timeline better. UndoUndo
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