[bradwschiller]

One of the big issues with the credit card business is fraud. Fraud is around 1% of all credit card transactions. Fraud tends to be higher on online payments where the "card not present" rate that merchants pay is higher than the "card present rate" enjoyed by brick and mortar stores.

In addition to fraud, credit card companies have to contend with the purchasing power of large companies (e.g., the Costco example ditching Amex) and also their own expenses as many people like concierge services and other "perks" that cost money and are becoming more standard on cards for people with higher credit and income.

In practice, it's fairly difficult to offer much of an incentive beyond 2% cash back (which Fidelity Amex and the Capital One Visa Spark Card offer). However; these cards are closer to being loss leaders for their institutions as they want to incentivize you to do your banking with them as well (Fidelity does this fairly well as the cash back must be deposited into a Fidelity account). Charles Schwab was the first to have a 2% cash back card many years ago and they discontinued it, likely because they lost money on it.

Travel-based rewards cards can get away with offering seemingly better incentives because of their margin. Starwood is a perfect example of this as hotels have a high fixed cost base and low variable cost base. The variable cost to stay at a high-end hotel is something like $50-60 per night if the room is vacant. So while Starwood seems to be paying out 2 cents on the dollar (e.g., 10,000 points for a $200 room), they are really only paying out 0.5 cents on the dollar. This is why the Starwood Amex is seemingly the best Credit Card. It's all about the economics of the company that brands it.

[tyingq]

>>In addition to fraud, credit card companies have to contend with the purchasing power of large companies

For online transactions, credit card companies have -0- liability for fraud. 100% of the costs come from the merchant's pockets.

It's really a shame, because they are the ones with the broad access to data that would enable tools to reduce it. Of course, since there's no incentive on their end, nothing is provided.

[MichaelApproved]

> 100% of the costs come from the merchant's pockets.

I get that you're referencing the cash part of the transaction but the card companies still have to maintain code that detects fraud early, hire staff to support customers and investigate fraudulent transactions. That's not 0 cost to them.

[ChemicalWarfare]

>For online transactions, credit card companies have -0- liability for fraud. 100% of the costs come from the merchant's pockets.

Which credit card companies are you referring to? If you're talking about issuing banks then liability for the fraudulent transaction is shifted towards the bank vs the merchant in some cases including card not present txs.

[the_mitsuhiko]

> One of the big issues with the credit card business is fraud. Fraud is around 1% of all credit card transactions. Fraud tends to be higher on online payments where the "card not present" rate that merchants pay is higher than the "card present rate" enjoyed by brick and mortar stores.

These are things that will change over time. 3DSecure is standard in Europe because the EU pushes transaction fees so low that credit card companies need to reduce fraud because they cannot afford it any more.

[lsc]

Do consumers all have little usb smartcard things so they can use the smartcard to make online purchases? or does this mostly just make 'card present' transactions that much safer?

[pbreit]

"Fraud is around 1% of all credit card transactions"

No, card fraud rates are in the 5-20 basis point range (0.05%-0.2%).

[tyingq]

>>No, card fraud rates are in the 5-20 basis point range (0.05%-0.2%).

Depends on the "total pool" you're drawing from, and whether you're counting money, or transactions. The 5-20 basis points fits if you include, for example, all ATM withdrawals.

You get close to the 1% claimed in the parent if you count just "online card transactions", and count revenue instead of number of transactions.

[nostromo]

Why does fraud matter to the banks anyway when merchants are the ones that eat the charges?

[Artemis2]

Do you have a source for that? I mostly hear about numbers around what your parent comments gives, or a bit over.

[nissehulth]

It varies a lot depending on what kind of business you're running. For a typical e-commerce site, you could be right.

[rebootthesystem]

I wish people and broadcasters would stop using "basis points" and "three tenths of one percent".

Both of them are and sound ridiculous. As the above comment illustrates, are pointless because either people have to do the math to understand what the hell you are saying or you have to spell it out.

Not saying anything at all about the content or merit of your post, you, your family, neighbors, cousins, dogs or cats. Just saying this "financial" language is, well, kinda silly.

Some TV news anchors would have said: "five one-hundreds of one percent to two tenths of one percent". Or "half a tenth of one percent".

Nutty.

[Scoundreller]

> Travel-based rewards cards can get away with offering seemingly better incentives because of their margin.

They also de-value the points/miles on a regular basis and often expire them as well.