Internet

Cutting Up Your Credit Cards

|

"The banks and credit card companies have spent 50 years building a proprietary, locked-down system that handles roughly $2 trillion in credit card transactions and another $1.3 trillion in debit card transactions every year," Daniel Roth writes in Wired. But now "an army of engineers and entrepreneurs is rushing in, hoping to do to the payment world what has already been done to the music, movie, and publishing businesses—unseat a legacy industry built on access and distribution, drive the costs to zero, undercut the traditional middlemen, and unleash a wave of innovation."

You should read the whole article, but an excerpt should give you an idea of what he's talking about:

Transferring money via computer.

Moving money, once a function managed only by the biggest companies in the world, is now a feature available to any code jockey. [Twitpay founder Michael] Ivey is just one of hundreds of engineers and entrepreneurs who are attacking the payment ecosystem, seeking out ways small and large to tear down the stronghold the banks and credit card companies have built. Square, a new company founded by Twitter cocreator Jack Dorsey, lets anyone accept physical credit card payments through a smartphone or computer by plugging in a free sugar-cube-sized device—no expensive card reader required. A startup called Obopay, which has received funding from Nokia, allows phone owners to transfer money to one another with nothing more than a PIN. Amazon.com and Google are both distributing their shopping cart technologies across the Internet, letting even the lowliest etailers process credit cards for less than the old price, cutting out middlemen, and figuring out ways to bundle payments to sidestep the credit card companies' constant nickel-and-diming. Facebook appears to be building its own payment system for virtual goods purchased on its social network and on external sites. And last March, Apple gave iTunes developers the ability to charge subscription fees through their applications, making iTunes the gateway for an entirely new breed of transaction. When Research in Motion announced a similar initiative last fall at a session of the BlackBerry Developer Conference in San Francisco, programmers crowded the room, spilling out into the hallway. About 20 percent of all online transactions now take place over so-called alternative payment systems, according to consulting firm Javelin Strategy and Research. It expects that number to grow to nearly 30 percent in just three years.

But perhaps nobody is as ambitious as PayPal. In November, it further opened up its code, giving anyone with rudimentary programming skills access to the kind of technology and payment-industry experience that Ivey used to build Twitpay. The move could unleash a wave of innovation unlike any we've seen since self-publishing came to the Web. Two months after PayPal opened its platform, 15,000 developers had used it to create new payment services, sending $15 million through the company's pipes. Software developer Big in Japan, whose ShopSavvy program lets people find an item's cheapest price by scanning its barcode, used PayPal to add a "quick pay" button to its app. LiveOps, a call-center outsourcing firm, built a tool that streamlined payments to its operators, turning what had been a nightmare of invoicing and time-tracking into an automated process. Previously, anybody who wanted to create a service like this would have had to navigate a morass of state and federal regulations and licensing bodies. But now engineers can focus on building applications, while leaving the regulatory and risk-management issues to PayPal. "I can focus on the social side of the business and not on touching money," as Ivey puts it.

Elsewhere in Reason: Back in 2005, Radley Balko remembered the libertarian fervor that at first fueled the company and asked, "Who killed PayPal?" Apparently the corp. still has some life in it after all.

NEXT: Whose Body Is It?

Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of Reason.com or Reason Foundation. We reserve the right to delete any comment for any reason at any time. Report abuses.

  1. I have a checking account debit card. I am not charged to use it and it has a 4.5% APR; they pay me. I just don’t see the problem here that needs a solution.

    1. Problem is on retailer end, not consumer end. This stuff gives the retailer low cost solutions.

      1. 4.5% APR on a checking account? Truly? Can I get one?
        I’m at the wrong bank.
        (Cancel my subscription)

          1. Thanks. Actually looks like a good deal.
            But I’d have to change my direct deposit, which gives me some perks (but not THAT kind of interest) at my local bank. I’ll ponder it.
            Cancel my subscription.

            1. Not to mention, you’d have to be a Honeywell employee, former employee, or family member.

            2. Those high APR’s are all based on the vagaries of the laws of direct deposit.

    2. Uh, you pay more because the 1-3% that the credit card companies charge the retailer is tacked on to the sale price. What your bank does has no bearing on this.

      1. I don’t give a shit. The price of the item was set before I entered the store, so I’d have to be paying that anyway.

        You will never convince me that getting a 4.5% APR on my checking account balance is a bad thing. That’s a stupid as the people here who say that owning a home free and clear is a bad thing too.

        1. Wow, you’re completely misunderstanding this concept. Hopefully someone with more free time than me will explain it to you. I don’t give a shit about your debit card. I’m talking about all retail side stuff.

          1. You’re kidding right? What if I just pay cash? I’m still going to have to pay the price the store is asking based on the fact that they have to pay that 1-3% that the credit card companies charge the retailer. How many stores do you know where you can negotiate a cash discount? Name just one major retailer or grocery store.

            1. My grandfather’s furniture store used to say, if someone wanted to pay with credit, that the price was now 3% higher, just to cover the card. You don’t think the grocery store is doing that across the board?

              1. Yes, I fully understand that, but the fact remains that as a Libertarian, I have the right, the right to maximize my assets via a 4.5% APR on the money I keep in checking. My point is that if I close my checking account the prices won’t go down, but my return on investment will.

                1. Kippers, you’re completely correct that right now what you’re doing makes sense. However, you’d still make out well if competition from things like this reduces the fees that the merchants pay.

                  1. I understand that facet as well, but I highly doubt that merchants will lower their prices to reflect a change in how transactions are made. Especially when we’re about to hit a period of hyper inflation. I lived through the seventies. I saw prices going up and up and up.

                    1. I highly doubt that merchants will lower their prices to reflect a change in how transactions are made.

                      Do you think that they’d raise their prices if the cost per transaction went up? Why wouldn’t it be symmetric over the long term?

                      Even if prices go up overall, they can still go up more slowly than otherwise.

              2. Your grandfather had a talking furnature store? That’s so cool!

            2. No you’re not. Increasingly, places are putting ‘surcharges’ on debit card transactions, because the profit they’d normally make on a cash transaction is now eaten up by the juice the card companies and banks put on the use of their cards.

            3. How many stores do you know where you can negotiate a cash discount? Name just one major retailer or grocery store.

              Done.

              Let me guess your next response: “Name two”.

              1. No, I won’t. But I’m not sure I want to drive all the way to the west coast for a tank of gas.

                1. Every gas station in my area does the same thing.

              2. When we visit New Jersey, the price per gallon at many gas stations is lower if you pay cash. But since I get 3% back on Gas purchases with my Amex card…I do try to pay cash at Mom & Pop places but everywhere else I use a rewards card.

          2. I think Kippers thinks paypal requires you to pay out of your paypal account. He is so 1998.

        2. Owning a home free and clear, when you can get a 4.5% fixed rate (dude, you make that on your CHECKING account!) and a pretty big inflation coming, is probably a bad thing. Just sayin’.
          Cancel my subscription.

      2. Not necessarily. That’s why some places won’t accept American Express and ask for a minimum purchase.

    3. I do the same. I’ve never had a credit card and I never will.

      1. So you never rent a car or get a motel room?

        1. I’ve seen this discussion about 100 times in the last year. I’ll give you a hint at how it ends: debit card.

          1. Except a debit card doesn’t solve the problem of needing to make a purchase that exceeds the amount that sits in your checking account– at the very moment of purchase.

            I need a credit card for that very reason. Even without carrying a balance on a credit card for more than a 30 day period, sometimes you have a $950 plumbing emergency in your house 48 hours before payday and the debit card won’t help you in that situation.

            1. Sure it will. My checking account doesnt get that low.

              This is the very reason Dave Ramsey recommends a $1000 emergency fund as his first stop before paying off debts. You need to be able to survive things like that.

              1. I completely agree with Dave Ramsey. Except $1000 is a bit low for an ’emergency fund’. And one day I too hope to have a $10,000 emergency fund. Unfortunately this requires some financial resources to build this up. For those of us who are recently divorced and single parents? We make do. In the meantime, there are a couple of us with the financial acumen allowing us to use a credit card and yet still avoid credit card debt.

                Not all uf us that have an occasional drink are alcoholics.

                1. I think he calls it a baby emergency fund.

                  His first 3 steps in his plan:

                  0. (there is always a step zero) Be current on all debts.
                  1. $1000 in bank
                  2. Pay off all consumer (non-mortgage) debt
                  3. 3-6 months cash in bank for FULL emergency fund.

                  At that point I forget the exact stuff because if you’ve done that, you are in much better shape than most of America.

                  IIRC the rest is (4 and 5 might be backward):

                  4. 15% of income gong to retirement
                  5. fund college funds for kids
                  6. pay off house
                  7. bathe in money

                  1. I’ve got all but #5. No kids.

                  2. 2. Pay off all consumer (non-mortgage) debt

                    If you have a super-low APR car loan that’s subsidized by the manufacturer’s captive finance company, it should be okay to keep that any pay it off normally. Say anything 4% and below.

                    1. Only 5 payments left to go on my car. I can taste it.

                  3. 0. Done
                    1. Got it
                    2. Working on it
                    3. Ha!
                    4. 10% currently (lost 5% employer matching this year)
                    5. Got it
                    6. Only 24 more years
                    7. Wait, what?

                  4. 8. Getaway Cash
                    9. Decoy Getaway Cash
                    10. Revenge Money

            2. “Except a debit card doesn’t solve the problem of needing to make a purchase that exceeds the amount that sits in your checking account– at the very moment of purchase.”

              That’s a feature not a bug.

              1. I agree that it’s feature if you’re the type when presented with the use of a credit card, you go completely Paris Hilton and uncontrollably run up $50,000 in charges.

                If you guys are recovering alcoholics, I mean no disrespect, I would never so lightly presume to suggest you go have a drink without any consequences.

                For those of us who have never had a problem, we’re ok with the occasional credit card use to get us through a short-term cash flow incident.

                For instance, I have a home loan and had a car loan (now paid off), too.

                1. Now, those Muslim guys that go buy their house with cash because they don’t believe in debt? That’s respect.

      2. Or have a car which might, you know, break down and require a $1,200 repair? Not being a public sector employee, I don’t have that kind of bank lying around my checking account.

        1. Had that happen once, was electric, not car, cost about $1250. Wrote a check. Im not a public sector employee either.

          1. But why not use a credit card when (assuming you’ve got good credit) they’ll pay you 3% rebate to use it?
            Cancel my subscription!!!

            1. They didnt take CC or I would have. It happened to be at a point where I was low on cash, so it about wiped me out.

          2. yeah, reminds me of when I was young and single… just wrote checks for that kind of money… no thang. And thems was 1989 dollars, too. Ahh, what a tangled web marriage and children doth weave…

        2. I always make sure to have at least 10K in the bank. The last time I had lower than that was when I was 13.

  2. “But perhaps nobody is as ambitious as PayPal. In November, it further opened up its code, giving anyone with rudimentary programming skills access to the kind of technology and payment-industry experience that Ivey used to build Twitpay. The move could unleash a wave of innovation unlike any we’ve seen since self-publishing came to the Web.”

    How long before “rich” Nigerians looking to move their “millions” out of Nigeria start using this technology instead of just sending spam?

  3. I hate the fact that credit card fees are embedded in the price of everything these days. It’s like a sales tax.

    1. Negotiate a cash discount.

    2. That’s one good reason to use a “rewards” card. I get back an average of 2% (varies from 1 to 5% depending on retailer) on a no-fee card. I put everything on it and pay it off at the end of every month. I’m pretty much living a cashless life.
      (Cancel my subscription.)

      1. I do the same thing. Gets me an extra hundred bucks every few months

  4. How can I accuse someone of being a sell-out if I don’t have a wad of cash to throw in their face at a club?

    1. Throw the credit card reader instead.

      We’ve had a citi driver advantage (or whatever) card for over four years. We just got a notice that the “no annual fee” is being replaced with “$60 annual fee.” We sent them a notice too:

      Cancel our subscription.

    2. Making it rain these days can result in bad press. Don’t you remember your antics in Vegas last year or so ago? Sure, pointing your finger saying “he did it” worked that time. It’s all fun and games until the wrong person gets shot.

  5. “Negotiate a cash discount.”

    Good luck with that. I do shop at a chain (Aldi’s) which doesn’t take credit cards. But such stores are uncommon.

    I’m sorry to be a party pooper, but I see things going in the wrong direction, towards the eventually phasing out the most liberty friendly payment option (paper money). Not in the near future, but in a few decades, definitely.

    1. When it takes a bucketful of the stuff to buy a loaf of bread, you’ll wish you had plastic, hippy.
      Cancel my subscription.

      1. $1,000 bills will be the new standard exotic dancer tip by the end of this Term of Obama.

        Maybe Reagan can be on those when they go back into production.

        1. Or, exotic dancers could have credit card readers surgically (and strategically) implanted.

          1. Damn, I forgot:
            Cancel my subscription.

          2. Like that story about the nut with RF chips and magnets he self installed all over his body?

    2. Marc’s (a northeast Ohio-based supermarket) only accepts Discover, cash or checks. Only until the last 7 years or so did they add Discover. Within the last 3 years, they started barcoding everything. All those things have kept prices down on a lot of stuff. Even better, on some items, it forces the more expensive ubiquitous retailer (Giant Eagle) to engage in price wars on some items.

      1. But Discover has one of the highest retailer charge rate (at least traditionally), which is why it’s both less accepted and pioneered the high cash back rewards.

        I suspect that in this case, Discover made a deal to lower their merchant fees in exchange for being the only card accepted, like CostCo and AmEx.

        1. It’s strange but Sam’s Club only accepted Discover until a couple of years ago, Now it’s MC to, still no VISA.

          That seems stange, in view of the pissing contest Walmart has been having with VISA for many years over service charges. I recall at one point Walmart was threatening to go as far as not taking VISA at all, including VISA debit cards.

          1. Sam’s in KY takes Visa. Maybe they just don’t like the looks of you.

          2. It’s strange but Sam’s Club only accepted Discover until a couple of years ago, Now it’s MC to, still no VISA.

            Not strange. Sam’s Club had an exclusive deal with Discover, same as CostCo and AmEx. Currently Sam’s Club has a deal with MasterCard to lower their merchant charge rates, but Visa wouldn’t sign the same deal.

            1. I only thought it strange in that
              discover has notoriously high fees and that Walmart had so much trouble with VISA’s fees. I assume then that Sams must have made some special deal with Discover then.

        2. The place where I had my tires from Tire Rack installed had a sign on the wall to ask them why they will NEVER accept Discover Card again. I don’t recall the details any longer, but the owner hates thems because of their fees. He HATES thems.

    3. liberty friendly payment option (paper money).

      Stop right there.

    4. If we can get the gub’ment out of it, we can have the liberty and the convenience at the same time. Ever see immigrants call home? They don’t use quarters, they use prepaid calling cards. Now imagine prepaid debit cards. Same concept. Lighter than gold, safer than paper, untraceable. Just walk into a liquor store and buy a $50 debit card for $52.50.

      1. Why the fuck would I do that if I had 52.50? Cash will always be more anonymous and less traceable. I wouldn’t have thought a bunch of libertarians would be so enthusiastic about going cashless.

        1. If it’s done freely and voluntarily, why not? It’s convenient and safer. Besides, IT’S NOT UP TO YOU, it’s up to the market. I would never have thought that a bunch of libertarians would be bitching about the market providing more convenient forms of money.

          1. How is a debit card more convenient than money?

            1. 1) One card versus various bills and bits of change

              2) Usable in other countries

              3) Usable online

              4) If it gets stolen you can put a stop on it

  6. “”but I see things going in the wrong direction, towards the eventually phasing out the most liberty friendly payment option (paper money).””

    I think paper money will be phased out, but you won’t necessarily lose liberty. The fully paperless system will not exist unless you and I can make a transaction on our own. Ewallet systems will allow that. It will be as simple as your phone sending money (credits) to my phone in lieu of money changing hands. Of course that requires everyone to have a tracking device, I mean cell phone.

    1. Yeah, but, all transactions will be monitored through Know Your Customer II: Big Brother Banking Act of 2011.

      1. I’m sure the feds would love that (for the children) since at the federal level, corruption is more sophisticated and nuanced. But expect pushback by lower level politicals at the state and local levels. They’re still on a ‘cash in hand’ corruption economy.

  7. For reasons of identity security and financial privacy, I’m less than thrilled about PayPal and any technology that resembles it. Say what you will about physical money, its untraceability is a wonderful privacy feature. I don’t buy things online unless I’m on through a VPN; as such you’d never catch me doing this through a phone.

    1. “Say what you will about physical money, its untraceability is a wonderful privacy feature.”

      We know.

      1. Oh, hea, er, hi DEA dude! Have you seen that guy impersonating me around here? It’s a shame how they keep letting out your little secrets.

    2. Untraceable? HAHAHAHA!

      Maybe after you pull out all of the nano-RF threads, if you find them all.

      Those Mylar strips were replaced by something.

      1. Your tinfoil is showing.

        1. Tinfoil? Bah! That old technology is worthless. I use gold Mylar.

          1. Ironically, implanting the right RF chip in your brain can keep them from tracking you.

            Cancel my subscription.

      2. Simple solution: put all your cash in the microwave before you use it.

        Problem solved.

        1. There was a story going around that money would catch fire in a microwave. So I tried it with a few demonimanations (including $100). Nothing at all happens.

      3. And yes, I’ll go out on a limb and say that cash is far less traceable than PayPal or using a card. Though I guess if you wanted another layer of untraceability you could use one of those prepaid debit Visas.

        1. No, that makes you traceable again. The store security footage, you know.

          1. And the pattern of spending at various locations.

  8. Long term expect the statists to whine, bitch and moan about anything that upsets the apple cart. They can’t extract their pound of flesh unless they can track the transactions. Expect to hear arguements about how this makes it easier for drug dealers, kiddie porn and all the rest of the ‘save the children’ memes to try and hold this back.

  9. Totally OT: On the page about Obama choosing not to count his time “becuase he’s da president” there are tons of comments. But this one is gold:

    Oh Lord Obama, how we all laughed at the delicious joke when you told McLame to get out of campaign mode, just as Mclame couldn’t tolerate sharing the stage with another RINO like Chuckles Hagel, you can’t stand to share the limelight with someone in campaign mode. Dear Leader, your message falls flat outside of your politburo settings, the serfs are not buying the hopetude and even the Changlings are becoming disenfranchised with your arrogant attitude towards your commandments.

    Dear Leader, we most enjoyed you calling the health bill (all five thousand pages of it) that Cantor was all but hidden behind, a stage prop. Very soon Lord Obama you shall be introduced to another stage prop, it’s called the gaffe hook and it’s long overdue for pullling your overexposed face off of the stage.

    BWAHAHAHAHA!

      1. I am at work and don’t want to run the clip. What was he referring to when he said his time didn’t count?

        1. The repubs were complaining that the dems had gotten more time to speak at the health care dog/pony show. By like a 2:1 ratio last time I looked.

          I’m not watching it either, but the lowlights are showing up on Drudge.

  10. Barter system, yes?

    Underground economy

    Dollar collapse nigh

  11. I favor a currency backed by bourbon. Even more fungible and useful than gold.
    And — I know I’m going to get some backlash on this — but I’ve never tasted a nasty bourbon. Nasty whisky, yes. Nasty bourbon, no.

    Cancel my subscription.

    1. How many subscriptions did you have?
      How many more to cancel?

      1. I think I’m down to 17.
        Cancel my subscription.
        16.

    2. Kentucky Gentleman.

      Nasty, nasty stuff.

      1. Ok. I’m willing to make the sacrifice and pick up a bottle.
        Cancel my subscription.

      2. Barton’s is pretty bad, too. Of course, the case could be made it’s just vodka with caramel coloring added.

        1. Just had my first Bulleit. Tasty.

          1. Christ. I forgot again.
            Cancel my subscription!!!

          2. I’m not a fan of Bulleit, but mostly because I’m not a fan of that style of bourbon. I’d rather drink Knob’s Creek in that price range.

          3. Then you might like KG too. Bulleit is pretty nasty too.

          4. I got a bottle of Woodford Reserve for my birthday. It’s pretty good.

            1. I get Woodford for free. The Liquor Fairy delivers it to me for being a goo….well, I dont know exactly why she delivers it to me, but there ya go.

    3. I have found very few whisk(e)ys of any type that don’t have some redeeming value.

  12. A chain of liquor stores in Texas called Spec’s gives a 5% discount for cash and debit card purchases. Pretty much the only place I buy my booze.

  13. These cheap payment systems will be dealt with soon enough. We can’t have these anarchists conspiring with drug dealers, child pornographers, and con-men. Electronic fraud/theft will run rampant and *you will lose everything*!! Congress must put a stop to this nonsense before it gets out of hand and endangers our children.

    With normal credit cards, people act irresponsibly and get into disastrous debt ? can you imagine what would happen if people were free to impulse-buy at any time anywhere? by poking a touchscreen? Jesus Christ in a cherry tree! Only our friends in DC can stop the e-pay-pocalypse.

    Do you want to put good, tough, educated, hardworking, god-fearing, all-American financiers out of work? We can’t let a bunch of anarchists debauch our most prized and ancient traditions. We must save the financial system ? No Anarchy!!

  14. Here’s one I beat you to – it was my “Best of the Day” post in my business journalism blog on February 23: http://seanreadsthenews.typepa…..olies.html

  15. Im down to two credit cards. Three if my debit card counts.

  16. I’d like to solicit the comments of someone more knowledgeable than I about the legal and fiduciary complications of performing financial transactions. Is the check clearing function of the banking system a problem in search of an “Engineering” solution, what about clearing credit card transactions? If you transfer money from phone to phone with only a pin, who holds the money during the transaction, who holds it if the transaction has to be rolled back, who’s responsible if something fails, where do you go for redress? These are not engineering questions. These are questions that the banks and credit card companies answered decades ago. And guess what, the answer isn’t “your smart phone” or ATT or the guy that wrote the open source software that reduces the transaction cost to near zero (that last was ironic).

  17. Anybody match this: I can’t get credit! Credit card, car loan, Sears appliance; I’ve got no credit – with thousands in the bank and a house that’s never been mortgaged.

    1. What’s wrong with cash?

  18. John linked back to this post. I thought there was something familiar in it from when we were discussing story concepts.

  19. don’t forget DGCs…

    despite what happened to e-gold when the govt. got them in their sights…. they where n?2 online payment after paypal at the time…

  20. forget about the actual payment mechanism… it’s better money (NOT Govt-backed) that we need… competing currencies are the way to go:

    http://www.opencurrency.com/
    http://goldmoney.com/index.html
    http://www.libertyreserve.com

  21. Forget about the payment method… its better MONEY that we need… and competing currencies are the way to go…

    http://www.opencurrency.com/

    1. Sort of like in Snowcrash?

      1. or like Switzerland…
        ..admittedly the major choice is between 2 govt. currencies… but there’s also
        http://goldmoney.com/

        which is beginning to achieve critical mass..

  22. btw… since we’re onto sci-fi… there’s “authority scrip” v. HKL dollars v. “National dollars” in Heinlein’s TMIAHM…

  23. Pre-paid cards are the fastest growing financial product for consumers. More pre-paid cards have been shipped than credit cards. Just google it. It’s amazing.

    Marketing firms are paying $12 an application for affiliates for customers. And, even more for folks who load direct deposit on the card.

    Cut up your credit cards and join the pre-paid population?

    Well… Unless you want to use credit.

  24. One does not need to cut up credit cards.
    I run a credit cards business and right now the approval rate is close to 0%. I had 100 applications to my site and not a single approval. Not funny.

  25. Yeah, I agree. If you stop using credit cards, it demonstrates you have had a change of mind regarding your credit card debt. However, only cutting up your credit cards isn’t really adequate, you’ve got to begin buying much less as well and start to pay down your debt. Often, it’s most effective to start by paying down on the debt you owe least on, so you keep motivated.

Please to post comments

Comments are closed.