Saturday, February 04, 2006

Credit Card Theft

Barclaycard, the credit card arm of Barclays Bank in the UK, are being criticised, and rightfully so, for their new policy aimed at credit card holders who pay their bills in full every month.

Barclaycard have informed the BBC that customers who regularly pay their full month’s balance may have their payment due dates brought forward. One of their customers reported to the BBC that his payment date, which had consistently been the 9th of every month, had suddenly been brought forward this January to the 3rd. Although Barclaycard deny that their aim is to catch people out and collect late payment penalties, that is clearly their objective.

Barclaycard’s Ian Barber told the BBC that Barclaycard are “having to face up to the fact that clearly we are not making as much money out of customers that pay their bill in full as we are out of those that borrow… Once we recognise that someone is regularly paying their bill in full, we will shorten the time that they have got to pay.”

Barclaycard’s late payment fee is £20, which is equivalent to just over $35.

My guess is that if Barclaycard are moving payment dates forward, then other banks are either also doing it or will be doing it very soon. Credit card companies are greedy wankers – look at your statements carefully.


Sinister Steve said...

Not making enough money. What a joke. They get 3% at the point of sale. Even if the bill is paid in full at the end of the month that equates to 36% interest over a year. Credit card companies are no better than loan sharks.

Anonymous A-Hole said...

Not that the credit card companies aren't ripping people off (at every turn) but 3% at the point of sale is still 3% at the point of sale at year's end (not 36%).

sinister steve said...

if i put 100 dollars in a bank account and at the end of the month i get 103 dollars back that is a yearly return rate of 36%

Anonymous A-Hole said...

Your talking about compounding interest.

There is no compounding interest in this case. The credit card company takes 3% (which is negotiable and, for most merchants, somewhere around 2 to 2.5%) of each credit card transaction. At the end of the day, they've taken 3% of the day's transactions, at the end of the month 3% of the month's transactions, and, obviously, at the end of year, 3% of the year's transactions. It's not a situation of return on investment, it's simply a % taken of gross credit card transactions.

Max said...

Yes, but then the credit card company can earn interest on the 3% so you are both right.

Audie said...

I don't think SS was talking about compounding (otherwise the result would have been much more complicated than a simple 3 x 12 = 36), but about annualizing. But I don't think that's accurate, either.

If you charge $100 at Sears at the beginning of the month, the credit card company pays Sears immediately, and then waits a month (or more, possibly, depending on the timing of the transaction and your billing cycle) for you to pay them back. So their "cost of goods" is the $100 they spent on your behalf, and their total return, if you pay them back in full, is limited to your $100 repayment plus the $3 transaction fee from Sears. Total, $103, so, yes, they've made $3, and yes, *annualized*, that is indeed a 36% return. But this doesn't mean that at the end of the year they are making anyway near a 36% return. Nay, they are still just making 3%.

For, they don't make any more money off that $100 investment (payment to Sears on your behalf), so it's not accurate to imply that they're somehow getting a 36% return on their investments even if all their customers pay in full every month. The monthly billing cycle thing closes the transaction, end of story, no? If I'm a retailer and on January 1st I pay $100 for some wholesale goods, and then on January 31st sell those goods for $103 -- and I don't do any more business that year -- I make a 3% profit. I don't get to annualize that somehow and say, "well, I made 3% in January, so for the year that comes out to 36%." No. That's nuts. If I do the same transaction every month, I spend $1200 and I make $1236. My profit was $36, from an investment of 1200, so my return for the year is still 3% (36/1200). So, presuming that a credit card company whose customers are paying in full every month is making roughly the same transaction every month, and getting as revenue only the 3% transaction fees from merchants, then they are only earning (roughly) 3%, minus administrative expenses, etc.

Right? Or am I missing something?

Or do I have too much time on my hands?

Anonymous A-Hole said...

You are right and, like me, probably have too much time on your hands.

Audie said...

Well, to further prove that point, this morning the following scenario occurred to me, which is favorable to Sinister Steve's point:

Adapting the scenario above, let's say that on January 1st I loan you a hundred dollar bill and you pay me back that hundred dollar bill plus 3 dollars at the end of the month. I immediately re-loan you that same hundred dollar bill, and you again return to me that hundred dollar bill plus $3 at the end of February. This repeats each month all year, so, at the end of the year (SS might argue), I have earned $36 on that same one-hundred-dollar investment -- which, of course, comes out to a 36% return.

Which scenario is more correct?

Maybe we need DD's help here, since he's in the bizness.

Charlie Parlay said...
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Charlie Parlay said...
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Sinister Steve said...

It just depends how you look at it. even if i give you the same 100 dollar bill every month i am giving you 1200 dollars over a year and you are giving me 3% back. BUT when you take a car loan out at 6% that is over a year and comes out to .5% monthly. That 6%, yearly, is less of a return than the 3%, monthly, the credit card companies are getting back monthly.

If I bought a 10,000 dollar car with a credit card, the credit card company is gonna get 300 dollars right off the bat. If you take a loan out at a bank at 6% the bank would only get 600 dollars (roughly) over the year.

To get 300 dollars back in month opposed to getting 600 dollars back in a year TO ME is a better return on my investment.

I wasnt making a text book statement, just looking at it form a common sense point of view.

Sinister Steve said...

This whole scenario is starting to F with my head. I'm an idiot. We basically made a economic problem a philosophy question.

Max said...

SS, if it makes it any easier for you, we can just go back to my original summarising statement: "Credit card companies are greedy wankers."

Citibank (US), for the last year or so, have been charging a percentage for transactions made in a foreign currency. I believe it's 3%. That means that if I use my Citibank card here in CZ or in the UK or anywhere else outside the US, I am paying an extra 3% that goes straight into Citibank's greedy wanker pockets.

shannon said...

audie, it can also be taken into consideration that, in the case of Sears at least, and other store credit cards, the standard markup rate. figure Sears marks up their goods an average of 100% (I realize that clothing is probably more, power tools are probably less). now, rather than making $3 from that credit card transaction (provided you actually pay it off in full right away), they're making $53 because you're using your card to pay full-price for goods that they only made half the investment on. not to mention, i know that when i had a Target card, i shopped there WAY more frequently than any of the competitors. probably the same for all store cards. if i had a Sears card, I'd certainly shop there over Penney's.