I got my first real Credit Card few days ago. I didn’t own one before. Well, as I’ve previously explained, I had some sort of similar tools, like prepaid credit cards and a Hooli issued real credit cards, but that’s another story. With the prepaid cards you don’t get a line of credit and the Hooli card is for work related expenses. I’ve never considered it mine.
I never had a real credit card, I’ve never experiences this sort of monthly threat “pay your bill or we’ll destroy your finances“. It feels strange. And wrong.
Anyway I don’t get it. I don’t understand why it works this way. The system is broken and inefficient, I really don’t understand why.
Let me explain.
“RIP, why are you complaining? Why you got this card??”
Ok, let’s start with why.
Apparently some sort of Visa/Mastercard is needed in modern world if you want to buy things online. Physical purchases in your home country can still be resolved with debit cards / atm cards / cash. Did I tell you I hate cash? I’d love to experience the disappearance of physical currencies! Physical purchases in another country usually require either cash or some sort of credit card, regular or prepaid. And then there’s US, where for most actions you need a credit card, like car rental, bike rental (!!), hotels… That’s because with credit cards they can reserve an amount for eventual damages or “in case you don’t return the bike”.
Most of the purchases I do in Switzerland can be resolved with PostFinance card, which is a debit card that’s accepted on every Swiss website and physical shop, and it’s bound to your PostFinance bank account.
I hate cash. I avoid using it as much as I can. Did I tell you?
There’s only one money related thing I hate more than cash and it’s debt. I hate debt! Maybe it’s because I experienced so many time (in third person) people going mad due to it.
So, I got the card. It’s a Cumulus Mastercard, issued by Cembra Money Bank and connected with your Cumulus Migros account. Essentially your fidelity card for the Migros world. Migros is the biggest grocery chain. Well, not only a grocery chain: Migros is everything. A bank (Migros Bank), phone company (Migros mobile), IKEA-Like (Micasa), electronics (M-Electronics), gas (Migroil), language courses, flowers, travel, farmacy, you name it.
How does this card work?
- You do your purchases, they anticipate the money for you. You pay later.
- If you pay your monthly credit card bill, it will be the face value of the money advanced. No interests, no fees. A 0% loan.
- You get points for using your card. We’re talking about 1% of your purchases in the Migros circuit and 0.5% of your other purchases back in terms of cumulus points. Actual cash, if you’re a Migros customer (I challenge you not to be one!).
- You don’t pay any annual fee.
- You get sign up bonus (3000 points, i.e. 30 CHF).
My first reaction was “where’s the trap? It can’t be that good!”
I’m so used to only spend money when I have them, I’d never miss a payment. Why am I rewarded to get a service from an evil company without paying a dime?
Are they just hoping I miss a payment so they can charge 9.99% interests? Is that all?
If that’s all, the system is bugged my friends. It’s an horrible system. Ok, I get the benefits while someone else is paying with interests rates above usury limit, but that’s stupid!
Then I start looking closer at how people use credit cards, reading posts about “avoiding credit cards debts” or the concept of “minimum payments”… holy sheet, do people only see the “credit” word in “credit card”?
Apparently yes, they do. If you get a credit card with 10k limit, you may see it as “cool, I get another 10k to spend“. No no no no it doesn’t work this way! It shouldn’t! Credit cards are not cheap loans.
Credit cards are too good for smart people to be true. You get rewarded for getting a 0% short term loan. This is not a stable system, it’s based on financial illiteracy! Too bad for dumb people.
So I thought: “well, if everyone started using credit card correctly they’d go out of business overnight!”
That’s also not true.
They’re not charging you for your purchases, but you’re not the only one involved in the trade. They’re getting a hefty percentage from the merchant! That’s where things go really evil. That’s why some merchant will charge you extra fees for credit cards payments (looking at you, my dear low cost flight company). That’s why some shop won’t accept your card below a certain minimum purchase amount.
And here’s where the system is purely wrong and evil.
Ok, I can’t easily articulate all of my concerns, but I’ll try. Please, understand I’m an old man, getting dangerously close to my 40s, a man who’s born in an age without easy access to credit and always been scared by debts.
The system is based on splitting consumer and merchant worlds. They (credit card issuers) befriend and reward consumers and drain merchants. Divide et impera. They drain way more (2-7%) the merchants than they charm consumers (0.5-1%). Plus signup bonuses. Ok, that’s a little bit of exposure on their side, but the break even for them is probably very close to few thousands spent on your side. Plus yes, they’re close to explicit thievery when it comes to currency conversion fees, but that’s not an issue for most people who (unlike the RIPs) don’t live a three currencies life.
The system is inefficient. Consumers and merchants could find a 1.5% discount or so for “cash payments” and credit cards will be cut out. I don’t understand why merchants don’t offer discount for cash payments. Are they forced to be silent? Ok, I admit handling cash is boring, risky and obscure (money laundering? tax evasion?) and it doesn’t work for online shopping… but what about wire transfers? Ok, I know, debit payments are not immediate and can’t be…
But what about cutting out the middle man here?
Why can’t I just have money and send money to someone without a middle man?
Than I watched this TED Talk. Did I tell you I love TEDs?
In my EGN about future I missed this one!
Are cryptocurrencies the solution for this inefficiency/robbery?
I think so.
Are they production-ready today?
I don’t think so. But sooner or later they must become. I don’t like the mechanics and the whole speculative world behind Bitcoin, but if I have to guess how the world currency is going to be in 100 years I’d bet on a decentralized credit system almost impossible to hack, i.e. Cryptocurrency.
Have a nice day… and use your credit cards judiciously!