So I guess I should conclude “Yeah nah”. If everyone paid up monthly banks would not reduce the benefits to card holders. The benefits tend not to be cyclical. Sure, airlines are more likely to go bust during downturns (so those airpoints are not riskless forms of storing value) but generally rewards systems don’t get rejigged according to where in the credit cycle the economy is. On the other hand, interest payments and late fees are highly influenced by the status of the economy. So it would make no sense to try and balance these two and from my experience, the card issuers don’t.

As an aside, as Donal points out, interest rates on cards are not tied to any cost of funds (except in an extremely loose way i.e. if overnight rates went up to 20% you can be pretty damn sure card borrowing rates won’t stay at 20-25%) and it may be more appropriate to see the rate as a form of private stupidity tax. While you can be sure that a segment of the population are going to be stupid, structuring a card business (or any business) on that assumption is very risky (think legislation or social media campaigns). And believe you me, card companies employ some very smart cookies.

Indeedy, was more just trying to note that we appreciate we are only looking at one element of a complicated issue 😛

“if merchants aren’t allowed to pass on costs to credit card users”

From memory this is no longer the case in NZ.

Indeedy! We chatted about that at work, and the feeling was that it would be best to focus on only one issue at a time.

I find the idea that, if merchants aren’t allowed to pass on costs to credit card users, they will end up increasing prices and making “non-users” cross-subsidise to be pretty interesting as well – as mentioned here:

http://www.tvhe.co.nz/2009/01/29/do-those-who-pay-with-cash-subsidise-credit-card-users/