Credit card usage in four countries

"Credit Card" is a kind of short term loans. Consumer pays for the good/service with a credit card. In effect, the bank loans the money to the consumer. Each month the bank presents a bill to the customer, and then the customer has a grace period of normally 3 weeks non-interest time to settle the bill. Usually the bank will also award the customer with "loyalty points", which can be used to redeem for gifts. The customer has the payment convenient, non-interest loan, and bonus points. The bank charges the shops a commission for providing this payment service. Shop owners can tap into mass credit card holders by accepting this mode of payment. It seems like a 3-way win-win-win situation. That's why VISA and Mastercard are so profitable today.

But if you look into more details of this credit card payment method, you will find something big. The commission rate is about 2 to 2.25% of the sales. For a $20 sale, the charge is 40 cents. If a shop passes this 40 cents surcharge to customers when they use credit cards, not cash, it would be an enough discouragement to use cards. Thus, credit card issuers do not allow it to happen. They demand the shops, who accept credit cards, can not charge differently whether the customers pay with cash or card. Shops have to increase the prices to mark up the card commissions. In this way, an article on a newspaper said, card holders are taking advantage of non-card holders.

Big department shops can absorb this 2% charge easily. However, most small shops, which are on low profit margins, think 2% is unbearable. So they do not accept credit card payment method at all. Fortunately, there is also a debit-card market, which is much cheaper comparing to credit card, provides cashless payment convenience. This is exactly the situation in Singapore.

In Australia, the central bank allows the shops to pass the extra cost to consumers. Not long ago, I read an article on the internet. The amount paid with credit cards was becoming lower and lower. The sales paid with debit card surpassed credit cards.

In Canada I am using credit card to build my credit history. If my credit report has a wonderful score, it will save me thousands of dollars when I take up a mortgage in the future. Back in China, I once did have a credit card. But in fact I never used it before I put money into the account. So it was more like a debt card.