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What's in Our Wallets?

posted by Katie Porter

Capital One made the slogan famous, but it's more fun when it's not just a hypothetical question. Many of the Credit Slipsters research at least some kinds of payments, such as credit cards, and some of us teach payment systems courses in law schools. If, and perhaps it is a big if, you think that means we know something about payment systems, I thought it might be revealing to see how we do or do not translate our knowledge to our own behavior as consumers. So I polled the Credit Slipsters, and a few other people who teach payments law (some of whose responses will appear in comments to this post), and here is what they said about what they carry and how they pay.

I'll go first: I have an LL Bean Visa credit card. I like it because it is offered by Barclays rather than a TARP rescued gigantic card issuer, and perhaps not unrelatedly, because it has very low fees, such as a $15 late fee. I usually pay in full but sometimes I procrastinate (anybody who reads this blog will know this about me already). I also find the free shipping/returns/monogramming is a reward that I actually use, whereas with airline miles they just accumulated and whenever I wanted to use them all the seats were gone. I also have a Visa branded debit card issued by a local bank in Iowa. If possible, I always enter my PIN with this to save the merchant some money (interchange fees for PIN-based debit are cheaper than signature (Visa/MC) debit). If I had to guess, I would say that I use debit and credit each about half the time, but probably use the credit card primarily for travel, which tends to be large ticket items, such as hotel and airline tickets. I also make regular use of one stored value/prepaid/gift card, which is at Starbucks. It has a budgeting effect--when it's out at the end of the month, I at least pause before reloading the card. If you think I'm not exactly the most rational actor in the world, keep reading! 

Bob Lawless:We pay off every month and thus are insensitive to fees and interest rates. We have never been into affinity cards because we don’t usually value the products or services that they generate and because we really do not want to be chasing the affinity rewards, such as  airline frequent flier miles, making this one more way I do not resemble George Clooney (think Up in the Air). We generally try to select a card that maximizes the “cash back” feature and just take the cash at the end of the relevant time. Our current card is an FNBO Visa Signature card that was sent to us as a replacement for an FNBO Visa (non-signature) card that we chose after we shopped around a few years back. (Extra points to Credit Slips readers who know what a signature card is--post below with your answer). We also have a Bank of America MasterCard that is branded through the University of Illinois Alumni Association—one of those deals where the lender is donating a little bit to our university. We have had this card for about fifteen years, although the issuer has changed a few times. The issuer is switching soon to be the University of Illinois Employees Credit Union, which we were happy to hear.  Years ago, Patti and I used to have just one credit card but found out how inconvenient that could be when it was misplaced. We decided to get a second card just for backup, and this card was chosen because of the serendipity of some direct mail. We have kept it out of inertia, and it is used solely for my business expenses. We have a debit card from the local bank we use (Busey Bank) but rarely use it. It somewhat defeats the point of the “cash back” strategy to use the debit card for things we can put on our credit card. About the only time I use the debit card is for an ATM or when traveling outside the country because it’s currency conversion fee is generally lower than our credit cards.

Stephen Lubben: On the credit side, I use an Amex Gold Card and a British Airways Visa (from Chase).  The latter is good for foreign travel since it does not charge any foreign transaction fees; the Amex gets me insurance protection when I rent a car and miles I can direct either to BA or Continental/United.  Since I'm 6-5, frequent flyer miles and the resulting upgrades are very important if I hope to be able to walk upon arrival at a conference.  As I noted in an earlier Credit Slips post, neither works perfectly abroad, given the refusal to offer a chip and pin option to US customers.  Grrrr.  I pay off both every month, so other than annual fees I'm not personally contributing much to my issuers' bottom lines.  The places that take my Amex might have another opinion on this. On the debit side, I've got an INGdirect Mastercard.  That's my card of choice for any transaction of less than $100.  I'm not sure why -- probably some sort of budgeting mechanism.  Its easier to keep track of the credit card bills in my head if I'm only using the card for a few bigger purchases every month.  Also, I think of the debit card as a cash substitute at Starbucks, the school cafeteria, etc.

Nathalie Martin: I carry the Costco Amex because I get 1-3% cash back on all purchases.  I try to use this for most everything. For gas and dinner out, you get 3% back. All other travel, 2%, which is big because I travel for work a lot and we live really far away from almost everyone we've ever known.  This card pays us better than airline miles, typically $500-700 a year.  Not everyone takes Amex though, and we have a one credit card rule in our house....so I carry a debit card connected to one of those high interest checking accounts (mine is at New Mexico Bank and Trust).  As long as we use the debit card at a point of sale for 15 purchases a month, we get 3% on up to $20,000, or $50 bucks a month. The key is to make tiny purchases, to keep the balance as close to $20,000 as possible.  Great place to store tax money....that's about all that's in there...a couple of gift cards from things I have returned without receipts, a coupon for dog food and one to save $5 off a $25 Merano purchase at Target.  

Jason Kilborn: As for my wallet, I carry a Capital One credit card, a Target Red store credit card, and a Chase VISA branded debit card, which I use ONLY as an ATM card.  I never EVER use my debit card to make purchases, at least in part due to the greater protection afforded by the Truth-in-Lending Act as opposed to the Electronic Funds Transfer Act, but mostly because my Capital One card pays me 1% back on all purchases and 2% at gas stations and grocery stores (I redeem the % points for statement credit, never miles or whatever else).  I just put the Target card in my wallet because, as of October 17, it gives me an instant discount of 5% (!) on every purchase at Target, and I buy all my groceries from a SuperTarget.  I am fortunate enough to be able to pay all of my balances in full every month, so I do so religiously.  I USED to carry a VISA branded Chase Sapphire rewards card, with 1% back on all purchases.  I pulled that card out of my wallet after an unpleasant exchange with "security" as I was standing in line at Sears trying to buy a lawnmower.  After my charge was inexplicably denied, I called Chase from my cell phone (the only number they have on file for me) and gave them all the usual info, and yet they put me through the ringer and suggested they would need "2-3 minutes" to ask me more questions.  I told them I'm standing in line in front of a bunch of angry people, I have other cards in my wallet, and they just lost hundreds of dollars of future interchange fees from my active account.  It pays not to anger the cardholder who pays you back!

Is there a lesson here? Perhaps this is a very personal illustration of how hard it is to change consumer behavior, even with a significant amount of knowledge or education.  Or perhaps this is another example of the oft-repeated "those who can't do, teach." I'm certain at least some of us have complained about credit card practices, yet many of us (not me, in my defense!) make heavy use of credit cards over debit cards. And we are steered to different degrees between credit and debit based on concern about interchange fee and cross-subsidization effects, differential legal protections, and rewards benefits. And I'm willing to bet that most of us have more cards that we listed here; research comparing self-reported numbers of cards to credit reports shows that I'm not the only one who doesn't remember easily all my cards. After writing my initial post, I turned up an AmEx blue card in my drawer (virtually unused, certainly not  used in at least three years) that I obtained because I wanted to see how the chip and pin technology works--and the card is clear so you can see the chip. More on my affection for "cool," or at least new, payments to come. 


Let me put a question: given the greater protections provided by credit cards over debit card if you treat the credit card as a charge card then the disadvantages of credit cards disappear to the end user (possibly to the merchant, but thats their problem). Using the credit side protects the underlying checking account, and avoids issues if the card is stolen due to the protections. Basically if fraud occurs you have 21 days to detect it before your money goes to the issuer with a debit card the money has to be returned.

The 'signature' in the card name typically refers to how the interchange fees are billed. There are a few 'tiers' according to which a merchant pays for a credit transaction.

The cheapest is the so-called qualified rate. These are signature (the physical act, not the type of card), verified (card in hand, not on internet) for standard cards. Mid-tier are mid-qualified. Signature or reward cards fall into this category. Unqualified is based on non-swipe transactions, failure to process with 48 hours, etc.

So - not surprised that the bank swapped you into a signature card! Perhaps you should call and ask if your rewards were upgraded to reflect their increased revenues?

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