I finally figured out how the various bank/credit card company “point” systems work. Not the systems themselves, but how the companies economically justify continuing the programs. So most (all?) bank-branded point programs, such as National City’s “Points” system, are actually managed by a credit card company (e.g. Visa). That same company also handles the debiting of your bank account when you use your ATM card as a credit card. Pretty straight forward.

It’s also common knowledge that credit card companies such as Visa and MasterCard charge merchants a percent of the amount of charged transactions they accept. Probably something around 3 or 4 percent; the number is irrelevant. It’s also pretty common knowledge that more and more retail outlets are accepting debit cards. Not only does this give the customer an opportunity to get “cash back” (a convenience, especially with ATM transaction fees), but then the customer doesn’t have to sign a receipt. Handy.

Also notice that credit card companies are in the process of changing their “signing policy” to only require a signature on purchases over $25 (or some set amount). Clearly, this is to put credit card use on-par usability-wise with debit cards. Easier in fact–there’s no PIN with a credit card, as there is with a debit card.

Okay, that’s all fine, but where am I going with this? Where does the point system come in? It’s a tool for the credit card companies to “incentivize” you to hit “credit” instead of “debit” (which is the default choice, mind you) when you swipe your combo debit/credit ATM card at a POS. Why? Because if you don’t, the credit card companies don’t get a processing fee. The credit card companies figure if you think you’re getting something for every dollar you spend, you’re more likely to “remember” to hit “credit”, as you are told when you enroll in the points program.

If you’ve actually looked at the “rewards” in these point systems, they can be pretty lame. Usually pretty cheap, too, given the amount you have to spend to get them. But remember they are giving these out to millions of cardholders, and that adds up quickly. That should prove to you how much money they really make from processing fees… the same fees they can keep raising with the explanation, “fraud is higher due to Internet transactions” or the like.

Credit cards: now there’s a racket–on so many levels, too.