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Mastercard, moths and a sore butt

May 1, 2009

mastercardThe right rear pockets of Rocky’s trousers always wear out quickly. Since wool-eating moths cannot tell left-from-right, the explanation is “friction” from Rocky’s over-sized wallet. [For a thoughtful discussion of “market friction” or “vig,” visit Jeff Watson’s excellent post at DailySpeculations.com.]

It’s not cash that stuffs Rocky’s wallet. It’s the numerous “cash rebate” credit cards. There’s a card that gets 5% back on gasoline. Another gets 5% back at drugstores. A third gets 5% back at grocery stores. A fourth gets 5% back at the Home Depot. He even carries a discount card for McDonald’s which Trophy Wife gave him for his birthday. (Rocky always pays his bills in full at the end of each month, and “pockets” the 5% in cash rebates.)

Rocky shamelessly acknowledges that he’s an arbitrageur 24/7, and even Trophy Wife joins in this orgy of merchant arbitrage. (However, Trophy Wife carries a large purse, hence the “friction” of her specialized card use is less).

This morning Mastercard (MA) reported disappointing sales, and the stock got whacked by 10%. It’s easy to blame the recession, but Rocky has an alternate theory:

He’s noticed more merchants (and especially gas stations) posting a “cash” price and a “credit” price. Depending on the cash discount, it may be cheaper to use cash than even a 5% credit card. If this trend persists and grows, it may pose serious problems for Mastercard and Visa.

[Disclosure: Rocky has no position in Mastercard or Visa stock, but he’s noticed a recurring soreness in his butt. If the aforementioned trend continues, he’ll jettison the credit cards and buy a bill fold.]

  1. masteroftheuniverse
    May 4, 2009 at 8:07 pm

    The cheaper cash prices have not escaped my notice and my merchant friends tell me that a lot of the cash is not run through the register and skimmed off the top. They save the credit card fee as a bonus.


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