Welcome to Econ Talk, Conversations for the Curious, part of the Library of Economics and Liberty.

I'm your host, Russ Roberts, of Sholem College in Jerusalem and Stanford University's Hoover Institution.

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Today is April 24th, 2025, and my guest is Patrick McKenzie.

He writes about tech, finance, and, as he describes it, the wonky geekery that underlies the Montereworld.

He does that at his website, bits about money.

He's also an advisor at Stripe.

Our topic for today is credit cards,

the economics of credit cards and various aspects of credit cards. Patrick, welcome to Econ Talk.

Thanks very much for having me. And I'll give the obligatory disclaimer when talking about all

things credit cards. I used to work at Stripe for six years. I'm still an advisor there, but I'm not necessarily speaking on their behalf. Absolutely.

We're going to talk about what you call, to start with, the good fit, non-fraudulent user.

So we're talking about maybe me. I love using credit cards. They make life really easy.

What's the economic transaction that's happening there? What role are they playing besides

convenience for me in not having to carry cash? I think, honestly, and I've thought this since long

before I was personally involved in them, credit cards are one of the infrastructural wonders of the modern world.

The credit card networks are orchestrating a complicated five to six-party transaction.

Every time you swipe plastic or tap your iPhone to pay for something, it's actually more when you tap your iPhone, more parties.

But there's multiple offsetting transactions and we'll get into them.

But just from the point of view of your bank, which is how most people conceive credit cards is making money,

...