It's not a normal bank loan, certainly. But real zero-interest bank loans do exist, and if your credit card is issued by a bank, spending with it (as long as you pay off the balance at the end of the month) is effectively obtaining a short-term zero-interest bank loan.
I think it's useful to look at the fundamental mechanics of lending (swapping one new debt for another, transferring the new money, recovering it, and ultimately writing off both debts) in isolation, before considering the effects of default and interest (which is discussed in part 2: https://economics21st.substack.com/p/money-and-banking-2).
No "zero-interest" bank loan exists there because the banks, cunningly, load the bank charges onto the vendor who accepts the card transaction. Some vendors offer incentives to cash-customers to avoid losing those bank charges on "credit-card" sales.
They certainly charge the vendors. I think there are different valid interpretations. You can either see it as a zero-interest loan for the customer and separately the bank charging the vendor for the payment service it provides (which is valuable for avoiding the cost and risks of banking the cash), or the vendor is paying the interest for the buyer, or some combination of the two. Or you could argue that it's people who don't pay their credit card balance in full each month who subsidise the people who do. I'm not sure there's any way to say that one of these interpretations is more correct than any other.
On the existence of zero-interest loans, there's UK tax law about firms lending to directors or employees interest-free, so I assume it has been known to happen.
That seems to me to be an implicit subsidy of banks and other payment processors at the expense of cash users. I think it was only in the 1980s that vendors in the UK were actually allowed to charge less to customers paying by cash (or more to card users).
For the record, I note that Eve doesn't charge Alice interest on her "loan" of credit. That's not a real bank "loan".
It's not a normal bank loan, certainly. But real zero-interest bank loans do exist, and if your credit card is issued by a bank, spending with it (as long as you pay off the balance at the end of the month) is effectively obtaining a short-term zero-interest bank loan.
I think it's useful to look at the fundamental mechanics of lending (swapping one new debt for another, transferring the new money, recovering it, and ultimately writing off both debts) in isolation, before considering the effects of default and interest (which is discussed in part 2: https://economics21st.substack.com/p/money-and-banking-2).
No "zero-interest" bank loan exists there because the banks, cunningly, load the bank charges onto the vendor who accepts the card transaction. Some vendors offer incentives to cash-customers to avoid losing those bank charges on "credit-card" sales.
They certainly charge the vendors. I think there are different valid interpretations. You can either see it as a zero-interest loan for the customer and separately the bank charging the vendor for the payment service it provides (which is valuable for avoiding the cost and risks of banking the cash), or the vendor is paying the interest for the buyer, or some combination of the two. Or you could argue that it's people who don't pay their credit card balance in full each month who subsidise the people who do. I'm not sure there's any way to say that one of these interpretations is more correct than any other.
On the existence of zero-interest loans, there's UK tax law about firms lending to directors or employees interest-free, so I assume it has been known to happen.
I've just discovered that in the UK, it became illegal for vendors to charge differentially depending on payment instrument in 2018 (following some 2012 legislation). https://assets.publishing.service.gov.uk/media/5b2d09bae5274a55bb5790cb/payment-surcharges-guidance-update.pdf
That seems to me to be an implicit subsidy of banks and other payment processors at the expense of cash users. I think it was only in the 1980s that vendors in the UK were actually allowed to charge less to customers paying by cash (or more to card users).
Aldi (in Australia) does add the card fee to the docket. It seems to be optional here. Many traders don't.