So, how does a credit card even work?

I read the best Twitter thread on how a credit card works! Finally, I know :)

Hi there!

I heard a lot of good feedback from people about my last article on how technology is helping us plant a billion trees.

Today, I’m trying out something different with the newsletter. Rather than writing about one topic, I’ll write about the interesting things I discovered this week.

Please provide feedback so that I can improve by filling out this 2-minute survey.

If you like it, forward it to your friends and ask them to subscribe.


Credit cards

For a long time, I didn’t understand how credit cards make profits, and give out huge cashback and rewards programs. Several people had told me that credit cards are basically personal loans that charge a much higher interest rate. But I was always confused about the proportion of people who paid their dues on time vs the proportion of people who paid interests on their borrowings.

This Twitter thread by Mayank Jain, clarified some of these aspects.

The Credit Card Industry classifies the customers into 3 kinds, i.e. revolvers, transactors and defaulters. Usually, 20-25 percent are revolvers, <10 percent are defaulters and 65-70 percent are transactors.

Revolvers are the people who don’t pay their bills in full, thus incurring heavy interest charges on their payments. Transactors are people who pay their bills before time, thus avoiding any interest charges.

Thus, transactors usually get the benefits of credit cards (Rewards, membership, etc.) at the expense of revolvers.

Do read the entire Twitter thread.


Passion economy

Li Jin, a VC at a16z, one of the biggest investing companies, wrote this article about a new kind of an economy, called the Passion Economy.

With the internet, it is becoming easier than ever before to create businesses. Today, within a few hours, you can set up a storefront to sell products online, at a minimal cost. This has led to the proliferation of several small businesses, from food businesses, music producers, short-term rental providers to whatnot.

Earning money from your customers directly rather than going to a large platform (eg. Amazon, Facebook, etc.) is becoming easier every year.

Tomorrow’s businesses will be more personal and smaller. Take the case of journalism. Previously, the only choice for journalists to get started was to apply to big news outlets who were only so many in number. Today, tools like Substack are enabling journalists to start their own publications, and earn money for what they write. The top-earning writer on Substack earns more than $500,000 a year from reader subscriptions.

Even my newsletter, which you’re currently reading, is powered by Substack. I’ll write my thoughts about the passion economy next year.

Do check out this article.


Cloud kitchens

In the recent years, food delivery services like Uber Eats, Zomato, Doordash, etc. have grown like anything! Today, food is a few taps away on your phone.

This has also led to a new concept called Cloud Kitchens, which are large warehouse-like spaces, where chefs can rent a space to run a kitchen. Food is cooked here and delivered through one of the food delivery services right to your home.

There is no restaurant setup involved. No need to worry about the business aspects of running a restaurant business if you don’t need one. This allows you to start a food business with minimal investment, where you rent only a kitchen.

Uber’s founder, Travis Kalanick, now runs a company called Cloudkitchens, which is expanding its operations.

The answers to this Quora question have more information about cloud kitchens.


I’ll be writing more about these in the coming weeks, but in the meantime, please share your thoughts by replying to this e-mail.

Also, I’d love your feedback on this article. Do fill out this 2-minute survey.

Thanks for reading :)

Hemant

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