One thing I've noticed with the bigger gas station chains near me is a push to have users download their mobile app, set up ACH payments, and use that as their payment method instead of credit cards in exchange for 10 cents off per gallon. From the merchant side of things, they're paying about $0.60 to process the transaction via ACH, versus $2-$2.50 for credit card transactions, per fill-up. So even if they're merely breaking even once the discounts are factored in, they're still disrupting the credit card companies' dominance.
I would not be surprised if rather than continuing to battling it out with the credit card companies to negotiate for lower fees, more and more retailers adapt to the cashless economy by leaning on ACH in lieu of credit cards, especially in market segments where repeat business is common (basically any retailer that has an existing loyalty program).
To put it another way: Sure, litigation is an option, but even if you win the concessions you want, it will leave the credit card companies entrenched. Pushing more customers to pay via non-credit-card methods has the benefit of more immediate financial impact, less reliance on the legal system, and deterioration of the power that led to the anticompetitive behavior in the first place.
I'd be hesitant to give a gas station app ACH access to my checking account. I guess you could open a second account and just transfer enough there to cover your purchases but that's a bit of a nuisance.
I’d be more than happy to use a secure, fraud-safe payment system that does not give me airline miles if it meant everything was cheaper to begin with. Part of the problem with CC companies is they do many things that are tightly coupled and are positioned well to profit on them.
1. Merchants need to be allowed to add card processing fees on top of any transaction, and it should be possible to do this very easily. If not this, then any receipt should be required to include card processing fees.
2. Merchants should be allowed to pick and choose which cards they accept without penalty.
Those two simple changes would add competitive pressure back into the payment processing market, and quickly cause fees to lower.
The divergence is just the fee being placed into the margin you're paying regardless.
If you pay via a medium that does not return some of the margin to you in the form of rewards or a 'cash/debit' rebate, then functionally you're paying an invisible tax.
This means everyone should be using credit, ideally the highest reward options, which themselves have the highest processing fees, which result in higher prices all around. The creation of higher tiers of rewards and super-premium cards just repeats this cycle, whereby normal cardholders and cash/debit users are now subsidizing high-spend premium card users.
Further, large retailers negotiate significantly preferential rates and lower processing fees for their book of business. This means small and medium sized businesses pay significantly more per transaction for processing, meaning they're less competitive and less pricing pressure is placed on large retailers, which again raises prices for you.
There's also the card issuer side of things, but in short if you're not changing your credit cards regularly, companies will depreciate rewards and benefits over time in previous lines to move you into a higher margin segment of their portfolio.
In short, there's already a divergence, and you're already paying for it in multiple ways.
There's some precedent on how do deal with this on this side of the pond. Require the list price to be achievable with some card at no extra fee (so no cheating with a high annual fee card or some exclusive condition for example) and have the merchant disclose which. Then the extra fee only appears with cards that charge more.
Or put another way: the list price must be reasonably achievable, but charging more for "extras" (eg. a more expensive card with benefits) is always permitted.
Once you've diverged from the listed price actually being the price you pay, I don't see much value in just keeping is vaguely close but still incorrect. I'd prefer either a completely itemized price or an all-inclusive price to a sort-of-inclusive price.
The best answer is probably a combination of the two: break out the bullshit costs the customer has to pay so that the consumer can see them, but still give them the upfront cost as early in the transaction as possible.
True, and I empathize, but... that difference is basically a spending tax that your card provider has chosen to impose on you. If it helps, instead of a per-transaction cost, consider it packaged together with your cashback, credit points, and the like.
Here in New Zealand retailers can (and do) add transaction fees for cards at the terminal. It's a smart thing, because it causes the processing costs of expensive payment types to be borne by the customer who is using the expensive payment method. It sends strong signals and allows the customer to decide whether to use the convenient-but-expensive method.
Unfortunately it has become a popular idea to ban the surcharging of these costs by retailers, so it's likely to be outlawed by next year, which is completely asinine. Now we'll be back to a situation where customers who use a cheap payment method will be subsidizing customers who use an expensive payment method.
I agree with your assessment. If I want to use cash then I should be able to and at a cash price. If I want to pay with a card and that card come with transaction fees, convenience fees, and insurance fees (e.g. the card issuer east fraud) then I should pay for it, not the guy using cash.
It is my understanding that companies are forbidden from offering differential pricing for cards and cash. At the very least, prices on the shelf must include credit card processing fees in the base price. Sometimes small-time businesses will offer cash discounts, but most retail and grocery places won't.
This idea that we are going to work our way backwards into a competitive landscape is not going to work.
“Pick and choose which cards they accept without penalty” won’t do anything in a market where 3-4 card processors and 3-5 banks have a near-monopoly on transactions.
If I sell ice cream and decide I won’t accept Chase credit cards because the fees are too high I’ve just lost 1/4 of my customers or something crazy high like that.
Let’s quit trying to find weird workarounds to keep capitalist failures propped up and use regulatory teeth.
Cap transaction fees at something reasonable like 0.5% and the problem disappears overnight.
Yes, you’ll lose your rewards, and that’s a good thing. Rewards cards are a massive wealth transfer mechanism that shouldn’t be legal.
There are businesses that specifically don't allow credit cards and only allow Debit and Cash to reduce these fees already and they are still in business. WinCo Foods is the biggest example I know of, so insinuating that it's impossible to operate if you exclude payment method types/cards isn't really true.
According to economic theory, price controls produce shortages. It's likely that capping transaction fees would have unintended consequences, for instance excluding millions of customers from being able to get a credit card in the first place. I'm not against all regulation, but I think we should prefer market-based solutions that remove barriers to entry and that allow more companies to compete in the space.
I do think we're getting to the point that middlemen don't have much value add. Economics even suggests they don't add value I think. Possibly neutral markets, payments, and logistics should just be a public service.
The fundamental service of performing payment processing doesn't seem complex, but these services do perform valuable work behind the scenes. I don't think it's worth what we ultimately pay for it, but there are a few parts to this worth considering:
1. I would like payment processors to have the resources and capacity to adapt to threats and maintain highly resilient infrastructure. This is expensive and requires a lot of ongoing investment.
2. If payment processing was turned into a public service, the complexity of international integration and necessary relationships, standards, etc. would become a public service burden. I'm not sure that I trust my provincial or federal government to handle this adeptly.
3. There is a lot to this that we're probably unaware of.
I'm not trying to protect banks in the slightest, but it's a baby and bathwater situation. I'm not confident in my country's ability to create its own payment processing platform that I would trust to be a reliable, sustainable, value-generating system operated by public servants. I don't mean value-generating in the profiteering sense, but in the "this is worth operating on public funds because, ultimately, it is more than worth what tax payers put into it".
I think some things are an awesome fit for public services, but a lot of places are probably not equipped to take this kind of task on safely and competently. My country is more likely capable of regulating these institutions, not replacing them internally.
We tried to make a COVID-tracking app and spent $59.5 million, and it was an abject failure. How much would we spend on a broken payment processing platform?
> I'm not confident in my country's ability to create its own payment processing platform
You live in Canada, which already has better options than the U.S., though the sittuation is getting better in the U.S.
For example, Interac is free for most people and very easy to use.
Debit payments often cost merchants less than 10 cents per tap. The local gelato place only takes debit or cash; if you don't have either, they're happy to accept an Interac payment, and do so more often than you'd think.
Part of the problem is that the incentives are misaligned. People want their points systems. Merchants want customers, but they also want lower transaction fees. Most customers have debit cards that would be much cheaper for merchants, but choose to use their credit cards, because they want the "rewards."
While the 3% or so that a bank charges might seem low, if you look at this from a low-margin business, that 3% may actually be much higher percentage of their net profit.
Regulation concerning rewards systems could go a long way towards shifting the system to be much less costly for businesses.
There's not much hope of real change here; Canadian banks are very profitable, and are a cornerstone of our economy. It's very unlikely that politicians will do anything to risk that.
$59.5 million seems like a drop in the bucket compared to the rent that these middlemen are taking. And was the COVID-tracking app an abject failure because it didn't get public adoption or because the technology wasn't fundamentally sound. Because if it failed because of the former, then simply regulating companies to use it (or even just putting it out there as a cheaper option to outcompete Visa) would solve a lot of those adoption problems.
Countries can build payment networks. It's doable. They already run central banks that facilitate payments, you use them every time you write a check. In Japan, they turned transit cards into a payment network. India and Brazil built smartphone payment apps and they're the most popular form of payment in their respective countries, to the point where USTR is shitting its pants about it.
The underlying issue is not if we can build the network (we can) but getting people to actually use it. For example, if we wanted to repeat the Japanese success of IC cards here, we'd run headfirst into the problem that our public transit networks aren't big enough to be a credible Visa/MC alternative:
- Most public transit systems large enough to issue their own fare cards and readers are also regional monopolies, because there's not enough transit demand to sustain multiple companies with different routes. If I'm in Pittsburgh, all the buses and trolleys are run by PRT. In the Wasatch Front, it's UTA. Those agencies have little interest in becoming banks; they operate the fare cards mainly to keep fare payment easy, and they don't need to coordinate with anyone because everyone already joined into a single large transit agency.
- Metro areas with multiple transit agencies often have political differences that make coordination difficult. For example, in Long Island, NY, Nassau County's NICE bus system had legacy Metrocard fare payment that wasn't upgraded to OMNY until a month or two before Metrocard was completely ripped out and shut down. A rare exception to this would be the San Francisco Bay Area where there is an insane amount of political fragmentation and somehow they all wound up taking Clipper.
- A lot of Americans just never touch trains or buses enough to actually need a transit card.
- A lot of transit agencies are just surrendering to Visa & Mastercard and taking credit cards now anyway, even though transit fares are exactly the kind of microtransaction that is ill-suited for those networks.
Ironically, the best bet for an American-run payment network would actually be to nationalize E-ZPass[0]. In fact, in 2008 Congress passed a bill specifically mandating a unified toll payment system, but nothing came of it because the bill had no actual teeth. The main problem with this idea is that E-ZPass transponders won't fit in your wallet; you'd have to launch a separate form factor for an "E-ZPass Card" and at that point you run into all the same problems I just mentioned with making a unified transit fare system.
[0] E-ZPass is an RFID transponder system for toll payment that is very well-adopted along the east coast.
I mean there are options. It's not like people in Brazil or Europe can't make electronic payments. That said, I do think the US is very prone to public services being made worse and poison-pilled on purpose.
Wallet/Qrcode payments in many countries are roughly free. Visa/MC/Banks charge roughly 3-5% when you account for all fees (ie: Stripe). The security angle is also BS because these costs are hidden from consumers as they are thrown on merchants who will average them out again on consumers.
They are draining/milking the cow. At some point, they had significant value in quick information transmission when the internet and smart phones weren't really a thing. But now the only advantage is chargebacks/refunds which coincidentally, the experience there is being made shittier.
Still, not worth the 3-5% premium. Glad many merchants are starting to charge for credit card use and push back.
> I don't mean value-generating in the profiteering sense, but in the "this is worth operating on public funds because, ultimately, it is more than worth what tax payers put into it".
Very sure the amount those companies make yearly is worth saving.
> We tried to make a COVID-tracking app and spent $59.5 million, and it was an abject failure.
and then we just…kept letting those people stay in charge of spending our money.
and there’s a story of very expensive incompetency like that every quarter at minimum.
On that general note, I think the comparison point to look at for 'state of the art' in the subject would be India's just plain excellent UPI system (https://en.wikipedia.org/wiki/Unified_Payments_Interface) and all its supporting infrastructure. It's seriously great in a way that's hard to understand for people whose only context is being familiar with Western credit card or bank transfer systems. Nigh instant payment reconciliation, free and extremely convenient for individuals, operational costs small enough that it's practical for everyday micro-transactions for the poor (I'm talking on the territory of 5¢ in USD terms) which makes cashless payments extremely practical for even ordinary street merchants.
On the contrary, the middlemen in credit card transactions are providing a service whose value add is so obvious that it's basically invisible, because it's become so normal: financial intermediation. The credit card company is basically covering your debts for you until you pay your monthly bill--and shielding you from having to give every merchant you purchase from your bank account information. On the other side of the transaction, the credit card company is guaranteeing payment to the merchant, who now doesn't have to care about trying to assess the financial reliability of every customer. It's become so normal that we don't realize what a huge value add it is, as compared with, for example, trying to convince the grocery store to accept your check, which forces you to hand them your bank account information, and forces them to decide whether they think you (and your bank) are reliable enough that your check isn't rubber.
Credit card companies are essentially charging a rake on the consumer economy. They provide a valuable service, but skimming every transaction and funneling it into a handful of private companies is a net detriment for the vast majority of society. They've been at it for decades. First-mover advantage. Entrenchment effect. When CCs are integral to the transaction of money, it's essentially a tax on exchanging money. It's monopolies conducting parasitic toll collection. They should not be able to tithe all of society in perpetuity because they set up shop decades ago.
Consumers shouldn't have to pay a fee to give someone money. Sellers shouldn't have to pay a fee to collect money. Security should be built into the system, not a luxury you're taxed for.
See also: the app store, telecoms, health insurance in the US
> On the other side of the transaction, the credit card company is guaranteeing payment to the merchant, who now doesn't have to care about trying to assess the financial reliability of every customer.
The customer can file a chargeback in which case they win almost every time even if they are scamming.
Payment networks are not an easy thing to build or maintain. The security contexts you are operating within are extremely adverse.
I understand why this makes HN so upset. To the uninitiated nerd brain, these are just pieces of information flowing in and out of some computer system across networks. How expensive could it possibly be to actually send a packet to perform an online authorization with a bank's database? We all know the actual communication is ~free. What you are paying for is the maintenance of that connection, the security around it (e.g., PCI-DSS compliance), the ability to dispute that communication out-of-band, etc.
We could cut the cost of VISA's network in half or better if we could drop the compliance piece. I don't know how that would play out for the consumer segment though. How much economic activity would be curtailed if the average consumer had to start worrying about the security and stability of payment networks? Card skimming is a great example of this. Consumers will avoid certain retailers if they perceive an elevated risk of theft.
Nobody is denying it costs money, the problem is it's not proportional to the value they add, nor their costs.
In the EU, their rake is capped by law, to an order of magnitude less than what they charge in the US. And it's still profitable. (Otherwise they would have pulled out of the market if they were losing money, obviously.)
The fraud prevention/etc you discuss benefits from economies of scale, but their fixed x% per transaction does not reflect those economies of scale. The free market has broken down here because of the difficulty for new market entrants.
> Payment networks are not an easy thing to build or maintain
Then why are there so many of them? I like travelling and almost every country I go to has its own thing going on, often more than one. I lost count long ago
> We could cut the cost of VISA's network in half or better if we could drop the compliance piece. I don't know how that would play out for the consumer segment though.
I doubt the amount credit card companies charge in fees has much to do with the actual costs of running their service and are being inflated just because they can. My guess is that reducing the VISA's costs by letting them ignore security considerations would only mean that consumers get regularly screwed over while VISA continued to raise their fees every year.
If the fee is covering all the investments required to make it convenient, we're socializing the risk taken by customers who buy from sketchy merchants or lose their card. That insurance system is a net positive for consumers, but they don't know they are paying for it.
The biggest thing is disputes. I have no problem with an escrow service asking for a cut if I want to use them, cause they have real costs. The creepy thing is how that escrow built into credit cards is forced on every little transaction.
> The creepy thing is how that escrow built into credit cards is forced on every little transaction.
That's essentially what a CC company does though, every transaction they're briding the timing gap between the card holder paying the CC company and the CC company paying the business. That's the core value add and cost they're bearing that they charge for.
They have risks from both sides of the transaction; on the one hand scam merchants who might get chargebacks and on the other customers who never pay off their balances (thought I guess that risk is covered by their interest charges mostly).
I actually think this is an example of where government should be more involved - like often times if I file a chargeback, there's a solid likelihood that there should a real world repercussion to the other party because it's probably related to fraudulent or abusive behavior.
I have had to fight hard for disputes, even with “premium” credit cards like Amex Platinum. I’m not talking about “not as described” bs, but being asked over and over for the same info to wear me down.
I recently ordered some snacks from another country and after 3 months the vendor stopped responding while never having sent anything. When I asked for a chargeback, my claim was denied because I didn’t have proof they didn’t send anything! I literally had an email from them that said they are backed up and unable to send stuff.
1) The government now has a full purchase record of every purchase you make
2) There is not a competing infrastructure where you can distribute your transactions across multiple companies to avoid a full profile building up
3) The government now has an incentive to eliminate un-surveilled options like cash and checks.
4) The government is now required to consistently legislate every single "he said, she said" fraud situation. Since it requires publicly available and consistently followed guidelines, this means everyone knows exactly which sorts of fraud work well
5) The government can trivially ban payments to anyone they disapprove of (porn, bitcoin, Iranian refugee charities, anyone who has the wrong opinion on Israel, etc. etc.)
6) The government can also wield all of this as a cudgel to threaten bad actors - do what we want or else we propose you go the Non-Payment List, we reveal your porn receipts, etc..
7) I don't even want to know what this does to the complexity of trying to use a card when traveling internationally
What connection does the 3% have to the ability to do a chargeback? The card company isn't absorbing the loss, they are just pushing it back on the merchant and collect it from them unless the merchant successfully disputes the chargeback.
To a first approximation, the 3% isn't paying for disputes; it's paying for rewards to the customer (essentially a built-in discounting mechanism that gets to discriminate on credit rating), and for profit margin to the payment processor. Disputes are paid for by the merchant, and if you get too many of them you potentially lose the ability to process credit cards.
The vendor pays the 3% not you (through increasingly vendors try to charge this fee to you as well). If you as the consumer had to pay 3% extra every time, do you still agree?
If chargebacks were guaranteed, I might agree. But if you clickjacked with an instant checkout button, be ready for some scumbag to refuse to cancel your order, try to get you to agree to restocking fees, your card company to make you send them the same emails and complaints multiple times, and multiple phone calls...
I largely agree. What V/MC became is essentially an abdication of a core government function of providing the secure means of economic activity. If the US government can print the currency in “paper” it should also provide the means of communicating that currency electronically.
There is absolutely not reason that the government should have abdicated its core function and allowed a monopoly effectively have a license to print the dollar bills and rent them out for a cut from ever single economic transaction.
Imagine if the government had suggested that in addition to all the other criminal extortions called taxes, when you use dollar bills to purchase something, you have to pay a 3% dollar-bill-usage surcharge every time a bill changes hands.
But it was obfuscated that this constant drain and fraud was being perpetrated because the whole system became extremely financially lucrative to the very people whose responsibility it would have been to stop the crime; so it has continued since. The mob was in control of the police.
You say Visa etc. payment infrastructure is a core government function that the government has abdicated. Abdicate means to willingly give up. When did the government give up this power to Visa, for example?
it's not offtopic at all. visa and mastercard are middlemen in the transaction between two parties. the comment is about middlemen and suggests they don't add value.
edit: just seeing now you're complaining about things being offtopic multiple times in this submission, without ever adding anything yourself. perhaps you could be part of the change you wish to see?
"Value add" is the wrong framework for thinking about these sorts of services. The reason Visa and MasterCard exist is that there's value in relationships. If you want to have your accounting system available in all stores, you have to talk to Visa or MasterCard. Conversely, if you run a store and want to accept payments, you only have to deal with Visa and MasterCard. Sure, "public service", but run by who? Visa and MasterCard are cross border, good luck getting any sort of international coalition of governments to build a payments system in the current political climate.
The United States government already interferes on behalf of Visa and MasterCard to maintain their duopoly across the globe.
Look at the tension between United States and Brazil on this issue with their nationalized payments system.
The fact is the most important relationship Visa and MasterCard have is the one you left unsaid - their relationship with the United States government.
I wish they would face litigation for banning the sale of large swaths of content (or even banning the content altogether on sites relying on donations/subscriptions to survive). Paypros have no business being censors.
This misses the mark in the same way people getting mad at Google for updating the "Gulf of Mexico" do.
You're missing the driver. It's not like Google cares or wants to change the name. They more or less have to given the public/private relationship and who is responsible for what. It's not Google's job to name bodies of water, it's not a credit card company's job to censor. And if you actually look, they aren't making that decision because they want to. They are often acting on behalf of the government.
Payment companies are even more enmeshed with the state. They often do these things to simply comply with what the government tells them to do or to get ahead of government telling them what to do. Like with some of the anti-pornography laws being drafted or passed in certain American states.
The private/public distinction really needs to come under more scrutiny here. The credit card duopoly is very much tied in with state power. This has only accelerated post 9/11 as the Treasury's mandate increasingly shifted to "national security".
Payment processors are censors because the government is. Just like Flock the government can't do certain things so it contracts with a third party. They then have an interest in protecting/promoting that party. Flock is a snoop because the police are snoops. If Flock does it and the government merely pays for it well it's not a violation of your rights. Your rights protect you against the government, not against Flock. It's the same legal backdoor. A payment processor doesn't care what you buy, why would they? They make money so long as you keep transacting. It's the government that cares.
This same dynamic happens all over the American economy because the private/public distinction can get increasingly amorphous. Your credit card is as much government spyware as your phone. But understand - the problem is not the companies, it's the majority of your fellow citizens who either don't care or actually do endorse censorship. Unless you have a solution for that trying to blame credit card companies for the problem unfortunately misses the mark. You might as well suggest Google have the authority to name bodies of water.
Many people are attacking you here but I suspect you're right. Here in the UK, we have infrastructure for digital direct bank to bank payments (e.g bypassing Visa & Mastercard). That should mean as long as you have a bank that's willing to work with a service that sells adult content you're OK but:
- Many banks are not OK with that
- Even if you find one who does, finding an Open Banking provider to be that middleman is a nightmare
Short of working with the financial conduct authority to be your own financial institution, it's makes getting paid a pain if you want to accept adult content (even if you have all the safeguards and comply with all UK law!). I can't see anything but it being indirect pressure to censor, and to push smaller players out of the market - such that it's easier to regulate the industry.
> They more or less have to given the public/private relationship and who is responsible for what. It's not Google's job to name bodies of water, it's not a credit card company's job to censor.
They don't have to but they can, but monopolies and oligopolies don't have to and don't play by the same rules and they tend to have a lot of political and soft power. Especially in Google's case, it's not a stick a floating in the river and going wherever the current takes it. Brin and Page are (allegedly) sentient human beings and they still control the majority of the company. Maybe they couldn't pull of exactly what Musk is doing but there is a huge amount of space in between that and doing nothing.
Increasingly people are so deep on abstractions from the essential issues that they have lost sight of reality. People who are pro gun control get furious when the courts inevitably rule that the many legal kludges used to compensate for a lack of unity or functional societal give and take. There’s a genuine sense that the kludges are necessary rather than a sloppy shortcut to bypass the democratic process they feel has been corrupted.
Naturally the “other side” feels the same and returns the favor, so we end up in this death spiral of ignorant people reacting emotionally to complex issues they lack the patience to work through as a society.
Tl:dr there is no shortcut to changing society, any such victories will be short term and costly.
Can you quote the specific part you're referring to?
I think this is a fair request given the 15,000+ word length of the thing. Do you mean a particular abuse of the list contents (e.g. putting someone on it for revenge) or do you mean the overall pressure-campaign to get companies to adopt the list to prove they aren't Badguy Sympathizers?
If "the power to tax is the power to destroy" justifies insulating religion from government financial leverage, then the power to financially deplatform should raise the same concern for speech.
Let's say you use a Visa card to pay for the services of a prostitute. How should they deal with a chargeback request if you weren't satisfied with services rendered?
Assuming we're talking about performing this transaction in a jurisdiction where prostitution is legal, how is it any different from any other business transaction? I don't think anyone is particularly mad about payment processors refusing to process illegal transactions, it's the refusal to process legal but morally controversial transactions that is problematic.
One mans "censor" is anothers "brand protection". Given that they are currently allowed and expected to decide who gets to use their payment networks, it seems pretty obvious to me that they won't allow extreme content next to their logos. If you made clear rules that specify when they have to extend service, I'm sure they would love to relinquish that responsibility. Visa has no moral objection to what you do, as long as they make money and aren't exposed to political pressure.
Approximately zero people, reasonable or unreasonable, believe that they payment processor has anything to do with the business. You can see this because whenever a business is caught doing something naughty and people try to cancel it, no one ever says "this is all VISAs fault - they're next!"
Thus far, you have posted three separate comments in this thread lambasting other commentors for being "off-topic" for discussing payment processors in a thread about payment processors.
Elaborate with specific examples of how the commentors in question are being "off-topic" and what you would consider topical for this thread, or please cease spamming actual off-topic meta-commentary quips.
A reminder to listen to the Visa episode of Acquired Podcast if you truly wish to understand the scale of Visa and how it all works. Even at 3+ hours you'll love every minute of it.
It's not different, many countries already have their own version of it, you just don't hear about them. India's UPI has more users but you don't hear about it.
Maybe we hear about it because, it's right in the US' backyard and the biggest country there is Brazil from which pix comes from. All these payment systems threaten visa and Mastercard but pix is the largest in the US' backyard because the country it comes from, Brazil, is the largest there.
And it's also government run, dun dun dun. The us hates anything that is government run. That's why they hate china and communists and socialism so much.
I think the problem is that merchants hate the card networks and consumers generally like them and there are a lot more consumers than merchants. If you are a politician, which block of voters are you going to side with?
I've noticed growing use of similar options in the UK already, like Payit and truelayer (often shown in checkout via "Pay by bank"). Ebay and Whetherspoons are examples of places providing these options.
In Malaysia, we have DuitNow, which is a similar idea. It’s been great. It’s pretty common to go cashless now, even outside the big cities and in rural areas. Just scan the QR code with your bank app, pay, and you’re done. Wish more countries would adopt this.
What seems to be getting lost is that the acquirer, not the payment network, sets the Merchant Discount Rate. The acquirer is also the merchant’s direct payments provider.
Yet the acquirers seem to be always absent from these lawsuits.
It seems like many of these prosecutors/plaintiffs just want to go after the largest organizations in a given industry, almost irrespective of their culpability. It seems to me that most 'consumer protection' lawsuits seem to be more focused on obtaining publicity for the lawyers than actually doing anything useful, but getting a few settlements from larger organizations is a lot easier than actually going after wrong-doers, so it is a somewhat sensible strategy if the goal is to 'win' as much money as possible.
But isn't most of the fees a result of the interchange rate, set by visa? The fact that stripe or whatever charges a fee on top, which contributes to the overall rate hardly seems relevant, unless you think all the payment processors are colluding to set their markups higher.
It has been awhile since I dealt with credit card networks, but the parent comment confuses me as well. Before, most of the fees go to the issuer, the network takes about the same as the acquirer (roughly):
Network gets swipe fees, and a percentage of the interchange
Issuers get majority of interchange, and carrying interest and fees
Acquirer gets the markup plus whatever admin/maintenance fees
I don't think payment processors like Stripe are colluding, they just have a difficult task. Card and bank payments are very complicated and regulation-heavy. I do get the feeling that credit cards and banks are colluding.
I think I would push back on the idea that credit and debit cards represent a deadweight loss to the economy. Operating a cash business has its own expenses - theft risk (employee or otherwise), handling time, and (most importantly) you are limiting your customer base to only cash. There's a lot of reasons lots of small businesses are going card only.
For good or bad, a lot of studies have confirmed that cards have overwhelmingly increased consumer spending.
I think the far stronger case is that the industry has no actual incentive to fix the underlying fraud that they are charging merchants to fight. They have done a lot of work to institutionalize the problematic infrastructure and make it almost impossible for startups or outsiders to fix.
Nobody is claiming payment cards adds no value, that'd be absurd. But their cashback programs and other bullshit (see recent itch.io/Steam moral policing story) certainly adds no value.
> For good or bad, a lot of studies have confirmed that cards have overwhelmingly increased consumer spending.
There is a lot of psychological awareness created when you have to pull a couple singles vs. a Benjamin out of your wallet vs tap card for all amounts.
I hope more things like this comes to light, as we have seen how mastercard and visa in union has moved censorship among things around the world, which by the way is illegal, but due to their monopoly could still carry out and they did.
So the hope is that new or one of the other brokers step up and hopefully their ethics are better.
Amex does this as well and it’s a mixture of internal opinions of executives, board, major shareholders, as well as the US federal government just telling them (see operation chokepoint for just one variation), as well as chargeback and fraud rates in some industries just validating personally held opinions
I’d like to know more about what changed in the last few years that’s pushing more and more merchants to pass the card fees on to customers. Is it just thinner margins and more precarity everywhere? Is it changes in the legal/regulatory environment? Or has it just become more acceptable?
I would guess two things. First, continued growth the percentage of sales where a card is used for payment. Approaching 100% for many businesses. Second, emergence of high interchange premium rewards cards from Mastercard and Visa. The merchants pay 3 - 3.5% on these.
Broadly, the interlocking restraints set and maintained by the defendants have forced merchants that accept any Visa and Mastercard credit card to accept all such cards, regardless of cost, thereby eliminating any incentive for issuing banks to compete by lowering their fees, the suit says. The lawsuit claims the challenged restraints have also prevented merchants from being able to steer customers to lower-cost payment options—for instance, by surcharging based on a customer’s use of a particular card. These and other restraints have prevented competition among issuing banks and other credit card networks, allowing the financial giants to raise their fees every year “without consequence,” the case alleges.
Reminds me of how the cardholder agreements used to all prohibit adding a credit card surcharge to cover the fees. Some of the fees go back to the customer as rewards, so customers especially had no reason to use cash. Now that practice is illegal, and many places are 3-5% cheaper with cash, which is in line with the fees and usually much larger than credit card rewards.
So yes - the shop owner will get to decide which banks' VISA cards he will accept.
Fundamentally, I agree with the lawsuit. Logistically, this seems like a bit of a nightmare. No longer will it be "CC purchases will have a 2% extra fee." Instead it will be "If you have a Chase Spark card, the fee will be 4%. If you have a Costco Visa card, it will be...".
That sounds a lot like they want to be able to say which banks cards they want to accept (the "forced merchants that accept any Visa and Mastercard credit card to accept all such cards" part).
I don't think the intent is really to break up Visa and Mastercard, but to allow merchants to accurately pass through their variable costs.
If merchant fees are < 1% if I use debit and ~ 4% if I use a rewards card, but merchant rules (set by the networks and enforced by the acquiring banks) say they can't accept amex and surcharge rewards cards but not debit cards, they can't reduce their costs by pushing me towards debit cards or non-rewards cards.
There's some other things they're challenging that could allow for more competition.
Removing the 'No-Bypass Rules' could allow for lower cost clearing if the acquiring bank is the same as the issuing bank and the potential for lower cost clearing when the the acquiring and issuing banks have a clearing relationship outside of the major networks.
Removing the 'No-Competing-Marks Rules' could allow for a card to be Visa + some upstart lower cost network; if the merchant supports it, great, if not, they can still process payment through Visa. I think US law requires ATM cards to be usable through at least two distinct networks, and there's at least some diversity in ATM networks as a result.
A lot of small restaurants are cash-only because of all this nonsense.
A friend of mine owns a restaurant that is pretty remote so lower business. He told me he doesn't take credit cards because he would be paying them a percentage for everything.
It is kind of like the mafia to a small guy like him.
I think he does do a few phone apps.
A waitress at another cash-only restaurant told me, worse than customers who hear they won't take credit cards are the apple pay folks. "They really get annoyed when they don't get their apple pay"
Franchises don't care. They can raise prices monthly or even dynamic price if they want to.
Kind of sucks for society because lots of the best/greatest restaurants are not franchises.
Handling cash isn't free, either. Mistakes, theft, the labor of managing the cash box, frequent trips to the bank or fees for cash transportation services, etc.
Depending on which sources you believe, the cost of handling cash can actually exceed credit card merchant fees.
Many cashless businesses, including bars and restaurants, do it specifically because handling cash is expensive if you actually do a full accounting for it.
um, the same system we have today but with less rent extraction
and don't pretend like it's not possible, it's obviously possible: take the system and lower the fee to something proportional to the price of providing the service
if credit card rewards programs have to go to make it economically viable -- awesome, that would be a second win.
I totally agree. I propose the opposite of what this lawsuit is fighting: let's merge Visa and Mastercard. Throw in AmEx while you're at it. Since the concepts of competition, interoperability and standards are too foreign to people and having too many types of payment processors is confusing, we need to have a single payment processor. That way we can grumble at only a single party when they jack up processing fees for editing database rows or straight up debank us. Efficiency!
That's how we do it in the US. We let industries consolidate and merge until they can raise prices with abandon, then chip back away at it with lawsuits.
Wouldn't high fees be competitive? A lot of incentive to compete there. Anticompetitive would be setting the fees too low to compete with.
I guess the point being there is probably a better reason for the high fees than the company trying to be anticompetitive, Or perhaps better said as a better reason for being anti competitive than high fees. Monopolistic lock in? Regulatory Capture? The problem is, that this blames the government instead of the company.
You've got it backwards, their anti-competitive practices is what allows them to charge such high fees:
> A class action lawsuit alleges Visa, Mastercard and some of America's largest banks have conspired to artificially inflate merchants' credit card transaction fees.
If they didn't conspire together and actually competed then they wouldn't be able to charge such high fees as they would surely try to undercut each other.
IMO They (Visa et al) have been desperately clinging to the outside of their speeding gravy train for way too long, and it's only a matter of time before they run out of track underneath them, so they're trying every trick in the book to keep things running.
Any new competitor could spell the end for them, so making it astronomically difficult to onboard enough people is so far working out for them.
Exactly. Courts will ask why they can charge high fees and not lose customers. The answer will be that they are anticompetitive or behaving as a cartel or monopoly would.
>Wouldn't high fees be competitive? A lot of incentive to compete there. Anticompetitive would be setting the fees too low to compete with.
Canada has a debit card network called Interac. Last I checked, the transaction fee was typically a flat $0.10 CAD (~$0.075 USD). There are shops that do debit or cash only, but it's not the norm (typically restaurants and niches with high chargeback risks). I am curious what keeps credit card acceptance high in Canada, despite a very widespread mature card network. I assume part of it is that consumer debt increases spending volume overall, but that can't be the primary reason I feel.
I think it's a combination of two things. Historically, credit card companies agreements with retailers disallowed them from passing on fees to customers, so effectively anyone paying with cash or debit was subsidizing the fees of credit card customers. Those agreements were made illegal in 2022, but retailers seem to be reluctant to actually start charging credit card users so far.
Then, credit card companies take some of their profits and give them back to customers in the form of reward programs.
So we all end up paying more for nothing, but the incentives make it a difficult collective action problem. I don't know why retailers don't take advantage of their right to pass fees through to customers. That would solve the problem. I guess it would make some stupid people angry. And maybe there is some other pressure the credit card companies are using.
I mildly investigated this as it is clear merchants want to get out from under the thumb of CC companies, so they would probably be a helpful ally.
However, starting up a credit card company from scratch is, extremely capital intensive, extremely bureaucratically heavy, and all the helpful finance players are in bed with or are the institutions you would be upending.
Merchants would probably help, but inevitably would take ownership and steer the ship into their harbor (not consumers). A system where merchants own the payment system would probably be even worse.
The way these deals are structured (including things like requiring a merchant to accept all cards), the business accepting the card cannot use price (or anything else, really) to signal to the person picking which card to use. The incentives are all from the issuer to the consumer in the form of various kickbacks.
This means that the issuer can manipulate the consumer into doing things bad for the business, and the business has no way to respond to the very high fees it is charged.
>The problem is, that this blames the government instead of the company.
Both are true though right? The company needs to be held accountable for price collusion by the government. Government not acting due to lobbying (i.e. bribes).
FedNow charges $0.045 per transaction and runs 24/7 and payments are instant. A better solution would be bank cards that used the FedNow network already in place which would send money directly to the merchant, bypassing visa/mastercard entirely.
I've been using Same Day ACH in all my businesses for over a decade and the transaction fees are about $0.30/transaction and the dispute window is 60 days for PPD (personal checking accounts) and 3 days for CCD (commercial check accounts) and you get the money the same day. It beats paying visa/mastercard percentage fees and the 120 day dispute windows where people can literally get their money back four months later for work that was already performed. By using Same Day ACH, we get the money from the customer faster, save potentially millions of dollars in fees, and reduce dispute windows from four months to 3 days (for B2B sales)
"We have a case pending right now in the Ninth Circuit. It was a privacy lawsuit against Google. A journalist, not a trial lawyer, determined that you could turn off tracking in Google Maps and it was not supposed to share your data, and then learned that Google was sharing it anyway, whether you turned it off on your phone or turned it off in the app. State attorneys general came in, fined Google a bunch of money, and forced Google to stop. And simultaneously there is a follow-on class action built on the journalists’ research, and that has settled.
The settlement is that Google creates a fund of sixty-two million dollars. The lawyers get nineteen million and the class gets zero. The rest is a big slush fund for a set of left-wing groups. Nothing requires the recipients to be left-wing other than that being what the attorneys chose to present to the court. They do it partly because some of these organizations are clients of the law firm, some of them have lead partners of the firm sitting on their boards, some of them are the attorneys’ alma maters, and some of them are just left-leaning outfits that are promising to do left-wing things. The class is two hundred million people. Maybe a hundred fifty million of them would not like what is being done in their name with their money.
And the judge decides who gets paid. This judge was very excited about getting to stop being a judge and start being a grant administrator with a big pot of philanthropy. We said, why are these unrelated organizations, which are not even unrelated, they are affiliated with class counsel, getting the class’s money? If the plaintiffs’ lawyers want to support the ACLU, it should come out of their pockets and not the class’s pockets. It is perfectly feasible to distribute that money to the class. Much smaller settlements get distributed to similar class sizes all the time. You can complain that if you divided it evenly among every single class member it would be a tiny amount and not worth paying out, but you do not have to do it that way, and most class actions are not done that way. Most class actions settle for less than a dollar per class member. You create a claims process, let class members sign up if they want the money, and divide it that way."
One thing I've noticed with the bigger gas station chains near me is a push to have users download their mobile app, set up ACH payments, and use that as their payment method instead of credit cards in exchange for 10 cents off per gallon. From the merchant side of things, they're paying about $0.60 to process the transaction via ACH, versus $2-$2.50 for credit card transactions, per fill-up. So even if they're merely breaking even once the discounts are factored in, they're still disrupting the credit card companies' dominance.
I would not be surprised if rather than continuing to battling it out with the credit card companies to negotiate for lower fees, more and more retailers adapt to the cashless economy by leaning on ACH in lieu of credit cards, especially in market segments where repeat business is common (basically any retailer that has an existing loyalty program).
To put it another way: Sure, litigation is an option, but even if you win the concessions you want, it will leave the credit card companies entrenched. Pushing more customers to pay via non-credit-card methods has the benefit of more immediate financial impact, less reliance on the legal system, and deterioration of the power that led to the anticompetitive behavior in the first place.
I'd be hesitant to give a gas station app ACH access to my checking account. I guess you could open a second account and just transfer enough there to cover your purchases but that's a bit of a nuisance.
I’d be more than happy to use a secure, fraud-safe payment system that does not give me airline miles if it meant everything was cheaper to begin with. Part of the problem with CC companies is they do many things that are tightly coupled and are positioned well to profit on them.
Basic reforms that could solve this problem:
1. Merchants need to be allowed to add card processing fees on top of any transaction, and it should be possible to do this very easily. If not this, then any receipt should be required to include card processing fees.
2. Merchants should be allowed to pick and choose which cards they accept without penalty.
Those two simple changes would add competitive pressure back into the payment processing market, and quickly cause fees to lower.
I really do not want even more divergence between the price listed and what I actually pay.
The divergence is just the fee being placed into the margin you're paying regardless.
If you pay via a medium that does not return some of the margin to you in the form of rewards or a 'cash/debit' rebate, then functionally you're paying an invisible tax.
This means everyone should be using credit, ideally the highest reward options, which themselves have the highest processing fees, which result in higher prices all around. The creation of higher tiers of rewards and super-premium cards just repeats this cycle, whereby normal cardholders and cash/debit users are now subsidizing high-spend premium card users.
Further, large retailers negotiate significantly preferential rates and lower processing fees for their book of business. This means small and medium sized businesses pay significantly more per transaction for processing, meaning they're less competitive and less pricing pressure is placed on large retailers, which again raises prices for you.
There's also the card issuer side of things, but in short if you're not changing your credit cards regularly, companies will depreciate rewards and benefits over time in previous lines to move you into a higher margin segment of their portfolio.
In short, there's already a divergence, and you're already paying for it in multiple ways.
There's some precedent on how do deal with this on this side of the pond. Require the list price to be achievable with some card at no extra fee (so no cheating with a high annual fee card or some exclusive condition for example) and have the merchant disclose which. Then the extra fee only appears with cards that charge more.
Or put another way: the list price must be reasonably achievable, but charging more for "extras" (eg. a more expensive card with benefits) is always permitted.
Once you've diverged from the listed price actually being the price you pay, I don't see much value in just keeping is vaguely close but still incorrect. I'd prefer either a completely itemized price or an all-inclusive price to a sort-of-inclusive price.
The best answer is probably a combination of the two: break out the bullshit costs the customer has to pay so that the consumer can see them, but still give them the upfront cost as early in the transaction as possible.
True, and I empathize, but... that difference is basically a spending tax that your card provider has chosen to impose on you. If it helps, instead of a per-transaction cost, consider it packaged together with your cashback, credit points, and the like.
So you prefer always paying the higher 'card price'?
Then pay with cash.
Gas stations near me already have a cash price and a card price per gallon
Here in New Zealand retailers can (and do) add transaction fees for cards at the terminal. It's a smart thing, because it causes the processing costs of expensive payment types to be borne by the customer who is using the expensive payment method. It sends strong signals and allows the customer to decide whether to use the convenient-but-expensive method.
Unfortunately it has become a popular idea to ban the surcharging of these costs by retailers, so it's likely to be outlawed by next year, which is completely asinine. Now we'll be back to a situation where customers who use a cheap payment method will be subsidizing customers who use an expensive payment method.
> Now we'll be back to a situation where customers who use a cheap payment method will be subsidizing customers who use an expensive payment method.
And guess who wins there...
Just curious, how is this not painfully obvious and so there's opposition to it? Nobody is expecting this to lower prices, right...
I agree with your assessment. If I want to use cash then I should be able to and at a cash price. If I want to pay with a card and that card come with transaction fees, convenience fees, and insurance fees (e.g. the card issuer east fraud) then I should pay for it, not the guy using cash.
For 1 Australia just spent ten years in that world before it was reverted because of the prevalence of card surcharges everywhere.
Regarding (1), are they not already able to offer discounts for cash or debit purchases?
It is my understanding that companies are forbidden from offering differential pricing for cards and cash. At the very least, prices on the shelf must include credit card processing fees in the base price. Sometimes small-time businesses will offer cash discounts, but most retail and grocery places won't.
VISA and MasterCard rules prohibit this, unless specifically allowed by local law.
This idea that we are going to work our way backwards into a competitive landscape is not going to work.
“Pick and choose which cards they accept without penalty” won’t do anything in a market where 3-4 card processors and 3-5 banks have a near-monopoly on transactions.
If I sell ice cream and decide I won’t accept Chase credit cards because the fees are too high I’ve just lost 1/4 of my customers or something crazy high like that.
Let’s quit trying to find weird workarounds to keep capitalist failures propped up and use regulatory teeth.
Cap transaction fees at something reasonable like 0.5% and the problem disappears overnight.
Yes, you’ll lose your rewards, and that’s a good thing. Rewards cards are a massive wealth transfer mechanism that shouldn’t be legal.
There are businesses that specifically don't allow credit cards and only allow Debit and Cash to reduce these fees already and they are still in business. WinCo Foods is the biggest example I know of, so insinuating that it's impossible to operate if you exclude payment method types/cards isn't really true.
According to economic theory, price controls produce shortages. It's likely that capping transaction fees would have unintended consequences, for instance excluding millions of customers from being able to get a credit card in the first place. I'm not against all regulation, but I think we should prefer market-based solutions that remove barriers to entry and that allow more companies to compete in the space.
I do think we're getting to the point that middlemen don't have much value add. Economics even suggests they don't add value I think. Possibly neutral markets, payments, and logistics should just be a public service.
The fundamental service of performing payment processing doesn't seem complex, but these services do perform valuable work behind the scenes. I don't think it's worth what we ultimately pay for it, but there are a few parts to this worth considering:
1. I would like payment processors to have the resources and capacity to adapt to threats and maintain highly resilient infrastructure. This is expensive and requires a lot of ongoing investment.
2. If payment processing was turned into a public service, the complexity of international integration and necessary relationships, standards, etc. would become a public service burden. I'm not sure that I trust my provincial or federal government to handle this adeptly.
3. There is a lot to this that we're probably unaware of.
I'm not trying to protect banks in the slightest, but it's a baby and bathwater situation. I'm not confident in my country's ability to create its own payment processing platform that I would trust to be a reliable, sustainable, value-generating system operated by public servants. I don't mean value-generating in the profiteering sense, but in the "this is worth operating on public funds because, ultimately, it is more than worth what tax payers put into it".
I think some things are an awesome fit for public services, but a lot of places are probably not equipped to take this kind of task on safely and competently. My country is more likely capable of regulating these institutions, not replacing them internally.
We tried to make a COVID-tracking app and spent $59.5 million, and it was an abject failure. How much would we spend on a broken payment processing platform?
> I'm not confident in my country's ability to create its own payment processing platform
You live in Canada, which already has better options than the U.S., though the sittuation is getting better in the U.S.
For example, Interac is free for most people and very easy to use.
Debit payments often cost merchants less than 10 cents per tap. The local gelato place only takes debit or cash; if you don't have either, they're happy to accept an Interac payment, and do so more often than you'd think.
Part of the problem is that the incentives are misaligned. People want their points systems. Merchants want customers, but they also want lower transaction fees. Most customers have debit cards that would be much cheaper for merchants, but choose to use their credit cards, because they want the "rewards."
While the 3% or so that a bank charges might seem low, if you look at this from a low-margin business, that 3% may actually be much higher percentage of their net profit.
Regulation concerning rewards systems could go a long way towards shifting the system to be much less costly for businesses.
There's not much hope of real change here; Canadian banks are very profitable, and are a cornerstone of our economy. It's very unlikely that politicians will do anything to risk that.
$59.5 million seems like a drop in the bucket compared to the rent that these middlemen are taking. And was the COVID-tracking app an abject failure because it didn't get public adoption or because the technology wasn't fundamentally sound. Because if it failed because of the former, then simply regulating companies to use it (or even just putting it out there as a cheaper option to outcompete Visa) would solve a lot of those adoption problems.
Countries can build payment networks. It's doable. They already run central banks that facilitate payments, you use them every time you write a check. In Japan, they turned transit cards into a payment network. India and Brazil built smartphone payment apps and they're the most popular form of payment in their respective countries, to the point where USTR is shitting its pants about it.
The underlying issue is not if we can build the network (we can) but getting people to actually use it. For example, if we wanted to repeat the Japanese success of IC cards here, we'd run headfirst into the problem that our public transit networks aren't big enough to be a credible Visa/MC alternative:
- Most public transit systems large enough to issue their own fare cards and readers are also regional monopolies, because there's not enough transit demand to sustain multiple companies with different routes. If I'm in Pittsburgh, all the buses and trolleys are run by PRT. In the Wasatch Front, it's UTA. Those agencies have little interest in becoming banks; they operate the fare cards mainly to keep fare payment easy, and they don't need to coordinate with anyone because everyone already joined into a single large transit agency.
- Metro areas with multiple transit agencies often have political differences that make coordination difficult. For example, in Long Island, NY, Nassau County's NICE bus system had legacy Metrocard fare payment that wasn't upgraded to OMNY until a month or two before Metrocard was completely ripped out and shut down. A rare exception to this would be the San Francisco Bay Area where there is an insane amount of political fragmentation and somehow they all wound up taking Clipper.
- A lot of Americans just never touch trains or buses enough to actually need a transit card.
- A lot of transit agencies are just surrendering to Visa & Mastercard and taking credit cards now anyway, even though transit fares are exactly the kind of microtransaction that is ill-suited for those networks.
Ironically, the best bet for an American-run payment network would actually be to nationalize E-ZPass[0]. In fact, in 2008 Congress passed a bill specifically mandating a unified toll payment system, but nothing came of it because the bill had no actual teeth. The main problem with this idea is that E-ZPass transponders won't fit in your wallet; you'd have to launch a separate form factor for an "E-ZPass Card" and at that point you run into all the same problems I just mentioned with making a unified transit fare system.
[0] E-ZPass is an RFID transponder system for toll payment that is very well-adopted along the east coast.
I mean there are options. It's not like people in Brazil or Europe can't make electronic payments. That said, I do think the US is very prone to public services being made worse and poison-pilled on purpose.
Wallet/Qrcode payments in many countries are roughly free. Visa/MC/Banks charge roughly 3-5% when you account for all fees (ie: Stripe). The security angle is also BS because these costs are hidden from consumers as they are thrown on merchants who will average them out again on consumers.
They are draining/milking the cow. At some point, they had significant value in quick information transmission when the internet and smart phones weren't really a thing. But now the only advantage is chargebacks/refunds which coincidentally, the experience there is being made shittier.
Still, not worth the 3-5% premium. Glad many merchants are starting to charge for credit card use and push back.
> I don't mean value-generating in the profiteering sense, but in the "this is worth operating on public funds because, ultimately, it is more than worth what tax payers put into it".
Very sure the amount those companies make yearly is worth saving.
> We tried to make a COVID-tracking app and spent $59.5 million, and it was an abject failure.
and then we just…kept letting those people stay in charge of spending our money.
and there’s a story of very expensive incompetency like that every quarter at minimum.
On that general note, I think the comparison point to look at for 'state of the art' in the subject would be India's just plain excellent UPI system (https://en.wikipedia.org/wiki/Unified_Payments_Interface) and all its supporting infrastructure. It's seriously great in a way that's hard to understand for people whose only context is being familiar with Western credit card or bank transfer systems. Nigh instant payment reconciliation, free and extremely convenient for individuals, operational costs small enough that it's practical for everyday micro-transactions for the poor (I'm talking on the territory of 5¢ in USD terms) which makes cashless payments extremely practical for even ordinary street merchants.
> middlemen don't have much value add
On the contrary, the middlemen in credit card transactions are providing a service whose value add is so obvious that it's basically invisible, because it's become so normal: financial intermediation. The credit card company is basically covering your debts for you until you pay your monthly bill--and shielding you from having to give every merchant you purchase from your bank account information. On the other side of the transaction, the credit card company is guaranteeing payment to the merchant, who now doesn't have to care about trying to assess the financial reliability of every customer. It's become so normal that we don't realize what a huge value add it is, as compared with, for example, trying to convince the grocery store to accept your check, which forces you to hand them your bank account information, and forces them to decide whether they think you (and your bank) are reliable enough that your check isn't rubber.
Credit card companies are essentially charging a rake on the consumer economy. They provide a valuable service, but skimming every transaction and funneling it into a handful of private companies is a net detriment for the vast majority of society. They've been at it for decades. First-mover advantage. Entrenchment effect. When CCs are integral to the transaction of money, it's essentially a tax on exchanging money. It's monopolies conducting parasitic toll collection. They should not be able to tithe all of society in perpetuity because they set up shop decades ago.
Consumers shouldn't have to pay a fee to give someone money. Sellers shouldn't have to pay a fee to collect money. Security should be built into the system, not a luxury you're taxed for.
See also: the app store, telecoms, health insurance in the US
> On the other side of the transaction, the credit card company is guaranteeing payment to the merchant, who now doesn't have to care about trying to assess the financial reliability of every customer.
The customer can file a chargeback in which case they win almost every time even if they are scamming.
Payment networks are not an easy thing to build or maintain. The security contexts you are operating within are extremely adverse.
I understand why this makes HN so upset. To the uninitiated nerd brain, these are just pieces of information flowing in and out of some computer system across networks. How expensive could it possibly be to actually send a packet to perform an online authorization with a bank's database? We all know the actual communication is ~free. What you are paying for is the maintenance of that connection, the security around it (e.g., PCI-DSS compliance), the ability to dispute that communication out-of-band, etc.
We could cut the cost of VISA's network in half or better if we could drop the compliance piece. I don't know how that would play out for the consumer segment though. How much economic activity would be curtailed if the average consumer had to start worrying about the security and stability of payment networks? Card skimming is a great example of this. Consumers will avoid certain retailers if they perceive an elevated risk of theft.
Nobody is denying it costs money, the problem is it's not proportional to the value they add, nor their costs.
In the EU, their rake is capped by law, to an order of magnitude less than what they charge in the US. And it's still profitable. (Otherwise they would have pulled out of the market if they were losing money, obviously.)
The fraud prevention/etc you discuss benefits from economies of scale, but their fixed x% per transaction does not reflect those economies of scale. The free market has broken down here because of the difficulty for new market entrants.
> Payment networks are not an easy thing to build or maintain
Then why are there so many of them? I like travelling and almost every country I go to has its own thing going on, often more than one. I lost count long ago
How do countries like India and Brazil do it then if it's so hard and challenging that it couldn't possibly be a public service?
> We could cut the cost of VISA's network in half or better if we could drop the compliance piece. I don't know how that would play out for the consumer segment though.
I doubt the amount credit card companies charge in fees has much to do with the actual costs of running their service and are being inflated just because they can. My guess is that reducing the VISA's costs by letting them ignore security considerations would only mean that consumers get regularly screwed over while VISA continued to raise their fees every year.
If the fee is covering all the investments required to make it convenient, we're socializing the risk taken by customers who buy from sketchy merchants or lose their card. That insurance system is a net positive for consumers, but they don't know they are paying for it.
Vipps Mobilepay in the Nordic region already has 13 million users and is a founding member of a European network that will soon cover 13 countries.
The component parts have been up and running for years.
See https://www.youtube.com/watch?v=XsxmVW7CxmA
The biggest thing is disputes. I have no problem with an escrow service asking for a cut if I want to use them, cause they have real costs. The creepy thing is how that escrow built into credit cards is forced on every little transaction.
> The creepy thing is how that escrow built into credit cards is forced on every little transaction.
That's essentially what a CC company does though, every transaction they're briding the timing gap between the card holder paying the CC company and the CC company paying the business. That's the core value add and cost they're bearing that they charge for.
They have risks from both sides of the transaction; on the one hand scam merchants who might get chargebacks and on the other customers who never pay off their balances (thought I guess that risk is covered by their interest charges mostly).
As I understand it, most of the fees associated with US credit cards don’t actually go to the parties that are on the hook for disputes.
I actually think this is an example of where government should be more involved - like often times if I file a chargeback, there's a solid likelihood that there should a real world repercussion to the other party because it's probably related to fraudulent or abusive behavior.
PayPal does this well with friends & family transfers.
Not just disputes. Also absorbing some significant part of the cost of fraud.
I have had to fight hard for disputes, even with “premium” credit cards like Amex Platinum. I’m not talking about “not as described” bs, but being asked over and over for the same info to wear me down.
I recently ordered some snacks from another country and after 3 months the vendor stopped responding while never having sent anything. When I asked for a chargeback, my claim was denied because I didn’t have proof they didn’t send anything! I literally had an email from them that said they are backed up and unable to send stuff.
A government run public service means:
1) The government now has a full purchase record of every purchase you make
2) There is not a competing infrastructure where you can distribute your transactions across multiple companies to avoid a full profile building up
3) The government now has an incentive to eliminate un-surveilled options like cash and checks.
4) The government is now required to consistently legislate every single "he said, she said" fraud situation. Since it requires publicly available and consistently followed guidelines, this means everyone knows exactly which sorts of fraud work well
5) The government can trivially ban payments to anyone they disapprove of (porn, bitcoin, Iranian refugee charities, anyone who has the wrong opinion on Israel, etc. etc.)
6) The government can also wield all of this as a cudgel to threaten bad actors - do what we want or else we propose you go the Non-Payment List, we reveal your porn receipts, etc..
7) I don't even want to know what this does to the complexity of trying to use a card when traveling internationally
The government does that already. Only point 7 still stands.
"I do think we're getting to the point that middlemen don't have much value add."
Does this idea apply outside of the credit card industry
The middleman business, intermediation, seems to have worked well for the so-called "tech" industry
3% is 100% worth it to me to be able to do a chargeback when a vendor fails to deliver what they promised.
What connection does the 3% have to the ability to do a chargeback? The card company isn't absorbing the loss, they are just pushing it back on the merchant and collect it from them unless the merchant successfully disputes the chargeback.
To a first approximation, the 3% isn't paying for disputes; it's paying for rewards to the customer (essentially a built-in discounting mechanism that gets to discriminate on credit rating), and for profit margin to the payment processor. Disputes are paid for by the merchant, and if you get too many of them you potentially lose the ability to process credit cards.
Credit cards in many regions outside the US can do chargebacks at 1/6th that cost or less.
The vendor pays the 3% not you (through increasingly vendors try to charge this fee to you as well). If you as the consumer had to pay 3% extra every time, do you still agree?
If chargebacks were guaranteed, I might agree. But if you clickjacked with an instant checkout button, be ready for some scumbag to refuse to cancel your order, try to get you to agree to restocking fees, your card company to make you send them the same emails and complaints multiple times, and multiple phone calls...
not every transaction is risky enough to need chargebacks. it should be unbundled.
AI is certainly becoming the ultimate middleman at this point.
I largely agree. What V/MC became is essentially an abdication of a core government function of providing the secure means of economic activity. If the US government can print the currency in “paper” it should also provide the means of communicating that currency electronically.
There is absolutely not reason that the government should have abdicated its core function and allowed a monopoly effectively have a license to print the dollar bills and rent them out for a cut from ever single economic transaction.
Imagine if the government had suggested that in addition to all the other criminal extortions called taxes, when you use dollar bills to purchase something, you have to pay a 3% dollar-bill-usage surcharge every time a bill changes hands.
But it was obfuscated that this constant drain and fraud was being perpetrated because the whole system became extremely financially lucrative to the very people whose responsibility it would have been to stop the crime; so it has continued since. The mob was in control of the police.
You say Visa etc. payment infrastructure is a core government function that the government has abdicated. Abdicate means to willingly give up. When did the government give up this power to Visa, for example?
Oh please. Every "public service" in the US is provided by a private entity.
As AI compute will be within 15 years.
So take the cost of electricity + compute and add 3% markup for the US and 0.3% for everywhere else, and there you have the actual cost of AI.
> Possibly neutral markets, payments, and logistics should just be a public service.
Yes let’s give the economy to the people that run the DMV.
Just like HN that the top comment is completely off topic and totally misses the point.
it's not offtopic at all. visa and mastercard are middlemen in the transaction between two parties. the comment is about middlemen and suggests they don't add value.
edit: just seeing now you're complaining about things being offtopic multiple times in this submission, without ever adding anything yourself. perhaps you could be part of the change you wish to see?
"Value add" is the wrong framework for thinking about these sorts of services. The reason Visa and MasterCard exist is that there's value in relationships. If you want to have your accounting system available in all stores, you have to talk to Visa or MasterCard. Conversely, if you run a store and want to accept payments, you only have to deal with Visa and MasterCard. Sure, "public service", but run by who? Visa and MasterCard are cross border, good luck getting any sort of international coalition of governments to build a payments system in the current political climate.
The United States government already interferes on behalf of Visa and MasterCard to maintain their duopoly across the globe.
Look at the tension between United States and Brazil on this issue with their nationalized payments system.
The fact is the most important relationship Visa and MasterCard have is the one you left unsaid - their relationship with the United States government.
It doesn’t have to cover everything. Put international to one side, just make a system for domestic payments. Like much of Europe has.
SEPA?
I wish they would face litigation for banning the sale of large swaths of content (or even banning the content altogether on sites relying on donations/subscriptions to survive). Paypros have no business being censors.
This misses the mark in the same way people getting mad at Google for updating the "Gulf of Mexico" do.
You're missing the driver. It's not like Google cares or wants to change the name. They more or less have to given the public/private relationship and who is responsible for what. It's not Google's job to name bodies of water, it's not a credit card company's job to censor. And if you actually look, they aren't making that decision because they want to. They are often acting on behalf of the government.
Payment companies are even more enmeshed with the state. They often do these things to simply comply with what the government tells them to do or to get ahead of government telling them what to do. Like with some of the anti-pornography laws being drafted or passed in certain American states.
The private/public distinction really needs to come under more scrutiny here. The credit card duopoly is very much tied in with state power. This has only accelerated post 9/11 as the Treasury's mandate increasingly shifted to "national security".
Payment processors are censors because the government is. Just like Flock the government can't do certain things so it contracts with a third party. They then have an interest in protecting/promoting that party. Flock is a snoop because the police are snoops. If Flock does it and the government merely pays for it well it's not a violation of your rights. Your rights protect you against the government, not against Flock. It's the same legal backdoor. A payment processor doesn't care what you buy, why would they? They make money so long as you keep transacting. It's the government that cares.
This same dynamic happens all over the American economy because the private/public distinction can get increasingly amorphous. Your credit card is as much government spyware as your phone. But understand - the problem is not the companies, it's the majority of your fellow citizens who either don't care or actually do endorse censorship. Unless you have a solution for that trying to blame credit card companies for the problem unfortunately misses the mark. You might as well suggest Google have the authority to name bodies of water.
Many people are attacking you here but I suspect you're right. Here in the UK, we have infrastructure for digital direct bank to bank payments (e.g bypassing Visa & Mastercard). That should mean as long as you have a bank that's willing to work with a service that sells adult content you're OK but:
- Many banks are not OK with that
- Even if you find one who does, finding an Open Banking provider to be that middleman is a nightmare
Short of working with the financial conduct authority to be your own financial institution, it's makes getting paid a pain if you want to accept adult content (even if you have all the safeguards and comply with all UK law!). I can't see anything but it being indirect pressure to censor, and to push smaller players out of the market - such that it's easier to regulate the industry.
They aren't even my fellow citizens, I'm from Europe and mostly buying content from Japan. Yet those American companies still keep getting in the way.
> They more or less have to given the public/private relationship and who is responsible for what. It's not Google's job to name bodies of water, it's not a credit card company's job to censor.
They don't have to but they can, but monopolies and oligopolies don't have to and don't play by the same rules and they tend to have a lot of political and soft power. Especially in Google's case, it's not a stick a floating in the river and going wherever the current takes it. Brin and Page are (allegedly) sentient human beings and they still control the majority of the company. Maybe they couldn't pull of exactly what Musk is doing but there is a huge amount of space in between that and doing nothing.
Increasingly people are so deep on abstractions from the essential issues that they have lost sight of reality. People who are pro gun control get furious when the courts inevitably rule that the many legal kludges used to compensate for a lack of unity or functional societal give and take. There’s a genuine sense that the kludges are necessary rather than a sloppy shortcut to bypass the democratic process they feel has been corrupted.
Naturally the “other side” feels the same and returns the favor, so we end up in this death spiral of ignorant people reacting emotionally to complex issues they lack the patience to work through as a society.
Tl:dr there is no shortcut to changing society, any such victories will be short term and costly.
patio11 wrote an in-depth post about how the Southern Poverty Law Center abused their ownership of a list that every payment processor used to decide which hates groups to de-bank: https://www.bitsaboutmoney.com/archive/nonprofit-indicted-ba...
> abused their ownership
Can you quote the specific part you're referring to?
I think this is a fair request given the 15,000+ word length of the thing. Do you mean a particular abuse of the list contents (e.g. putting someone on it for revenge) or do you mean the overall pressure-campaign to get companies to adopt the list to prove they aren't Badguy Sympathizers?
LOL.
https://theconversation.com/white-supremacists-spin-a-justic...
Why would they? The governments themselves want to censor. It'd be weird if they punish payment processors for doing the hard work for them.
Then religious institutions should be taxed.
If "the power to tax is the power to destroy" justifies insulating religion from government financial leverage, then the power to financially deplatform should raise the same concern for speech.
While smaller, PayPal does this far more often FWIW.
Let's say you use a Visa card to pay for the services of a prostitute. How should they deal with a chargeback request if you weren't satisfied with services rendered?
Assuming we're talking about performing this transaction in a jurisdiction where prostitution is legal, how is it any different from any other business transaction? I don't think anyone is particularly mad about payment processors refusing to process illegal transactions, it's the refusal to process legal but morally controversial transactions that is problematic.
If I pay a masseuse, and I try to do a charge back because I wasn't satisfied with services rendered, what happens?
One mans "censor" is anothers "brand protection". Given that they are currently allowed and expected to decide who gets to use their payment networks, it seems pretty obvious to me that they won't allow extreme content next to their logos. If you made clear rules that specify when they have to extend service, I'm sure they would love to relinquish that responsibility. Visa has no moral objection to what you do, as long as they make money and aren't exposed to political pressure.
Approximately zero people, reasonable or unreasonable, believe that they payment processor has anything to do with the business. You can see this because whenever a business is caught doing something naughty and people try to cancel it, no one ever says "this is all VISAs fault - they're next!"
I wish people on HN would stick to the subject.
Thus far, you have posted three separate comments in this thread lambasting other commentors for being "off-topic" for discussing payment processors in a thread about payment processors.
Elaborate with specific examples of how the commentors in question are being "off-topic" and what you would consider topical for this thread, or please cease spamming actual off-topic meta-commentary quips.
I'll refer you to https://news.ycombinator.com/newsguidelines.html
IIRC it was religious bodies targeting / lobbying / infiltrating them as a way to push their censorship beliefs? Perhaps someone else knows better
A reminder to listen to the Visa episode of Acquired Podcast if you truly wish to understand the scale of Visa and how it all works. Even at 3+ hours you'll love every minute of it.
https://www.acquired.fm/episodes/visa
Neat! I just discovered this podcast and am more than half way through the Home Depot episode.
They have a lot of other episodes that are also _fantastic_.
I had no idea how Costco or Home Depot or Walt Disney worked ...
I think a lot of this is starting to bubble up to the surface after PIX made headlines[1]
[1] https://whatispix.com
Sorry, how is PIX different than a plethora of similar P2P and p2b solutions already present in Europe?
It's not different, many countries already have their own version of it, you just don't hear about them. India's UPI has more users but you don't hear about it.
Maybe we hear about it because, it's right in the US' backyard and the biggest country there is Brazil from which pix comes from. All these payment systems threaten visa and Mastercard but pix is the largest in the US' backyard because the country it comes from, Brazil, is the largest there.
And it's also government run, dun dun dun. The us hates anything that is government run. That's why they hate china and communists and socialism so much.
https://wero-wallet.eu
Surely the UK can also pull this off given how quick faster payments is. I'm always surprised at how we just stuck with Visa
It is the difference between Credit and Debit cards.
I could see Debit Cards being replaced by direct transfers.
The issue is what happens if who you pay too does not provide the srvice or just runs off with the money.
Under UK Law the customer can deal with the Credit Card issuer and get their money back with a direct payment it is npot always possible.
For debit cards I think the issue will refund if fraudelent but might take a battle. With direct payments the customer has a much harder job.
I think the problem is that merchants hate the card networks and consumers generally like them and there are a lot more consumers than merchants. If you are a politician, which block of voters are you going to side with?
I've noticed growing use of similar options in the UK already, like Payit and truelayer (often shown in checkout via "Pay by bank"). Ebay and Whetherspoons are examples of places providing these options.
Indian UPI is also apparently annoying Visa and Mastercard so its introducing a small charge on transactions greater than 2000 INR/20 USD.
UPI mandates are not wildly annoying to deal with. I’d pay 2.9% for someone to manage them for me.
In Malaysia, we have DuitNow, which is a similar idea. It’s been great. It’s pretty common to go cashless now, even outside the big cities and in rural areas. Just scan the QR code with your bank app, pay, and you’re done. Wish more countries would adopt this.
Thanks for posting. Interesting, I will try to read more this stuff.
What seems to be getting lost is that the acquirer, not the payment network, sets the Merchant Discount Rate. The acquirer is also the merchant’s direct payments provider.
Yet the acquirers seem to be always absent from these lawsuits.
It seems like many of these prosecutors/plaintiffs just want to go after the largest organizations in a given industry, almost irrespective of their culpability. It seems to me that most 'consumer protection' lawsuits seem to be more focused on obtaining publicity for the lawyers than actually doing anything useful, but getting a few settlements from larger organizations is a lot easier than actually going after wrong-doers, so it is a somewhat sensible strategy if the goal is to 'win' as much money as possible.
But isn't most of the fees a result of the interchange rate, set by visa? The fact that stripe or whatever charges a fee on top, which contributes to the overall rate hardly seems relevant, unless you think all the payment processors are colluding to set their markups higher.
It has been awhile since I dealt with credit card networks, but the parent comment confuses me as well. Before, most of the fees go to the issuer, the network takes about the same as the acquirer (roughly):
Network gets swipe fees, and a percentage of the interchange Issuers get majority of interchange, and carrying interest and fees Acquirer gets the markup plus whatever admin/maintenance fees
Here's what I found for a reference: https://cmspi.com/back-to-basics-card-network-models-and-glo... which tracks with my experience.
I'm open to be corrected though.
I don't think payment processors like Stripe are colluding, they just have a difficult task. Card and bank payments are very complicated and regulation-heavy. I do get the feeling that credit cards and banks are colluding.
Let's use Stripe as an example, there fee is 2.9% + 30 cents.
That 30 cents - is what's often ignored but makes up a disproportionate amount of the fee.
On a $30 transaction, paying 30 cents is equivalent to a 1% fee.
So Stripe on a $30 transaction is effectively 3.9% in fees (on a $30 transaction).
Interchange (which goes to the issuer), would only be approx 1.75% (of the 3.9% fee charged by Stripe).
I think I would push back on the idea that credit and debit cards represent a deadweight loss to the economy. Operating a cash business has its own expenses - theft risk (employee or otherwise), handling time, and (most importantly) you are limiting your customer base to only cash. There's a lot of reasons lots of small businesses are going card only.
For good or bad, a lot of studies have confirmed that cards have overwhelmingly increased consumer spending.
I think the far stronger case is that the industry has no actual incentive to fix the underlying fraud that they are charging merchants to fight. They have done a lot of work to institutionalize the problematic infrastructure and make it almost impossible for startups or outsiders to fix.
Nobody is claiming payment cards adds no value, that'd be absurd. But their cashback programs and other bullshit (see recent itch.io/Steam moral policing story) certainly adds no value.
It's one of the claims in the attached news articles.
The top comment here does, but it's stupid and off topic.
> I think I would push back on the idea that credit and debit cards represent a deadweight loss to the economy
It’s the anticompetitive actions causing the deadweight loss, not the digital nature of transactions.
> For good or bad, a lot of studies have confirmed that cards have overwhelmingly increased consumer spending.
There is a lot of psychological awareness created when you have to pull a couple singles vs. a Benjamin out of your wallet vs tap card for all amounts.
I hope more things like this comes to light, as we have seen how mastercard and visa in union has moved censorship among things around the world, which by the way is illegal, but due to their monopoly could still carry out and they did.
So the hope is that new or one of the other brokers step up and hopefully their ethics are better.
Illegal where?
Amex does this as well and it’s a mixture of internal opinions of executives, board, major shareholders, as well as the US federal government just telling them (see operation chokepoint for just one variation), as well as chargeback and fraud rates in some industries just validating personally held opinions
I’d like to know more about what changed in the last few years that’s pushing more and more merchants to pass the card fees on to customers. Is it just thinner margins and more precarity everywhere? Is it changes in the legal/regulatory environment? Or has it just become more acceptable?
I would guess two things. First, continued growth the percentage of sales where a card is used for payment. Approaching 100% for many businesses. Second, emergence of high interchange premium rewards cards from Mastercard and Visa. The merchants pay 3 - 3.5% on these.
What's the intended outcome?
If you break up the Visa and Mastercard cartels, does this San Diego pizzeria then have to decide what cards to accept on a bank-by-bank basis?
The opposite of what's being alleged. From TFA:
Broadly, the interlocking restraints set and maintained by the defendants have forced merchants that accept any Visa and Mastercard credit card to accept all such cards, regardless of cost, thereby eliminating any incentive for issuing banks to compete by lowering their fees, the suit says. The lawsuit claims the challenged restraints have also prevented merchants from being able to steer customers to lower-cost payment options—for instance, by surcharging based on a customer’s use of a particular card. These and other restraints have prevented competition among issuing banks and other credit card networks, allowing the financial giants to raise their fees every year “without consequence,” the case alleges.
Reminds me of how the cardholder agreements used to all prohibit adding a credit card surcharge to cover the fees. Some of the fees go back to the customer as rewards, so customers especially had no reason to use cash. Now that practice is illegal, and many places are 3-5% cheaper with cash, which is in line with the fees and usually much larger than credit card rewards.
So yes - the shop owner will get to decide which banks' VISA cards he will accept.
Fundamentally, I agree with the lawsuit. Logistically, this seems like a bit of a nightmare. No longer will it be "CC purchases will have a 2% extra fee." Instead it will be "If you have a Chase Spark card, the fee will be 4%. If you have a Costco Visa card, it will be...".
That sounds a lot like they want to be able to say which banks cards they want to accept (the "forced merchants that accept any Visa and Mastercard credit card to accept all such cards" part).
I don't think the intent is really to break up Visa and Mastercard, but to allow merchants to accurately pass through their variable costs.
If merchant fees are < 1% if I use debit and ~ 4% if I use a rewards card, but merchant rules (set by the networks and enforced by the acquiring banks) say they can't accept amex and surcharge rewards cards but not debit cards, they can't reduce their costs by pushing me towards debit cards or non-rewards cards.
There's some other things they're challenging that could allow for more competition.
Removing the 'No-Bypass Rules' could allow for lower cost clearing if the acquiring bank is the same as the issuing bank and the potential for lower cost clearing when the the acquiring and issuing banks have a clearing relationship outside of the major networks.
Removing the 'No-Competing-Marks Rules' could allow for a card to be Visa + some upstart lower cost network; if the merchant supports it, great, if not, they can still process payment through Visa. I think US law requires ATM cards to be usable through at least two distinct networks, and there's at least some diversity in ATM networks as a result.
Legislation to cap fees.
The European Union caps consumer card interchange fees at 0.2% for debit cards and 0.3% for credit cards
https://eur-lex.europa.eu/EN/legal-content/summary/fees-for-...
And the US already capped debit card fees back in 2010:
https://en.wikipedia.org/wiki/Durbin_amendment
This is explicitly about credit card fees.
Can the courts cap fees? I thought that would have to be something congress does.
A lot of small restaurants are cash-only because of all this nonsense.
A friend of mine owns a restaurant that is pretty remote so lower business. He told me he doesn't take credit cards because he would be paying them a percentage for everything.
It is kind of like the mafia to a small guy like him.
I think he does do a few phone apps.
A waitress at another cash-only restaurant told me, worse than customers who hear they won't take credit cards are the apple pay folks. "They really get annoyed when they don't get their apple pay"
Franchises don't care. They can raise prices monthly or even dynamic price if they want to.
Kind of sucks for society because lots of the best/greatest restaurants are not franchises.
Handling cash isn't free, either. Mistakes, theft, the labor of managing the cash box, frequent trips to the bank or fees for cash transportation services, etc.
Depending on which sources you believe, the cost of handling cash can actually exceed credit card merchant fees.
Many cashless businesses, including bars and restaurants, do it specifically because handling cash is expensive if you actually do a full accounting for it.
Every store has to make its decisions.
The reality is that for most businesses, accepting credit cards, with their fees, results in more revenue overall (more customers).
If your business is low volume, cash only makes more sense.
>A lot of small restaurants are cash-only because of all this nonsense.
A lot? Not sure about that.
>I think he does do a few phone apps.
Not if he's cash only he's not.
um, the same system we have today but with less rent extraction
and don't pretend like it's not possible, it's obviously possible: take the system and lower the fee to something proportional to the price of providing the service
if credit card rewards programs have to go to make it economically viable -- awesome, that would be a second win.
I like rewards programs and disagree that it would be a win. Your suggestion puts me in an objectively worse position.
\s
I totally agree. I propose the opposite of what this lawsuit is fighting: let's merge Visa and Mastercard. Throw in AmEx while you're at it. Since the concepts of competition, interoperability and standards are too foreign to people and having too many types of payment processors is confusing, we need to have a single payment processor. That way we can grumble at only a single party when they jack up processing fees for editing database rows or straight up debank us. Efficiency!
\s
Easier Bank to Bank settlements would likely have avoided this situation.
That's how we do it in the US. We let industries consolidate and merge until they can raise prices with abandon, then chip back away at it with lawsuits.
Aren't anticompetitive fees the American way?
Wouldn't high fees be competitive? A lot of incentive to compete there. Anticompetitive would be setting the fees too low to compete with.
I guess the point being there is probably a better reason for the high fees than the company trying to be anticompetitive, Or perhaps better said as a better reason for being anti competitive than high fees. Monopolistic lock in? Regulatory Capture? The problem is, that this blames the government instead of the company.
You've got it backwards, their anti-competitive practices is what allows them to charge such high fees:
> A class action lawsuit alleges Visa, Mastercard and some of America's largest banks have conspired to artificially inflate merchants' credit card transaction fees.
If they didn't conspire together and actually competed then they wouldn't be able to charge such high fees as they would surely try to undercut each other.
IMO They (Visa et al) have been desperately clinging to the outside of their speeding gravy train for way too long, and it's only a matter of time before they run out of track underneath them, so they're trying every trick in the book to keep things running.
Any new competitor could spell the end for them, so making it astronomically difficult to onboard enough people is so far working out for them.
Exactly. Courts will ask why they can charge high fees and not lose customers. The answer will be that they are anticompetitive or behaving as a cartel or monopoly would.
>Wouldn't high fees be competitive? A lot of incentive to compete there. Anticompetitive would be setting the fees too low to compete with.
Canada has a debit card network called Interac. Last I checked, the transaction fee was typically a flat $0.10 CAD (~$0.075 USD). There are shops that do debit or cash only, but it's not the norm (typically restaurants and niches with high chargeback risks). I am curious what keeps credit card acceptance high in Canada, despite a very widespread mature card network. I assume part of it is that consumer debt increases spending volume overall, but that can't be the primary reason I feel.
I think it's a combination of two things. Historically, credit card companies agreements with retailers disallowed them from passing on fees to customers, so effectively anyone paying with cash or debit was subsidizing the fees of credit card customers. Those agreements were made illegal in 2022, but retailers seem to be reluctant to actually start charging credit card users so far.
Then, credit card companies take some of their profits and give them back to customers in the form of reward programs.
So we all end up paying more for nothing, but the incentives make it a difficult collective action problem. I don't know why retailers don't take advantage of their right to pass fees through to customers. That would solve the problem. I guess it would make some stupid people angry. And maybe there is some other pressure the credit card companies are using.
I mildly investigated this as it is clear merchants want to get out from under the thumb of CC companies, so they would probably be a helpful ally.
However, starting up a credit card company from scratch is, extremely capital intensive, extremely bureaucratically heavy, and all the helpful finance players are in bed with or are the institutions you would be upending.
Merchants would probably help, but inevitably would take ownership and steer the ship into their harbor (not consumers). A system where merchants own the payment system would probably be even worse.
The way these deals are structured (including things like requiring a merchant to accept all cards), the business accepting the card cannot use price (or anything else, really) to signal to the person picking which card to use. The incentives are all from the issuer to the consumer in the form of various kickbacks.
This means that the issuer can manipulate the consumer into doing things bad for the business, and the business has no way to respond to the very high fees it is charged.
>The problem is, that this blames the government instead of the company.
Both are true though right? The company needs to be held accountable for price collusion by the government. Government not acting due to lobbying (i.e. bribes).
FedNow charges $0.045 per transaction and runs 24/7 and payments are instant. A better solution would be bank cards that used the FedNow network already in place which would send money directly to the merchant, bypassing visa/mastercard entirely.
I've been using Same Day ACH in all my businesses for over a decade and the transaction fees are about $0.30/transaction and the dispute window is 60 days for PPD (personal checking accounts) and 3 days for CCD (commercial check accounts) and you get the money the same day. It beats paying visa/mastercard percentage fees and the 120 day dispute windows where people can literally get their money back four months later for work that was already performed. By using Same Day ACH, we get the money from the customer faster, save potentially millions of dollars in fees, and reduce dispute windows from four months to 3 days (for B2B sales)
Slight digression. This podcast/article is a good explanation of why people who partake in a class action rarely see any of the settlement money:
https://oliverbatemandoesthework.substack.com/p/the-work-of-...
"We have a case pending right now in the Ninth Circuit. It was a privacy lawsuit against Google. A journalist, not a trial lawyer, determined that you could turn off tracking in Google Maps and it was not supposed to share your data, and then learned that Google was sharing it anyway, whether you turned it off on your phone or turned it off in the app. State attorneys general came in, fined Google a bunch of money, and forced Google to stop. And simultaneously there is a follow-on class action built on the journalists’ research, and that has settled.
The settlement is that Google creates a fund of sixty-two million dollars. The lawyers get nineteen million and the class gets zero. The rest is a big slush fund for a set of left-wing groups. Nothing requires the recipients to be left-wing other than that being what the attorneys chose to present to the court. They do it partly because some of these organizations are clients of the law firm, some of them have lead partners of the firm sitting on their boards, some of them are the attorneys’ alma maters, and some of them are just left-leaning outfits that are promising to do left-wing things. The class is two hundred million people. Maybe a hundred fifty million of them would not like what is being done in their name with their money.
And the judge decides who gets paid. This judge was very excited about getting to stop being a judge and start being a grant administrator with a big pot of philanthropy. We said, why are these unrelated organizations, which are not even unrelated, they are affiliated with class counsel, getting the class’s money? If the plaintiffs’ lawyers want to support the ACLU, it should come out of their pockets and not the class’s pockets. It is perfectly feasible to distribute that money to the class. Much smaller settlements get distributed to similar class sizes all the time. You can complain that if you divided it evenly among every single class member it would be a tiny amount and not worth paying out, but you do not have to do it that way, and most class actions are not done that way. Most class actions settle for less than a dollar per class member. You create a claims process, let class members sign up if they want the money, and divide it that way."
I'm noticing that many establishments are charging you more when you pay by credit or debit cards.
Finally
I think it’s a good idea .wonderful