Visa and mastercard innovated in an era where payment settlement was notoriously difficult and expensive but they've used their monopolies to entrench themselves in (by negotiating deals with merchants and bribing consumers with points) while the rest of the world moves on towards "layer 2" payment systems that are much cheaper and efficient.
I've noticed recently indie (non-franchise) merchants being much more brazen about charging extra fees for accepting a credit card payment. This includes counters at my local farmer's market, two local cafes and a sushi restaurant, and my city's public electrical utility.
All of them are happy to receive cash or interac (Canadian debit infrastructure) or even e-transfers in some cases (Canadian venmo). But they'll say an extra $1-2 charge if you want to pay by credit card.
Maybe I'm just remembering badly, but I don't remember encountering this twenty years ago; back then the rules were clear that you either didn't accept credit payments, or you did and it was the same price as cash.
Because credit card companies mandated that you couldn't raise prices to pay their fees. Believe this was later outlawed in the US and perhaps elsewhere.
It was part of the Obama administration's banking reforms, if I remember correctly. It outlawed credit-card issuers' prohibition on giving cash discounts.
It also included a number of other valuable consumer protections, such as forcing card issuers to provide clear advance notice of interest-rate increases.
The financial-system reforms were some of the Obama administration's most valuable.
> Maybe I'm just remembering badly, but I don't remember encountering this twenty years ago; back then the rules were clear that you either didn't accept credit payments, or you did and it was the same price as cash
But before that it was commonplace to see discounts for cash, especially at gas stations. Then credit-card issuers started prohibiting it in service agreements, but that was outlawed during the Obama administration.
Small business owners ("indies") are notorious for getting hung up on fees and costs which do not matter, while ignoring important savings and revenue sources. That's why they haven't grown to be bigger.
A sensible business owner increases the base price a little to offset card fees instead of bothering customers with these details and losing sales.
I think credit card fees are often positioned against what businesses believe is the cost of cash, i.e. zero.
However, with cash one needs to have / has / has to pay for:
* a more complex register
* a person who takes more time to do the transaction
* someone who counts the register at the end of the day to ensure it matches
* someone who drives to the bank to deposit the money (at random times)
* additional insurance
* a bank account which probably charges for these cash services
If you don't count time, then cash is better.
And also, in Europe, if you as a business prefer cash, we all know it means that you make X, but you only report X/2.
I've been to several cashless cafes that just had a Square tap thingy.
That said, I expect the cost of taking cash does scale to some degree with how much of it you take. Obviously you still need a cash register, but if only 10-20% of your business is cash, maybe it only needs to be reconciled and emptied out every second or third day? And it's a faster and lower stakes process if there's less in it? Insurance is cheaper as well if the total loss is 1/10 what it would be if every dime was passing through there.
The real thing consumers get is fraud protection, and the ability to charge back when merchants become intransigent. Let's not pretend other systems (even the ones prominent in the US like Zelle) offer the same protections.
I don't need fraud protection and the ability to charge back when lunch at a restaurant, I just need a skimmer-resistant payment method (which a phone is).
That's cc propaganda; merchant fraud is a tiny portion of the overall transactions so you'd save more overall if the cc fee wasnt passed onto the consumer. The counter argument is that the aggregate data allows payment processors to ban merchants if they are bad actors. But the counter to the counter is that the level 2 payments work very well in other countries (some with a lot more fraud) and data aggregation/centralized ban power is bad.
I have personally charged back a transaction (not fraud per se, but certainly not a service delivered) in the last month. It's not just about merchant fraud, it's about holding businesses to account in a world where individual consumers are increasingly powerless.
In India there is UPI (Unified Payment Interface), which works with all bank accounts, it's facilitated by the Government and it comes with
i. QR Code (Used with strangers and at Merchants)
ii. UPI ID
iii.And links to phone number.
Anyone can pay to anyone instantly free of Charge. Only limit is it's limited to ~ $1000 payment. The QR code can also be dynamically created by POS terminals containing the total bill amount as well, so upon scanning the amount is auto populated in the payment app, you just have to enter the security pin.
And since it's a Govt. Project, its not limited to just one app, there are lots and lots of apps working on the same system. There is even a VISA/Mastercard credit alternative : RuPay that works within the system.
And that's the problem -- all i have to do is come up with a website that looks enough like your banking app, and get you to scan the uri to that website, and that'll trick you into giving me your pin.
this is why QR codes, especially ones with complicated encoded uris, are a security problem. they're very hard for leypeople to audit before doing the wrong thing
> all i have to do is come up with a website that looks enough like your banking app, and get you to scan the uri to that website, and that'll trick you into giving me your pin.
It is not how any of this works. But sure, keep up the uninformed fear mongering.
I am Indian and I think what you are saying is correct. It opens up the banking app or in our case UPI providers app so like Google pay, Phonepe,paytm, Bhim UPI and other such apps.
1. Static QR codes displayed by the vendor have the problem you describe.
2. Dynamic QR codes are time limited, have the amount embedded in them along with the destination. These are the ones generated by websites or POS terminals for payment. Most people will only use these at a POS terminals, pay and move on.
Fraudulent websites have used static QR codes but I'm told one can dispute the transaction and the amount is usually reversed in a couple of days.
In russia there is СБП (translated as FPS = "fast payment system") using the same mechanism, also free for individuals and relatively cheap for businesses
Wechat pay in China is interesting. It costs nothing to add money to your balance from your bank, or to pay someone from your balance. It only costs the end merchant who wants to withdraw it from their balance back into their bank. If they can keep it in Wechat pay and spend it on other things (which is very easy as it and Alipay are the primary payment methods for everything), then there's no charge.
I guess Tencent are making their profit from the interest they earn on the money that was transferred into them that just stays in people's Wechat wallets in effectively a parallel currency.
> Revolut works similarly. You don’t pay any fees on transfers to other Revolut accounts, but you do for other bank accounts.
Does it? I'd be surprised if it does in the UK at least, as all banks do free transfers to every other bank in the UK via Faster Payments. I thought it was the same in the EU?
This article is missing some important aspects/context:
> If the card processing cost is 4 percent of the sale price, the fee amounts to $6. That $6 is not 4 percent of the profit; it is 12 percent of the merchant’s margin.
Sure, but merchants are raising prices overall together with all their competitors, or charging more when using a card. Credit cards aren't taking away 12% of merchants' profits that they'd keep otherwise.
Also, credit card fees are not 4%, they're 1.5-3.5% with an average of around 2.3%.
> The merchant may pay little or nothing per transaction, the funds usually arrive immediately and no physical terminal is required.
But what's missing here is fraud protection. It's more like debit cards than credit cards, and debit card transactions are much cheaper in the US too (more like 0.7%).
Now that it's increasingly common for local merchants to implement a credit card surcharge (so non-CC users don't have to pay more), and a large percentage of credit card fees come straight back to the user as rewards (e.g. a 2% cash reward), it's not really clear that payment fees matter all that much in the end. See:
the "2% cash reward" and "miles" etc. is common here in US because our cards charge the merchants already a lot. So sure we all overpay everything in US because of the credit cards, but we get a small piece back.
Now, would it be nice to not overpay at the first place. Technically we could re-implement the whole thing (instant payout, fraud detection, etc.) like Brazil or India did. It would bring more than $100B back to the US consumers every year, that could be spent elsewhere.
> “Also, credit card fees are not 4%, they're 1.5-3.5% with an average of around 2.3%.”
And they’re much lower than that in the UK and EU. Even the smallest UK retailers can pay as low as 1.6% or 0.8% + £0.02. The big guys who are running billions of £ are paying 0.5% or less.
(These apply to in-person transactions, accepting cards on the internet typically costs more).
> Sure, but merchants are raising prices overall together with all their competitors, or charging more when using a card. Credit cards aren't taking away 12% of merchants' profits that they'd keep otherwise.
That depends on the market. Suppose you're selling something which has a substitute available for the same price, so the customer will buy whichever one costs less by any amount, but the substitute is in a different market where the payment is in the form of a bank transfer or it's a tax deduction etc., or the substitute is paid for in time rather than money.
Then none of the sellers accepting credit cards can raise the price because otherwise the buyer would go to the substitute.
And all markets are like that to some extent. For some the seller can't raise the price by a cent without losing 100% of their sales. For others, raising the price would "only" cost them 5% of their sales... but that's still 5% of their sales gone, and all the same fixed costs to cover. And, of course, in the cases where the price goes up, now it's the customer eating the fees, which is fairly nefarious when it's being subtly hidden from them.
> Also, credit card fees are not 4%, they're 1.5-3.5% with an average of around 2.3%.
Stripe is 2.9% + $0.30. For a $10 transaction, that's 5.9%. For a $3 transaction it's 12.9% -- of revenue, not profit.
> But what's missing here is fraud protection.
"Fraud protection" is is independent of the fees. You're making the case for that yourself -- if 86% of the fees go to rewards programs then they could be reduced by 86% without affecting "fraud protection", and the rewards programs are a wretched thicket of dark patterns and unpaid interest scams taking advantage of people who are bad at math or too short on time to configure them efficiently, on top of a tax on lower income people who don't qualify for them.
It's also not clear why "fraud protection" should cost anything. The bank has no meaningful way to investigate a low dollar amount he-said she-said and the high dollar amount ones should be going to the actual court system, so why should they have anything more than a set of rules (e.g. which transactions are eligible, how long you have to file a dispute) under which you can make a request to have them flip the bits back in their computer for free?
Not really, and it doesn't at all if you get charged a markup for paying with a credit card. Places selling similar items tend to accept the similar common payment methods.
> "Fraud protection" is is independent of the fees... It's also not clear why "fraud protection" should cost anything. The bank has no meaningful way to investigate a low dollar amount...
All of that is completely wrong. Fraud protection costs real money. Investigations do happen, and cost the card issuer money. I've had values of $20, $250, $2,000, and $6,000 all eventually reversed. The courts are not set up for disputing chargebacks, and if they were then we'd all be paying more taxes to hire a lot more investigators and judges.
It's time for Europe to process the own money. Strange that the dominance of Visa/Mastercard/Maestro was left for so long. Of course there is a lobby from them to attack the digital Euro
There is already the EPC QR code, which contains all the data required to initiate a SEPA credit transfer. This code is supported by practically all banking apps (at least in Germany). The standard is public and free (see https://en.wikipedia.org/wiki/EPC_QR_code)
The merchant's system displays this code, you open your online banking app, scan the code, select "SEPA INST" (here's the usability catch!) to make the payment instantaneous, and confirm. Within 10 seconds, the money is transferred to the merchant's account.
Either the merchant's bank or a third-party Open Banking API immediately informs the merchant's system (e.g. by push notification or webhook), and a receipt is issued.
Everything is already here, but since this system would be virtually free to use, nobody really has an incentive to push it. It costs money to educate the public, and there is no money to be made. Instead, everyone gets paid handsomely by the card mafia.
In general I'm all for free and European systems, but SEPA payments imo still have pain points:
- you can send money to companies and individuals alike. It's easier to trick people into fake shop payments, a card payment provider requires at least a bit it verification/registration
- it's really hard to dispute/call back sepa payments. The card companies often step in there afaik
The name of the recipient is displayed, and since last October it is also verified against the owner of the receiving bank account. The bank explicitly warns you if they differ. Also, you can't open a bank account anonymously, there is KYC.
You can't dispute or call back SEPA INST payments. But you can't dispute cash payments either. This is just fine for most day-to-day transactions, I don't need insurance when I buy groceries or pay the taxi driver.
The root of this evil is the deal the card companies made with the EU some 10 years ago: A cap on the interchange fees in exchange for the ban on card surcharges.
If the card processing fees could be added to the customer's bill, it would be in the customer's interest to support a cheaper/free alternative. But since card payments are "free" in the eye of the consumer, why should he be using anything but the most convenient option? And what is more convenient than just touching your card/phone to the terminal?
As long as this deal stands, EU merchants will be slaves to the card companies.
Well the cap is only on the interchange fee, there are several other fees to add to it... example: https://www.adyen.com/pricing
Processing a Mastercard card is "$0.13 + "Interchange+" + 0.60%" where the "Interchange+" would be 0.30% for EU. So more like €0.10 + 0.90% so for €10.00 product, it would be €1 of fee (1.00%). Much less than here in US, but still not negligible for small businesses that run on thin margins (and 20% VAT).
> The important thing is not what merchants want, but what customers want.
What many people in Germany want is a payment system that is as anonymous and is as hard to control by some untrusted entitity (both government and banks are very distrusted) as possible and what cash offers. That's basically cash.
Not without reason, in Germany there exists the well-known phrase "Bargeld ist gelebte Freiheit" ("cash is lived freedom").
Agreed. Customers are benefitted either by paying in cash - for the reasons you described - or by paying with cards, for fraud protection and the ability to make purchases online.
Any other payment method will not give customers any benefits over those methods. Unless banks are willing to take responsibility for fraud like with card purchases.
Shameless self-promo: We've been working for the last two years on making money movement free. We use ethereum (and stablecoins) for that, and integrate with the novel real time payment networks like PIX, Wechat, Yape, Mercadopago and so on.
We're still orders of magnitude smaller than Visa and Mastercard, but I do believe products like ours (and competition is red hot here, theres so much good choice!) will be good for consumers.
Money should be like a message: free and instant
We're open source btw, happy to show off codebase and review PRs
What I want is being able to pay stablecoin from my side and be able to esentially get a virtual card of payment.
The only way which has worked for me was actually using g2a with their crypto provider to get a 10$ gift card of rewarble and activate it.
Does your app allow something like this? can I convert any crypto to payment provider which can be accepted from the other side or am I reading it wrong because you do mention PIX, if it can work with PIX, does it work with VISA/Mastercard cards too?
Payment processing networks are not free to build or operate. There are necessarily fraud controls and transaction reversals that require human oversight. This all costs. Nations can and should build this infrastructure, but in the absence, a payment processor is going to charge interchange. Otherwise why would they bother.
Uninvolved companies wouldn’t bother, but outlaw such fees and lenders would still build this kind of infrastructure so they could make money charging people interest.
You might be surprised to hear that my small business sometimes sees fees at 11%.
We blocked that card processor, obviously. But the % is very much not constant across e.g. Visa, often every purchase in a day is slightly different, and we can't even tell people what the rate is for their purchase due to a couple layers in between (still figuring out if we can fix that). It's vile, and probably should be illegal to not pass through the cost visibly.
Stripe is 2.9%+30¢ right, and that’s the advertised rate. So I assume any business seeing averages higher than that can be avoided by using a platform like Stripe.
Small merchants are people, and people vary in their intelligence/savvyness and may have other issues like poor credit or high chargebacks that they usually forget to mention. Some people roll the cost of the terminal into a higher fee as well.
I helped out a friend who owns a deli when he took over from his parents. His dad saw cash as a way to avoid taxation and had some awful payment processor where they paid a high fee and was renting a POTS based terminal - $60/mo to Verizon and $30/mo for the terminal.
Now he keeps one set of books, and raised his average sale by about 10%. Their catering business, which drives profits, are up significantly with online ordering through the POS.
Ditto with a non-profit I was on the board of. Pushing Venmo and Square for donations increased donations by like 30% and reduced shrink at fundraisers. Anyone who claims they can’t afford a 3% fee is going out of business anyway.
The Stripe rate is a careful blend. There are many cards that are cheaper to process and there's probably a few that are more expensive to process at that rate, it works out in the wash in favor of Stripe. Also, that 30 cents is a large percentage if you're looking at a $5 transaction, for example (6%!)
> complaint: credit card fees are high and maliciously opaque.
> suggestion: have you considered adding another company in the middle?
... do y'all understand that those middle companies profit from being in the middle? that profit comes from somewhere, where oh where could it be...
why on earth would you expect them to improve your income? you are literally buying convenience from them. or is this just thinly disguised advertising?
If you could identify where fees get decoupled from profit in finance, I’d be open to the position that they aren’t related but you didn’t share anything along those lines. Considering the costs like cash-back programs that would erode the profitability of those fees are largely in the banks control, I don’t think that is a strong position.
Do people who pay ridiculous interest qualify for 2% cards? Honest question; I don't carry a balance so have no idea what is advertised at other types of consumers.
I was just under the impression that the cards with the best benefits were somewhat harder to get. I do understand that credit card companies make money on interest and late fees, so they should find consumers to be attractive so long as they ultimately pay the bill/interest.
I guess the question is whether they can distinguish between people who are going to carry a balance but ultimately pay and people who are a true default/bankruptcy risk.
It's weird how this works. Saw something similar when working for a bus company. After reaching a minimum amount of sales for a bus route, everything after that is basically pure profit. However, how do we get those last sales? Well, by bidding higher on people searching for transfer between those two cities. Let's say the ticket was $20. We could end up for instance accepting to bid $10 for an ad that would lead to a sale. So for every $10 of pure profit we then got, Google also got $10. In a sense it was a good deal for both parties, but it's also kinda insane that in the end, Google made as much profit on our busses as we did.
Payment fees are crazy when you think about them from the perspective of a merchant in a low margin business. E.g. in retail or restaurants, margins aren't much better than ~10%. If they didn't have to pay ~3% credit card fees, they'd have 30% more profit!
In Argentina we can transfer using our account number (or account Alias, for example my alias could be kwanbix) directly, account to account, instantly, it costs 0.
In US also... but here in US, my bank (Bank of America) would print a check, put it in an envelop, send it to the other bank (e.g. US Bank). So, it is not instantaneous, but it is still free.
The drawback is when the US Bank office down the street that hosts the account closed for water damage, it stopped receiving the checks, and it took forever to bounce, so I had no idea that I was not paying my HOA... And this happened in San Francisco, California where the Bank of America and the US Bank are on the same street, a block away...
I cannot wait for FedNow or anything trying to fix this mess.
One factor that the author glosses over a bit is that highest swipe fees are for credit cards with benefits. The interbank system he describes is a debit system, no credit is being extended. Even in the US, debit swipe fees tend to be less.
Its been interesting how much of a nothingburger fednow ended up being.
Lack of adoption probably because it seems to function just as a faster ACH, without any of the UX improvements systems like Pix, UPI, blik, etc have...
Laughable, at least in the USA. It took decades for us to finally get cards with chips in them, and when we finally did... the issuers "forgot" to implement the other half of the equation: PINs.
"Chip-&-PIN" was standard through the rest of the industrialized world for ages, while card companies abetted theft in the USA by neglecting to implement PINs.
Visa and mastercard innovated in an era where payment settlement was notoriously difficult and expensive but they've used their monopolies to entrench themselves in (by negotiating deals with merchants and bribing consumers with points) while the rest of the world moves on towards "layer 2" payment systems that are much cheaper and efficient.
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