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 hesitant to give any app any sort of access to my checking account. I would only do so with a second account with just enough there to cover my purchase. While it is a nuisance, the phone is simply too large of an attack vector to consider anything else.
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.
The problem is the ‘fraud safety’. Your ‘safety’ is likely to be some else’s inconvenience (or vice-versa), and credit cards are all about ease-of-use. Fraud-related costs are also one of, if not the largest single contributor(s) to payment processing fees.
"a push to have users download their mobile app"
This is the blocker for me, every vendor wants you to download a different mobile app.
I had to on the spot download a mobile app to pay to get my car back from valet parking at a really nice hotel the other day. They only accepted payment via the app which they did not disclose before taking the car. I had to stand there for 10 minutes installing the app and setting it up and I will likely never go back to that hotel (becuase of location, not the app).
No idea what would have happened if I just had an old fashioned flip phone
That's a little crazy, because gas stations. I would probably be OK, if such a deep discount was offered, with setting up ACH to some major chain with reasonable dispute policies, for example Target stores. Actually, Target brands their own credit and debit cards, so they kind of are the creditor already.
But you don't know who owns or operates a gas station. They've all got big brand names, but what's their business model? Who's actually running the transaction? The gas pumps are practically unattended and, highly regulated by Weights and Measures because of the high potential for vendor fraud already. Gas stations are already notorious locales for card-skimmer danger. So, I would be loath to get into an ACH bank dispute with Sri Singh McSikhface.
I already had massive troubles, some of them Visa-related, with local laundries and dry cleaners. They are vicious, fly-by-night, and dishonest. I would not risk the same shitty experiences with gas stations.
The point would have held without the off-the-cuff racial stereotypes…
I’m also wondering if you and I have encountered rather different permutations of these “pay-via-loyalty-app” schemes. In the part of the world where I’ve been spending time, the gas purveyors who I notice pushing the apps are the big, brand-name fuel station networks. The same ones who’ve pushed own-brand payment services to fleet managers for a while.
If you’re worried about card skimmers, wouldn’t you prefer to use the method that routes payment directly through Corporate Fuel Parent, rather than trusting the franchisee with any of your financial information?
EU forced MC/Visa to slash their intercharge fees to max 0.20%... that's why there is no "reward" program over here because we are not being ripped off constantly :)
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.
> In short, there's already a divergence, and you're already paying for it.
even with your optimal strategy, you're still paying for it: those points might as well be already spent at the network of vendors you've agreed to sell your purchase history to
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.
Meanwhile in Australia, it’s illegal (misleading trading) to display a price lower than the customer pays, and has been for a long time. It’s fine; fees etc are disclosed up front.
That's exactly the problem: people don't want to know how much they're actually paying for banking services. They just want their credit card "rewards."
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.
> 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
Why the same logic does not apply to cash payments? They have costs too.
> 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.
It's completely sane. Surcharges are now outlawed in Australia (from 1 Oct) and I finally paid for my coffee exactly the same amount that was written in the blackboard. Businesses that do not want to absorb the 0.5% fees are free to stop accepting credit cards or can raise prices (none near me did that so far). That's fine, the most important thing is if coffee is 5.50, you pay 5.50, not some random amount.
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 some years, it has been the practice of non-profits to present an opt-in fee payment to donors, such as for an online card donation. They will expose the fees that they will pay for the transaction, and ask you to cover them so that they enjoy the maximal donation. This has always been opt-in until last week.
Last week, I visited two unrelated non-profit museums, and when there is free admission I strive to make a freewill donation to show my appreciation and lend support to the mission. I offered the same amount to each location, and the second one, according to my bank statement, has involuntarily charged me for the fees as well. No wonder they greatly prefer tossing cash into the Plexiglas box.
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.
Size matters. WinCo is big enough to do that, because it's a chain and a brand, and people make a choice to go there despite knowing ahead of time that's how it works. (That said, the first time I went into a WinCo I abandoned a cart-load of groceries because I had neither a debit card nor enough cash with me.) That doesn't work for a small business, like the ice cream shop in the example GP offered. They will be giving up a significant fraction of their custom.
Of course what parent comment said doesn't apply to 100% of businesses, bud I'd say it does apply to at least 80-90%. So I agree with them that it wouldn't work very effectively.
According to economic theory, price controls produce shortages. It's likely that capping transaction fees would have unintended consequences, for instance excluding 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.
Europe offers a useful counter-example. They (EU? Most countries? I don't know exactly, but it's immaterial) cap transaction fees, and there's absolutely no shortage of "ways to pay by card". In my experience there are, in fact, more - and, their middle-men have been earlier adopters of both security and convenience features (PIN codes, tap-to-pay, and rapid settlement among them) in which the US sometimes still lags.
What there aren't are rampant cash-back rewards for using a particular card. Or easy access to credit cards with usurorious rates. I think missing out on those is a societally good outcome.
The credit card companies make the vast majority of their revenue on interest charges. The transaction fees are at least in part returned to the cardholder via rewards programs. That said, I agree that competitive market solutions are better than regulation, where they work.
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.
> Merchants need to be allowed to add card processing fees on top of any transaction
They can* and they do.
*It is capped to the actual processing fee, the card network must be notified, and the fee must be disclosed upfront to the consumer. A couple of states like CT and MA disallow consumer fees.
On most planned larger purchases (like more than $1000), I've seen CC fees recently.
> Merchants should be allowed to pick and choose which cards they accept without penalty.
To be clear for readers, merchants can choose their accepted card networks -- Visa, Mastercard, Amex (or alternatives like PayPal).
Networks requires merchants to accept all of the card within that network (hence the name "network"). Visa has three tiers; Mastercard has four. Something like ~90% of CCs fall in the traditional rewards tier, so there's less card variation than you might think. Though higher tiers tend to spend disproportionately more.
Traditional merchant accounts don’t expose the cost to the merchant until it settles. If you review the bill, it will list a few rates/amounts for different things that vary by card type. It can vary based on so many factors it’s practically impossible to estimate. The tiers don’t have tier level settings, each card product in that tier can have different amounts.
Stripe and the flat x% + $y are of course popular because of the simplicity and predictability of it.
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.
There are other problems with debit vs credit cards as well (depending on country a bit). If someone fraudulently uses your credit card can generally just report it and you aren't on hook for it nor out of money while it's being investigated. If someone fraudulently uses your debit card you are usually out of the money until matter is resolved. And you won't necessarily get the money back via bank, you might need get it from merchant. In CC case merchant would need to sue to get the money if they still believe you actually made the transaction.
> Most customers have debit cards that would be much cheaper for merchants, but choose to use their credit cards, because they want the "rewards."
I bet most people paying by credit are really using debit cards, but pick "credit" at the register because they don't want to enter a pin. Partly for security, but mostly because credit is faster/easier.
Doubtful in Canada - the times I've even had the choice between "debit" or "credit" on a PoS terminal are very few - typically here you pick "debit or credit" and if you've got a Interac card with Mastercard/Visa it automatically uses Interac.
Unless you're 100% profitable, its always a higher effective %. If you're running somewhere closer to 10% (remember that it needs to be after all costs/paychecks/etc), that's nearly a third of your profit.
Anything optional that skims off the top cuts into profits extremely quickly.
I think this is the wrong way to look at it. If 3% fees mean a company is 7% profitable, it's 7% profitable, not 10%.
Businesses which accept credit cards get the business of customers who want to use credit cards. Those which don't, do not. Me? I want to tap my watch, get my 2%, and leave. I do not want to reach into my pocket, extract my debit card, and enter my PIN. Not a dealbreaker, I do business on the regular with two places which are cash and debit. But it's my preference.
Yes, there is an underlying coordination problem here. The major payment networks are quite probably engaging in anticompetitive behavior, as the lawsuit we're talking about indicates. But this does not, at all, mean that businesses which accept credit cards are penalized financially for that decision, on the contrary, in expectation we would find that most are rewarded for it, on the simple evidence that most of them do, in fact, accept them.
Separating it from any other costly incentive to do business, free samples, flyers, discount sales, loss leaders, is just special pleading. A cost benefit analysis includes costs and benefits, or it is unworthy of the name: and customers doing business are a benefit to that business.
"This will reduce your profit by nearly 30%" is accurate, and real profit is about all anyone cares about (or should care about). Many people would not choose that, if they could choose, but it's effectively required at the moment.
$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.
It is a drop in the bucket relative to what middlemen are taking, definitely. I wasn't meaning to draw a comparison in that sense though, so much as I was trying to say "look at how simple this problem was, how expensive it was to fail at solving it, and how much worse it could be if we took on something truly challenging".
The app itself was deficient in testing, had security issues, wrongly told thousands of people to quarantine, was not as accessible as it should have been, and was overall very mediocre software. If that's what my federal government can deliver (albeit through contractors and middlemen all the way down), I don't want them anywhere near my finances.
Public adoption was mandatory for a time, so that aspect couldn't have failed.
And of course, the Canada Revenue Agency is clearly able to manage people's taxes and aspects of finances safely and securely, but that has decades of effort and tremendous financial investment behind it. A greenfield effort seems a lot less safe, and I trust the public service much less to execute on that coherently, consistently, and effectively enough to deliver something better than we presently have.
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.
> 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.
E-ZPass now has interoperability with the Central United States Interoperability Hub (which reaches as far west as Colorado and as far south as Texas). We're much closer to the point where you can drive anywhere with a single transponder than we were back then. The main thing missing now is California cooperating with anyone else.
I like the idea of my toll road account also being useful for public transit, if nothing else. But it's difficult to imagine toll road operators and public transit operators seeing a big incentive to cooperate in that way. Even though they're both "pay for transit," their intended/typical users are very different (people who can't/won't drive vs. people who not only drive but are privileged enough to pay for less traffic).
You know what’s funny is that, thanks to the interoperability, all of my family members have switched their toll transponders to the Illinois I-Pass because Illinois charges no monthly fees or additional surcharges and doesn’t care where you live or what state/country your car is registered. I’m sure there are other participating toll authorities with no fees, but all the places my family members live do.
So really, you only need one state to adopt your unified transit fee idea.
> I like the idea of my toll road account also being useful for public transit, if nothing else.
Halifax, NS used to have bridges where the toll transponders worked to pay for parking at the airport - super convenient. Alas, they've since removed the tolls on the bridges, so the transponders are now useless and traffic in the downtown is even worse.
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.
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.
They should not be able to tithe all of society in perpetuity because they set up shop decades ago.
See also: the app store, telecoms, health insurance in the US
> Consumers shouldn't have to pay a fee to give someone money. Sellers shouldn't have to pay a fee to collect money.
As I said, the fee you're paying if you use a credit card is for financial intermediation. That's not just "giving someone money" or "collecting money". There are other things included that have significant costs to provide.
> They provide a valuable service
And that means all your rhetoric about "charging a rake", "tax", "parasitic toll collection", "tithe", etc. is misplaced, because those things all imply that there is no valuable service being provided.
If you want to argue that there are ways to reduce the cost of the valuable service, for example by competition, that's one thing. But that's not the argument you're making.
3% of transactions is an incomprehensibly large amount of cash. The systems that exist to transact cash have been in place for decades already. Major countries have already developed their own payment systems because they understand the problem and the cost to society. Most of these are entirely free and AFAICT, they work just fine.
> for example by competition
Sure, if you set up a time machine. Even in that case, there would be no meaningful competition. Someone else would simply occupy the position in the middle of the intersection instead.
"Parasitic" and "toll collection" remain accurate descriptors. What about "entrenched" and "monopolistic"?
Why couldn't this be a public service though? Governments spend so much money on producing and managing cash as a public good. Why can't we do the same for digital payment infrastructure?
> 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.
Surely I can't get unlimited free groceries by just always paying with a credit card and then doing a chargeback, right? Like, it might work a couple times, but then wouldn't they just close my account?
I have no idea. Probably depends on how big you are as a company that the credit cards would care enough to step in rather than lose a customer or how much that customer costs them.
All I know is that for the chargebacks I've gotten for my saas, I submit a mountain of evidence that the user used it heavily and then filed a chargeback after the subscription ends.
Most of the times paypal will even agree the customer scammed, and they say they will talk to the credit card company on our behalf. However we have never once won one of these chargebacks if it was done with a credit card. Then paypal proceeds to remove the money from our account and tack on a chargeback fee.
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
What india and brazil have is more equivalent to Zelle in the US, not visa/mastercard. There's no viable chargeback, no international interoperability and no fraud protections.
Chargebacks and fraud protection are largely needed in the credit/debit card system because you go around handing people the key to your safe to merchants and ask them to take whatever they want. And pinky promise not to share the key with anyone else.
Once you have sane system like pix or upi, there is far less need for chargebacks and frauds.
> 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).
> If the dispute is valid, the acquirer deducts the amount of the dispute from the merchant account and informs the merchant.
Also, keep in mind that companies like Stripe will not only recover the disputed amount from the merchant but will also recover a fee from the merchant!
I mainly meant the processor has to spend money handling the disputes. They may eat the cost too if it's small, but usually that's on the merchant. They're more likely to eat the cost of fraud.
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.
Customers do have a reputation to uphold. Real-time customer reputation and risk scoring services are a profitable and growing industry. They maintain extremely detailed records of customer interactions with businesses and assign scores to individuals.
Returning a defective product to one store, only buying things when you have coupons or promo codes, or issuing a chargeback at one business can get you instantly flagged as a higher risk at countless unrelated stores who are using the same services. Other factors that can impact your score include your income level, your home address, the devices/software you use, your interactions with websites (for example going directly to the product you want instead of searching and browsing around, or pasting your information vs typing it out is considered suspicious), how much money you spend, inconsistencies in the personal information you've given to different businesses, even your attitude when dealing with employees and how much of their time you take up can negatively impact how you're scored since that lowers your expected profitability (CLV/LCV/LTV) which lowers the tolerance threshold for risk.
At least Yelp is public and companies can see how they are rated. Businesses typically won't tell you that you've been branded a high risk for fraud or chargebacks. Instead they'll just apply different prices and polices to you on an individual basis. They might tell you that don't accept certain payment methods. They might tell you they don't accept returns, will only give store credit, or give very narrow return windows. They may reject your business entirely or limit you to only a subset of the products or services they offer.
I tried to pay a 3 figure sum of money for a service that was provided to me, and Zelle through my bank app refused to do the transaction. When I called my bank to understand what was going on, the person read me a script that said they can refuse any transaction, and don't have to tell me why.
The app even has a warning that Zelle is basically cash, and you really shouldn't expect any reversal.
Sounds about right. All these things are so iffy. I've had wire transfers get stuck.
So I dug into Zelle reversals one time when a landlord stole my security deposit and I was considering reversing last month's rent until small claims figures it out. Banker said Zelle charges aren't normally reversible, but reluctantly admitted they are required to reverse the charge if it was unauthorized. Had I lied and said someone hacked my account, it may have been reversed, but then I'd be committing fraud.
Cashier's checks too. Despite what everyone says, they are reversible under the right circumstances. TurboTax's refund processor did that to me because they thought my address was wrong or something.
this process of giving out your 'secrets' (ccn, exp, ccv, zip) to tens of people a day with no other real authentication is inexcusably insecure. and instead of trying to get on top of the problem for real (like an hsm), we have this very half-assed fraud detection and chargeback mechanism that costly, ineffective, and seems to just bury the real issues behind a facade of concern. its been decades that this has been going on, I remain confused as to what incentives the banks have to continue to prop up this farce.
Any links for this? Since the abusive practices towards their users should already eliminate most of frauds that isn't caused by the actual banks themselves.
Fraud in modern financial systems is kind of.. funny? obvious? Local banks who know who Bob is can't make enough money due to scale, we'll scale that system to a national level with millions of participants. How will we do that? Bob is now customer 11,476,112. Oh no this anonymous number we created cheated us because we didn't know who he was, what do we do? Charge Bob and everyone else for the cost of this, our scaled up business model wouldn't work otherwise. We'll skim 3% off of every financial transaction infinitely, so that after our $100 virtual bill has changed hands 30 times it has disappeared into our coffers.
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.
Out of all the banks I’ve done chargebacks through Chase has been the least painful. I think only one time I had a back and forth with them. And that time I had one phone call, sent my evidence, and that was that. The company then tried to charge me again, which I also disputed, never heard from them again.
This was a moving company that insisted I should use their flat rate package and 3 movers rather than the 6 hourly I asked for. It took forever and they tried to charge me extra fees.
Not unlike the experience many Americans have of fighting their own insurance company that they already pay a monthly premium to.
The lengths insurance companies will go just to avoid adding to a deductible are, given the circumstances, rather disgusting.
They don't seem to produce any savings. Are credit card companies much different? Why are their CEOs making millions of dollars? Is it all supposed to be because of innovation in preventing fraud?
As with health insurance companies I too have found in reality their way of dealing with these things leaves much to be desired. The way they treat it seems transparently like health insurance - add minimal value upfront, then wear you down so you never actually get the service or "value" they were supposed to provide in the first place.
That shitty service is the margin padding that multi million dollar salary. Where's the innovation?
So much of the economy seems to be about wrongly extracting money from people, and then only giving it back to the people who have enough free time and persistence to endlessly argue and haggle for it.
Yeah, I've been extremely disappointed with disputes on Amex Platinum.
I literally had a bike rental company in Amsterdam attempt to get me to conspire to report a bike stolen (which had briefly been stolen but was back in my possession), and then when I refused, charged me as if the bike had been stolen!
I reported all this to Amex, and I was never refunded, and to my knowledge, the attempt fraud was never investigated.
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
> 7) I don't even want to know what this does to the complexity of trying to use a card when traveling internationally
Not much - Canada has debit/credit cards that use debit domestically and Visa or Mastercard internationally. They're the default type of debit card that many people get.
Eh, there's a lot of regulations and room for whistleblowers in regards to the government's ability to get that in the USA, plus the 4th Amendment providing some pressure from the courts.
I'm not gonna say it's anywhere near perfect, but that friction significantly changes the average outcomes
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?
That's if they pass on the cost to the consumer. Some businesses charge the same amount whether paying cash or card, meaning paying with a card is ""free"", or at least not "penalized" over cash.
It really means that the cash payers are subsidizing the card payers, b/c the cash payers don't get the cake for cheaper.
I, as a cake seller have a cost i need to pay to the network every month, from my total revenue it's some percentage (depending on ratio of cash vs card). I obviously add that percentage to my cake prices to make up for that. Both cash and card payers pay the same amount for the cake, thus they share the price hike equally.
I can't reply to DaSHacka, but just to point outat least in this country, merchants have to pay to deposit cash. Not to mention the additional cost on their side of handling it, higher insurance cost, etc. etc. Cash isn't free of transaction fees/
In Brazil, you'll typically get a "10% discount" when not paying by credit card.
Eg, it's very clearly pushed unto the consumer. I assume some law says they cannot charge more for it, so they got a default price, but always advertise a lower price with a small text "if paid via pix"
Wow, 10% is way more than any interchange. So I suppose it a 10% discount because the cash goes right into the owners pocket, and is never taxed. I do wonder to what extent small business complaining about card interchange, are just small businesses complaining that business was so much better when many cash sales were never reported as revenue and never taxed.
It kind of is, in an oblique way, for merchants with sufficient scale - e.g. grocery purchases don't need chargebacks, and I expect the bank that is partnered with my grocery store for 6% back in points on grocery purchases is unlikely to award chargebacks on purchases from that grocer.
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...
Replacing low quality intermediaries with superior automated ones at massive scale with all the associated benefits.
This is the story of obsolescence and human history.
The coming end state of which has led to this transformation from the "big data" to AI paradigm.
Now so called "knowledge work" is itself being disintermediated. No need to worry about "bullshit" desk jobs anymore. They will be gone. It turns out a stochastic sentence guesser is superior to the average knowledge worker. This will only improve and become further operationalized, with accompanying safeguards and adversarial checks. At a certain point the value is already gained. The founders have taken their massive exits. Soon it's not so special anymore. In short, intelligence becomes a utility.
The end state of all of this is the same dichotomy our earliest ancestors had already forseen: apocalypse or utopia. In the same way that credit cards were once a cool idea, now they are trite and their continued privatization is merely a private tax on almost all transactions, and as such is rather undesirable. So turn it into a utility. Just like if we all survive the coming wars, the future will be one where compute based intelligence is a public good.
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?
My province has privatized DMV services, and services have been pretty consistently worse than any place I've lived with publicly-provided DMV services.
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?
Comments that are not about TFA, which is about specific litigation, but just random opinions about "payment processors" are off topic. I came here to read comments about TFA and had to wade through a lot of other stuff to find any ... again, this is typical of HN where so many people don't bother to read TFA.
Since this exchange isn't of relevance, I won't respond further.
"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.
If the US executive branch published an order renaming every street in America to "America Street", I suspect Google would not update Google Maps to reflect that unless the government compelled them to do so.
Google has made a choice about where they're placing the bar for voluntary action.
Your governments benefit enormously from American largesse. Europe is essentially still operating in receivership to the United States
Why have almost all European leaders come to grovel before an American President they clearly despise?
When you can defend your own continent without the sight of your governments prostrating themselves to such a man I'll take your claim more seriously. Europe has been asked for decades now to act more responsibly. Now you are being forced. Instead of blaming America let's see if you guys can cobble together a path forward with waning American guarantees without recreating the internecine strife that led to the American intervention in the first place.
Nothing I am seeing out of Europe gives confidence over the next decade. Hold your own governments accountable.
This is only one side of the story. No doubt European states have been vassals of the USA since WWII, but this was also what the USA had for a long time encouraged them to do: USA provided security, in return Europe did what it was told to. One reason was also because the USA did not want another strong army in Europe. The USA no longer likes this deal, OK, this is a change of course, to which everyone tries to adapt somehow.
> 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.
I'm not alleging a conspiracy. It's almost self evident emergence given the nature of a company and a government. What is Google to gain for resisting the name change? Nothing. Status quo they benefit from a service that names things according to government convention. Their map wouldn't be very useful otherwise. If the government starts renaming things why do they care? This isn't some cult in the middle of nowhere, the federal government changed the name. If liberals don't like it tough maybe learn how to not choke away another election. Why would Google fight the government on the name change? There is no upside and it's not something they care about. More importantly it's not their job.
The same logic applies to credit cards. You think the MasterCard CEO is gonna risk his plush paycheck so a handful of degenerates can beat off? He doesn't care. It's not his job to decide that question and he doesn't want it to be. If the government wants to nationalize him however, then of course he will care. It's called a trade off and ultimately all successful people learn to navigate them. It doesn't change the fundamental truth in my point that many people blame corporations for alleged sins that in truth are caused by governments. The "Gulf of Mexico" thing and "credit card censorship" being two of many examples of this confusion in our discourse.
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.
TFA is about specific litigation, not simply "payment processors". There ARE comments that actually discuss TFA, but the ones I noted don't. And I didn't "spam" ... that's nonsense. And the "lambasting" here is yours ... in response to a wish. (I also responded to a comment defending the KKK and Nazis.)
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.
Agree that PIX bothers the US more because it's directly under US (self assessed) area of influence. But the reason is not some philosophical alignment, but rather deep rooted lobbying practices.
How is it impossible to use? Apparently everyone in India is using it? Apparently only tourists face issues with it?
With visa and Mastercard you pay transaction fees and rent for a card terminal aka card reader, which are lower or non existent with these homegrown or local P2P payment systems. Outside western developed countries aka the US and the richest European countries like France, Germany, that's enough to stop using visa and Mastercard.
Impossible for tourists to use yes. You need an Indian bank account and there are services ostensibly for tourists but they still don't work everywhere, for example many vendors will want friend payments instead of business payments because they don't want to pay the surcharge.
UPI used to be good, but they started adding charges after Visa and Mastercard lobbied D.C. probably with huge bribes. And the Indian government is spineless against D.C.
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?
They like the card networks because they are lured by point schemes, effectively money charged to the merchants and then shared back to cardholders. Consumers would flip in a heartbeat if shops were allowed to offer discounts to those not using credit cards.
I used to by all my PC parts from a shop that had a 5% discount for cash purchases. It was the sort of shop that was just a counter with all the merch hidden in the back. I don't know how they kept the CC companies from knowing but maybe 40% of their business was cash purchases (circa 2019).
It's the same reason that I don't use bitcoin for large purchases: I want the ability to have disputes handled if and when something goes awry. With cash, I have no recourse.
its cheaper but customers lose protection for doing it, and as its illegal (yes, against the law) to offer them a discount for using debit cards, cash, or direct payments they have no reason to.
Yes I know pay by bank – I have used that to pay my plumber. In effect it replaces paying by cheque.
But the problem is that if you use it to pay for a service and do not get the service you can only claim off who you paid and that requires taking them to court while Credit Cards just require phoning up the card provider. Debit cards are between the two.
Exactly. If it is an outright fraud you do have some protection because of the push fraud rules, but not if its bad products etc.
I have not actually used it. I have paid some people (mechanic, gardener) with a bank transfer which works well thanks to faster payments being near instant.
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.
The issue is in the UK we passed a law that "banned credit card charges", but what it actually did was ban discounts for alternate payment methods, meaning everyone has to pay the credit card fees, even if you pay cash. (this was the effect, you can still offer discounts, but the base CC fee legally needs to be baked in first.)
This will mean, its harder for competing payment services to function. And its easier for the big credit card companies to up the % they charge without the public noticing, or blaming them directly.
It was fascinating watching the media coverage, twisting themselves in knots to miss these points while cheering how we were 'standing up to the big cc companies', it was actually quite cringe-worthy at times.
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.
Let's work from the inside out. "Portion", that's a part of something, pro- portion means by, as, of, toward. The -ate make it an adjective, the dis- reverses the meaning.
So it is not based on a portion of the fee (a percentage of it). Disproportionate.
This is bad because it systematically penalizes small transactions, which a proportionate fee does not do.
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.
If I'm reading it correctly, the top comment is arguing that having electronic payments run by for-profit entities adds no value. Not that electronic payments are useless, rather that these should be a state-run service. Which is one way to solve this I guess (not that it will help moral policing stuff much, but at least no more robbing poor Paul to reward rich Peter).
> 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
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.
Is that practice illegal? I've never gotten a discount for using cash or debit.
That is the crux of the problem though. By adding fees and then contractually forbidding merchants from passing those fees on to credit card customers, it is forcing non card users to pay for card users fees since the fees are embedded in prices. Plus they're even giving card users kickbacks in the form of points. So non credit card users end up paying more credit card fees than credit card users which is nonsense.
Not illegal. Card issuers required merchants that wanted to accept their cards to not have separate pricing for cash and credit card. It would have been a lot more difficult for credit cards to take over as the primary payment method if they had to convince consumers that the convenience of a card was worth paying 3-5% more on everything. Exceptions started being added for public entities, like municipalities, that wanted to accept cards.
> So non credit card users end up paying more credit card fees than credit card users which is nonsense.
The business just makes more money on cash transactions. It would be interesting to find if the cost of cash handling/losses is comparable to the card processing fees.
> Is that practice illegal? I've never gotten a discount for using cash or debit.
It is no longer permitted for payment networks to prohibit discounts for cash or surcharging use of credit.
A few of the merchants I use regularly have credit surcharges now. It's pretty common at gas stations near me. Almost all business with my state or local government has a 3% fee for card use.
Yes in the US. It's usually gas stations, small businesses, and less expensive places offering the discount. The only gas station around here that doesn't charge extra for card is Costco, where they also don't take cash.
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).
It's most likely primarily about different credit card "brands" like Visa infinite, signature etc. These have different benefits for customers (like cashback and points) and higher fees for merchants.
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.
> 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"
I get what she's say, but it is kind of a weird comparison, because Apple Pay is more-or-less payment network agnostic. You can pay via credit, debit, or transportation card (and possibly others that I haven't used) on Apple Pay.
In the US you even have Apple Cash which is pretty close to digital cash equivalent... not really workable for a business with the $2k/week limit though.
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.
in the paradigm where rewards programs go away, prices at stores are also 1-3% cheaper across the board because the rent-extraction of credit card fees is removed, so make sure you're considering that scenario fully.
it's possible that with the fees removed cards still have rewards because the premium cards still want your business (they have other mechanisms for making money than just interest + fees, cf https://www.bitsaboutmoney.com/archive/how-credit-cards-make...)
however I maintain that credit card rewards are a net drain on society. Paying for things should just be paying for them, not a complicated system that generates fake money points that you can then turn around and spend in bizarre ways if you remember to. The whole system is stupid.
Okay, so which side is in the majority? The people who have credit card debt or the people who are using rewards programs in a way that doesn't put them in an objectively worse position? Let's help whichever side is larger.
The current status quo is a result of free association. If people prefer to have credit card debt or use rewards programs poorly then I have no issue with continuing in this manner.
The fees are larger than the rewards. Most business people pay with credit card is competitive. Retail and restaurants absolutely do pass savings on to customers because of how high competition is.
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!
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.
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 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).
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.
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 hesitant to give any app any sort of access to my checking account. I would only do so with a second account with just enough there to cover my purchase. While it is a nuisance, the phone is simply too large of an attack vector to consider anything else.
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.
The problem is the ‘fraud safety’. Your ‘safety’ is likely to be some else’s inconvenience (or vice-versa), and credit cards are all about ease-of-use. Fraud-related costs are also one of, if not the largest single contributor(s) to payment processing fees.
"a push to have users download their mobile app" This is the blocker for me, every vendor wants you to download a different mobile app.
I had to on the spot download a mobile app to pay to get my car back from valet parking at a really nice hotel the other day. They only accepted payment via the app which they did not disclose before taking the car. I had to stand there for 10 minutes installing the app and setting it up and I will likely never go back to that hotel (becuase of location, not the app).
No idea what would have happened if I just had an old fashioned flip phone
At $7 per gallon, a 3% back card on gas gives 21 cents a gallon in cashback to me. So that’s a pretty hard no.
That's a little crazy, because gas stations. I would probably be OK, if such a deep discount was offered, with setting up ACH to some major chain with reasonable dispute policies, for example Target stores. Actually, Target brands their own credit and debit cards, so they kind of are the creditor already.
But you don't know who owns or operates a gas station. They've all got big brand names, but what's their business model? Who's actually running the transaction? The gas pumps are practically unattended and, highly regulated by Weights and Measures because of the high potential for vendor fraud already. Gas stations are already notorious locales for card-skimmer danger. So, I would be loath to get into an ACH bank dispute with Sri Singh McSikhface.
I already had massive troubles, some of them Visa-related, with local laundries and dry cleaners. They are vicious, fly-by-night, and dishonest. I would not risk the same shitty experiences with gas stations.
The point would have held without the off-the-cuff racial stereotypes…
I’m also wondering if you and I have encountered rather different permutations of these “pay-via-loyalty-app” schemes. In the part of the world where I’ve been spending time, the gas purveyors who I notice pushing the apps are the big, brand-name fuel station networks. The same ones who’ve pushed own-brand payment services to fleet managers for a while.
If you’re worried about card skimmers, wouldn’t you prefer to use the method that routes payment directly through Corporate Fuel Parent, rather than trusting the franchisee with any of your financial information?
EU forced MC/Visa to slash their intercharge fees to max 0.20%... that's why there is no "reward" program over here because we are not being ripped off constantly :)
And with both Wero expading throughout Europe and the digital euro coming next year... my hopes are high.
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.
> In short, there's already a divergence, and you're already paying for it.
even with your optimal strategy, you're still paying for it: those points might as well be already spent at the network of vendors you've agreed to sell your purchase history to
it says so in their balance sheets :)
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.
Meanwhile in Australia, it’s illegal (misleading trading) to display a price lower than the customer pays, and has been for a long time. It’s fine; fees etc are disclosed up front.
So you prefer always paying the higher 'card price'?
That's exactly the problem: people don't want to know how much they're actually paying for banking services. They just want their credit card "rewards."
So don't use a card that has the payment processing fees.
Then pay with cash.
More and more places don't accept it.
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.
> 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
Why the same logic does not apply to cash payments? They have costs too.
> 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.
It's completely sane. Surcharges are now outlawed in Australia (from 1 Oct) and I finally paid for my coffee exactly the same amount that was written in the blackboard. Businesses that do not want to absorb the 0.5% fees are free to stop accepting credit cards or can raise prices (none near me did that so far). That's fine, the most important thing is if coffee is 5.50, you pay 5.50, not some random amount.
> 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 some years, it has been the practice of non-profits to present an opt-in fee payment to donors, such as for an online card donation. They will expose the fees that they will pay for the transaction, and ask you to cover them so that they enjoy the maximal donation. This has always been opt-in until last week.
Last week, I visited two unrelated non-profit museums, and when there is free admission I strive to make a freewill donation to show my appreciation and lend support to the mission. I offered the same amount to each location, and the second one, according to my bank statement, has involuntarily charged me for the fees as well. No wonder they greatly prefer tossing cash into the Plexiglas box.
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.
Size matters. WinCo is big enough to do that, because it's a chain and a brand, and people make a choice to go there despite knowing ahead of time that's how it works. (That said, the first time I went into a WinCo I abandoned a cart-load of groceries because I had neither a debit card nor enough cash with me.) That doesn't work for a small business, like the ice cream shop in the example GP offered. They will be giving up a significant fraction of their custom.
Of course what parent comment said doesn't apply to 100% of businesses, bud I'd say it does apply to at least 80-90%. So I agree with them that it wouldn't work very effectively.
According to economic theory, price controls produce shortages. It's likely that capping transaction fees would have unintended consequences, for instance excluding 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.
Europe offers a useful counter-example. They (EU? Most countries? I don't know exactly, but it's immaterial) cap transaction fees, and there's absolutely no shortage of "ways to pay by card". In my experience there are, in fact, more - and, their middle-men have been earlier adopters of both security and convenience features (PIN codes, tap-to-pay, and rapid settlement among them) in which the US sometimes still lags.
What there aren't are rampant cash-back rewards for using a particular card. Or easy access to credit cards with usurorious rates. I think missing out on those is a societally good outcome.
If you cap price then quality will probably suffer, i.e. less fraud protection, warranty extension, accidental damage coverage, etc.
The credit card companies make the vast majority of their revenue on interest charges. The transaction fees are at least in part returned to the cardholder via rewards programs. That said, I agree that competitive market solutions are better than regulation, where they work.
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.
*required, not allowed
> Merchants need to be allowed to add card processing fees on top of any transaction
They can* and they do.
*It is capped to the actual processing fee, the card network must be notified, and the fee must be disclosed upfront to the consumer. A couple of states like CT and MA disallow consumer fees.
On most planned larger purchases (like more than $1000), I've seen CC fees recently.
> Merchants should be allowed to pick and choose which cards they accept without penalty.
To be clear for readers, merchants can choose their accepted card networks -- Visa, Mastercard, Amex (or alternatives like PayPal).
Networks requires merchants to accept all of the card within that network (hence the name "network"). Visa has three tiers; Mastercard has four. Something like ~90% of CCs fall in the traditional rewards tier, so there's less card variation than you might think. Though higher tiers tend to spend disproportionately more.
Traditional merchant accounts don’t expose the cost to the merchant until it settles. If you review the bill, it will list a few rates/amounts for different things that vary by card type. It can vary based on so many factors it’s practically impossible to estimate. The tiers don’t have tier level settings, each card product in that tier can have different amounts.
Stripe and the flat x% + $y are of course popular because of the simplicity and predictability of it.
Gas stations near me already have a cash price and a card price per gallon
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.
There are other problems with debit vs credit cards as well (depending on country a bit). If someone fraudulently uses your credit card can generally just report it and you aren't on hook for it nor out of money while it's being investigated. If someone fraudulently uses your debit card you are usually out of the money until matter is resolved. And you won't necessarily get the money back via bank, you might need get it from merchant. In CC case merchant would need to sue to get the money if they still believe you actually made the transaction.
I used debit cards a long time and always had the bank cover fraudulent charges despite not being required to.
I gave up on them when the IRS discriminated against debit for identity verification when applying for COVID EIP.
I don’t see why those would be a problem with the use of a PIN or other multi factor authentication.
> Most customers have debit cards that would be much cheaper for merchants, but choose to use their credit cards, because they want the "rewards."
I bet most people paying by credit are really using debit cards, but pick "credit" at the register because they don't want to enter a pin. Partly for security, but mostly because credit is faster/easier.
Doubtful in Canada - the times I've even had the choice between "debit" or "credit" on a PoS terminal are very few - typically here you pick "debit or credit" and if you've got a Interac card with Mastercard/Visa it automatically uses Interac.
Unless you're 100% profitable, its always a higher effective %. If you're running somewhere closer to 10% (remember that it needs to be after all costs/paychecks/etc), that's nearly a third of your profit.
Anything optional that skims off the top cuts into profits extremely quickly.
I think this is the wrong way to look at it. If 3% fees mean a company is 7% profitable, it's 7% profitable, not 10%.
Businesses which accept credit cards get the business of customers who want to use credit cards. Those which don't, do not. Me? I want to tap my watch, get my 2%, and leave. I do not want to reach into my pocket, extract my debit card, and enter my PIN. Not a dealbreaker, I do business on the regular with two places which are cash and debit. But it's my preference.
Yes, there is an underlying coordination problem here. The major payment networks are quite probably engaging in anticompetitive behavior, as the lawsuit we're talking about indicates. But this does not, at all, mean that businesses which accept credit cards are penalized financially for that decision, on the contrary, in expectation we would find that most are rewarded for it, on the simple evidence that most of them do, in fact, accept them.
Separating it from any other costly incentive to do business, free samples, flyers, discount sales, loss leaders, is just special pleading. A cost benefit analysis includes costs and benefits, or it is unworthy of the name: and customers doing business are a benefit to that business.
"This will reduce your profit by nearly 30%" is accurate, and real profit is about all anyone cares about (or should care about). Many people would not choose that, if they could choose, but it's effectively required at the moment.
$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.
It is a drop in the bucket relative to what middlemen are taking, definitely. I wasn't meaning to draw a comparison in that sense though, so much as I was trying to say "look at how simple this problem was, how expensive it was to fail at solving it, and how much worse it could be if we took on something truly challenging".
The app itself was deficient in testing, had security issues, wrongly told thousands of people to quarantine, was not as accessible as it should have been, and was overall very mediocre software. If that's what my federal government can deliver (albeit through contractors and middlemen all the way down), I don't want them anywhere near my finances.
Public adoption was mandatory for a time, so that aspect couldn't have failed.
And of course, the Canada Revenue Agency is clearly able to manage people's taxes and aspects of finances safely and securely, but that has decades of effort and tremendous financial investment behind it. A greenfield effort seems a lot less safe, and I trust the public service much less to execute on that coherently, consistently, and effectively enough to deliver something better than we presently have.
Because damn near everything to do with covid was a massive fraud and crime, too
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.
> 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.
E-ZPass now has interoperability with the Central United States Interoperability Hub (which reaches as far west as Colorado and as far south as Texas). We're much closer to the point where you can drive anywhere with a single transponder than we were back then. The main thing missing now is California cooperating with anyone else.
I like the idea of my toll road account also being useful for public transit, if nothing else. But it's difficult to imagine toll road operators and public transit operators seeing a big incentive to cooperate in that way. Even though they're both "pay for transit," their intended/typical users are very different (people who can't/won't drive vs. people who not only drive but are privileged enough to pay for less traffic).
You know what’s funny is that, thanks to the interoperability, all of my family members have switched their toll transponders to the Illinois I-Pass because Illinois charges no monthly fees or additional surcharges and doesn’t care where you live or what state/country your car is registered. I’m sure there are other participating toll authorities with no fees, but all the places my family members live do.
So really, you only need one state to adopt your unified transit fee idea.
> I like the idea of my toll road account also being useful for public transit, if nothing else.
Halifax, NS used to have bridges where the toll transponders worked to pay for parking at the airport - super convenient. Alas, they've since removed the tolls on the bridges, so the transponders are now useless and traffic in the downtown is even worse.
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.
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.
They should not be able to tithe all of society in perpetuity because they set up shop decades ago.
See also: the app store, telecoms, health insurance in the US
> Consumers shouldn't have to pay a fee to give someone money. Sellers shouldn't have to pay a fee to collect money.
As I said, the fee you're paying if you use a credit card is for financial intermediation. That's not just "giving someone money" or "collecting money". There are other things included that have significant costs to provide.
> They provide a valuable service
And that means all your rhetoric about "charging a rake", "tax", "parasitic toll collection", "tithe", etc. is misplaced, because those things all imply that there is no valuable service being provided.
If you want to argue that there are ways to reduce the cost of the valuable service, for example by competition, that's one thing. But that's not the argument you're making.
> significant costs to provide
3% of transactions is an incomprehensibly large amount of cash. The systems that exist to transact cash have been in place for decades already. Major countries have already developed their own payment systems because they understand the problem and the cost to society. Most of these are entirely free and AFAICT, they work just fine.
> for example by competition
Sure, if you set up a time machine. Even in that case, there would be no meaningful competition. Someone else would simply occupy the position in the middle of the intersection instead.
"Parasitic" and "toll collection" remain accurate descriptors. What about "entrenched" and "monopolistic"?
Why couldn't this be a public service though? Governments spend so much money on producing and managing cash as a public good. Why can't we do the same for digital payment infrastructure?
> 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.
Surely I can't get unlimited free groceries by just always paying with a credit card and then doing a chargeback, right? Like, it might work a couple times, but then wouldn't they just close my account?
I have no idea. Probably depends on how big you are as a company that the credit cards would care enough to step in rather than lose a customer or how much that customer costs them.
All I know is that for the chargebacks I've gotten for my saas, I submit a mountain of evidence that the user used it heavily and then filed a chargeback after the subscription ends.
Most of the times paypal will even agree the customer scammed, and they say they will talk to the credit card company on our behalf. However we have never once won one of these chargebacks if it was done with a credit card. Then paypal proceeds to remove the money from our account and tack on a chargeback fee.
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
Because they are profitable.
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?
What india and brazil have is more equivalent to Zelle in the US, not visa/mastercard. There's no viable chargeback, no international interoperability and no fraud protections.
Chargebacks and fraud protection are largely needed in the credit/debit card system because you go around handing people the key to your safe to merchants and ask them to take whatever they want. And pinky promise not to share the key with anyone else.
Once you have sane system like pix or upi, there is far less need for chargebacks and frauds.
> We could cut the cost of VISA's network in half or better if we could drop the compliance piece.
We could also cut the cost to merchants by notably more than half if we dropped credit card rewards.
> 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).
The timing gap is only there because it is a credit arrangement, it's not inherent in payment processing.
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.
Most fees go to the issuing bank. The issuing bank is usually on the hook for customer disputes. So I think you are mistaken.
AIUI, the issuing back generally recovers the amount of the chargeback from the merchant, possibly through some intermediaries. See:
https://usa.visa.com/content/dam/VCOM/global/support-legal/d...
> If the dispute is valid, the acquirer deducts the amount of the dispute from the merchant account and informs the merchant.
Also, keep in mind that companies like Stripe will not only recover the disputed amount from the merchant but will also recover a fee from the merchant!
I mainly meant the processor has to spend money handling the disputes. They may eat the cost too if it's small, but usually that's on the merchant. They're more likely to eat the cost of fraud.
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.
There are fraudulent customers too, I would say even more often since they have no reputation to uphold. You can see this more in the open on Yelp.
Customers do have a reputation to uphold. Real-time customer reputation and risk scoring services are a profitable and growing industry. They maintain extremely detailed records of customer interactions with businesses and assign scores to individuals.
Returning a defective product to one store, only buying things when you have coupons or promo codes, or issuing a chargeback at one business can get you instantly flagged as a higher risk at countless unrelated stores who are using the same services. Other factors that can impact your score include your income level, your home address, the devices/software you use, your interactions with websites (for example going directly to the product you want instead of searching and browsing around, or pasting your information vs typing it out is considered suspicious), how much money you spend, inconsistencies in the personal information you've given to different businesses, even your attitude when dealing with employees and how much of their time you take up can negatively impact how you're scored since that lowers your expected profitability (CLV/LCV/LTV) which lowers the tolerance threshold for risk.
At least Yelp is public and companies can see how they are rated. Businesses typically won't tell you that you've been branded a high risk for fraud or chargebacks. Instead they'll just apply different prices and polices to you on an individual basis. They might tell you that don't accept certain payment methods. They might tell you they don't accept returns, will only give store credit, or give very narrow return windows. They may reject your business entirely or limit you to only a subset of the products or services they offer.
PayPal does this well with friends & family transfers.
Zelle is like this too. Though everything seems to be reversible in some way, not cause of disputes but because of unauthorized charges.
I tried to pay a 3 figure sum of money for a service that was provided to me, and Zelle through my bank app refused to do the transaction. When I called my bank to understand what was going on, the person read me a script that said they can refuse any transaction, and don't have to tell me why.
The app even has a warning that Zelle is basically cash, and you really shouldn't expect any reversal.
Sounds about right. All these things are so iffy. I've had wire transfers get stuck.
So I dug into Zelle reversals one time when a landlord stole my security deposit and I was considering reversing last month's rent until small claims figures it out. Banker said Zelle charges aren't normally reversible, but reluctantly admitted they are required to reverse the charge if it was unauthorized. Had I lied and said someone hacked my account, it may have been reversed, but then I'd be committing fraud.
Cashier's checks too. Despite what everyone says, they are reversible under the right circumstances. TurboTax's refund processor did that to me because they thought my address was wrong or something.
Not just disputes. Also absorbing some significant part of the cost of fraud.
this process of giving out your 'secrets' (ccn, exp, ccv, zip) to tens of people a day with no other real authentication is inexcusably insecure. and instead of trying to get on top of the problem for real (like an hsm), we have this very half-assed fraud detection and chargeback mechanism that costly, ineffective, and seems to just bury the real issues behind a facade of concern. its been decades that this has been going on, I remain confused as to what incentives the banks have to continue to prop up this farce.
I've used chargebacks much more often because of services not rendered than because of a lost card or because of stolen credentials.
The chip on a credit or debit card is an HSM.
And mostly irrelevant for online payments.
Their solution to that was a "security code" also printed on the card, lol
The number printed on the card, and the magnetic strip are not.
>with no other real authentication
Nowadays for the first purchase for a merchant it can require me to hold my card to my phone to prove that I have physical ownership of the card.
It's not common and usually doesn't benefit the customer to do that
Any links for this? Since the abusive practices towards their users should already eliminate most of frauds that isn't caused by the actual banks themselves.
> the cost of fraud
Fraud in modern financial systems is kind of.. funny? obvious? Local banks who know who Bob is can't make enough money due to scale, we'll scale that system to a national level with millions of participants. How will we do that? Bob is now customer 11,476,112. Oh no this anonymous number we created cheated us because we didn't know who he was, what do we do? Charge Bob and everyone else for the cost of this, our scaled up business model wouldn't work otherwise. We'll skim 3% off of every financial transaction infinitely, so that after our $100 virtual bill has changed hands 30 times it has disappeared into our coffers.
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.
Out of all the banks I’ve done chargebacks through Chase has been the least painful. I think only one time I had a back and forth with them. And that time I had one phone call, sent my evidence, and that was that. The company then tried to charge me again, which I also disputed, never heard from them again.
This was a moving company that insisted I should use their flat rate package and 3 movers rather than the 6 hourly I asked for. It took forever and they tried to charge me extra fees.
I've had a foreign chargeback go into the void too. I don't get the feeling chargebacks are a thing in Italy, so chalked it up to that.
Not unlike the experience many Americans have of fighting their own insurance company that they already pay a monthly premium to.
The lengths insurance companies will go just to avoid adding to a deductible are, given the circumstances, rather disgusting.
They don't seem to produce any savings. Are credit card companies much different? Why are their CEOs making millions of dollars? Is it all supposed to be because of innovation in preventing fraud?
As with health insurance companies I too have found in reality their way of dealing with these things leaves much to be desired. The way they treat it seems transparently like health insurance - add minimal value upfront, then wear you down so you never actually get the service or "value" they were supposed to provide in the first place.
That shitty service is the margin padding that multi million dollar salary. Where's the innovation?
So much of the economy seems to be about wrongly extracting money from people, and then only giving it back to the people who have enough free time and persistence to endlessly argue and haggle for it.
Yeah, I've been extremely disappointed with disputes on Amex Platinum.
I literally had a bike rental company in Amsterdam attempt to get me to conspire to report a bike stolen (which had briefly been stolen but was back in my possession), and then when I refused, charged me as if the bike had been stolen!
I reported all this to Amex, and I was never refunded, and to my knowledge, the attempt fraud was never investigated.
Seems the common thing between the three of us not getting chargebacks handled right is that the merchant was outside the US.
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
> 7) I don't even want to know what this does to the complexity of trying to use a card when traveling internationally
Not much - Canada has debit/credit cards that use debit domestically and Visa or Mastercard internationally. They're the default type of debit card that many people get.
The government does that already. Only point 7 still stands.
Eh, there's a lot of regulations and room for whistleblowers in regards to the government's ability to get that in the USA, plus the 4th Amendment providing some pressure from the courts.
I'm not gonna say it's anywhere near perfect, but that friction significantly changes the average outcomes
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?
Where do you think the vendor gets the 3% to pay the network?
If I bake cakes to sell them, and have to pay 3% to a network for each purchase, then that 3% is in the price of the cakes.
That's if they pass on the cost to the consumer. Some businesses charge the same amount whether paying cash or card, meaning paying with a card is ""free"", or at least not "penalized" over cash.
It really means that the cash payers are subsidizing the card payers, b/c the cash payers don't get the cake for cheaper.
I, as a cake seller have a cost i need to pay to the network every month, from my total revenue it's some percentage (depending on ratio of cash vs card). I obviously add that percentage to my cake prices to make up for that. Both cash and card payers pay the same amount for the cake, thus they share the price hike equally.
But the cost still finds its way to the end price of the product.
I can't reply to DaSHacka, but just to point outat least in this country, merchants have to pay to deposit cash. Not to mention the additional cost on their side of handling it, higher insurance cost, etc. etc. Cash isn't free of transaction fees/
> The vendor pays the 3% not you
In Brazil, you'll typically get a "10% discount" when not paying by credit card.
Eg, it's very clearly pushed unto the consumer. I assume some law says they cannot charge more for it, so they got a default price, but always advertise a lower price with a small text "if paid via pix"
Wow, 10% is way more than any interchange. So I suppose it a 10% discount because the cash goes right into the owners pocket, and is never taxed. I do wonder to what extent small business complaining about card interchange, are just small businesses complaining that business was so much better when many cash sales were never reported as revenue and never taxed.
All fees and taxes and tariffs end up being a direct cost to the consumer
not every transaction is risky enough to need chargebacks. it should be unbundled.
It kind of is, in an oblique way, for merchants with sufficient scale - e.g. grocery purchases don't need chargebacks, and I expect the bank that is partnered with my grocery store for 6% back in points on grocery purchases is unlikely to award chargebacks on purchases from that grocer.
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 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
Tech has been about disintermediation.
Replacing low quality intermediaries with superior automated ones at massive scale with all the associated benefits.
This is the story of obsolescence and human history.
The coming end state of which has led to this transformation from the "big data" to AI paradigm.
Now so called "knowledge work" is itself being disintermediated. No need to worry about "bullshit" desk jobs anymore. They will be gone. It turns out a stochastic sentence guesser is superior to the average knowledge worker. This will only improve and become further operationalized, with accompanying safeguards and adversarial checks. At a certain point the value is already gained. The founders have taken their massive exits. Soon it's not so special anymore. In short, intelligence becomes a utility.
The end state of all of this is the same dichotomy our earliest ancestors had already forseen: apocalypse or utopia. In the same way that credit cards were once a cool idea, now they are trite and their continued privatization is merely a private tax on almost all transactions, and as such is rather undesirable. So turn it into a utility. Just like if we all survive the coming wars, the future will be one where compute based intelligence is a public good.
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?
AI is certainly becoming the ultimate middleman at this point.
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.
Oh please. Every "public service" in the US is provided by a private entity.
> 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.
My province has privatized DMV services, and services have been pretty consistently worse than any place I've lived with publicly-provided DMV services.
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?
Comments that are not about TFA, which is about specific litigation, but just random opinions about "payment processors" are off topic. I came here to read comments about TFA and had to wade through a lot of other stuff to find any ... again, this is typical of HN where so many people don't bother to read TFA.
Since this exchange isn't of relevance, I won't respond further.
"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.
> It's not Google's job to name bodies of water
It kind of is.
If the US executive branch published an order renaming every street in America to "America Street", I suspect Google would not update Google Maps to reflect that unless the government compelled them to do so.
Google has made a choice about where they're placing the bar for voluntary action.
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.
Your governments benefit enormously from American largesse. Europe is essentially still operating in receivership to the United States
Why have almost all European leaders come to grovel before an American President they clearly despise?
When you can defend your own continent without the sight of your governments prostrating themselves to such a man I'll take your claim more seriously. Europe has been asked for decades now to act more responsibly. Now you are being forced. Instead of blaming America let's see if you guys can cobble together a path forward with waning American guarantees without recreating the internecine strife that led to the American intervention in the first place.
Nothing I am seeing out of Europe gives confidence over the next decade. Hold your own governments accountable.
This is only one side of the story. No doubt European states have been vassals of the USA since WWII, but this was also what the USA had for a long time encouraged them to do: USA provided security, in return Europe did what it was told to. One reason was also because the USA did not want another strong army in Europe. The USA no longer likes this deal, OK, this is a change of course, to which everyone tries to adapt somehow.
> 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.
Sure, what point are you making?
I'm not alleging a conspiracy. It's almost self evident emergence given the nature of a company and a government. What is Google to gain for resisting the name change? Nothing. Status quo they benefit from a service that names things according to government convention. Their map wouldn't be very useful otherwise. If the government starts renaming things why do they care? This isn't some cult in the middle of nowhere, the federal government changed the name. If liberals don't like it tough maybe learn how to not choke away another election. Why would Google fight the government on the name change? There is no upside and it's not something they care about. More importantly it's not their job.
The same logic applies to credit cards. You think the MasterCard CEO is gonna risk his plush paycheck so a handful of degenerates can beat off? He doesn't care. It's not his job to decide that question and he doesn't want it to be. If the government wants to nationalize him however, then of course he will care. It's called a trade off and ultimately all successful people learn to navigate them. It doesn't change the fundamental truth in my point that many people blame corporations for alleged sins that in truth are caused by governments. The "Gulf of Mexico" thing and "credit card censorship" being two of many examples of this confusion in our discourse.
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.
I am mad about payment processors censoring transactions. they displace neutral forms of money like cash or cryptocurrency
Why is it problematic? Maybe they don't want to be associated with those things or involved in them?
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
TFA is about specific litigation, not simply "payment processors". There ARE comments that actually discuss TFA, but the ones I noted don't. And I didn't "spam" ... that's nonsense. And the "lambasting" here is yours ... in response to a wish. (I also responded to a comment defending the KKK and Nazis.)
I won't respond to you again.
IIRC it was religious bodies targeting / lobbying / infiltrating them as a way to push their censorship beliefs? Perhaps someone else knows better
So we need a counter-lobbying group. Where is the Porn-for-All EFF?
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
This looks good, but they don't seem to be available without ads.
They have a lot of other episodes that are also _fantastic_.
I had no idea how Costco or Home Depot or Walt Disney worked ...
Neat! I just discovered this podcast and am more than half way through the Home Depot episode.
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.
Agree that PIX bothers the US more because it's directly under US (self assessed) area of influence. But the reason is not some philosophical alignment, but rather deep rooted lobbying practices.
Evidence of high levels of power political pressure - US latest 25% tariff pressure came out explicitly around this topic - https://www.reuters.com/business/finance/brazil-us-clash-ove...
India's UPI is practically impossible to use even for tourists in India. It's not serving the same role as Visa and MasterCard.
How is it impossible to use? Apparently everyone in India is using it? Apparently only tourists face issues with it?
With visa and Mastercard you pay transaction fees and rent for a card terminal aka card reader, which are lower or non existent with these homegrown or local P2P payment systems. Outside western developed countries aka the US and the richest European countries like France, Germany, that's enough to stop using visa and Mastercard.
Impossible for tourists to use yes. You need an Indian bank account and there are services ostensibly for tourists but they still don't work everywhere, for example many vendors will want friend payments instead of business payments because they don't want to pay the surcharge.
Tourist UPI only permits P2M payments, and most normal transactions (as well as refunds) are conducted P2P.
Right, but PIX on their website says they're expanding to Europe, which makes me wonder what do they have to offer on this heavily saturated market.
UPI used to be good, but they started adding charges after Visa and Mastercard lobbied D.C. probably with huge bribes. And the Indian government is spineless against D.C.
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
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?
Merchants don't hate the card networks. That's a minority in my experience, who are penny wise and pound foolish.
They like the card networks because they are lured by point schemes, effectively money charged to the merchants and then shared back to cardholders. Consumers would flip in a heartbeat if shops were allowed to offer discounts to those not using credit cards.
I used to by all my PC parts from a shop that had a 5% discount for cash purchases. It was the sort of shop that was just a counter with all the merch hidden in the back. I don't know how they kept the CC companies from knowing but maybe 40% of their business was cash purchases (circa 2019).
> Consumers would flip in a heartbeat if shops were allowed to offer discounts to those not using credit cards.
We must be very different consumers.
Also, many places already do effectively this, they charge a surcharge for using a card.
Not in the UK, or the EU, as its actually illegal (as in against the law, as well as the contract with the provider).
> as well as the contract with the provider
It used to be here in the US, but there was enough violations that they stopped putting it in the terms.
But, looking into this, it looks like some states have made it illegal. I'm curious how well that's enforced.
Yeah, there are folks who use more card benefits than they pay in annual fees, to whom this might not be appealing.
For those on the other side of the balance, maybe it would be.
Either way, I can't imagine many shops doing it, even if the economics makes sense. They'd rather the immediate and direct pad to the bottom line.
It's the same reason that I don't use bitcoin for large purchases: I want the ability to have disputes handled if and when something goes awry. With cash, I have no recourse.
CC companies allow this surcharge/discount for CC/cash now. Have for several years. I think it was caused by a class action suit.
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.
Yes, and it exists - its called "pay by bank".
its cheaper but customers lose protection for doing it, and as its illegal (yes, against the law) to offer them a discount for using debit cards, cash, or direct payments they have no reason to.
Yes I know pay by bank – I have used that to pay my plumber. In effect it replaces paying by cheque.
But the problem is that if you use it to pay for a service and do not get the service you can only claim off who you paid and that requires taking them to court while Credit Cards just require phoning up the card provider. Debit cards are between the two.
Exactly. If it is an outright fraud you do have some protection because of the push fraud rules, but not if its bad products etc.
I have not actually used it. I have paid some people (mechanic, gardener) with a bank transfer which works well thanks to faster payments being near instant.
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.
The issue is in the UK we passed a law that "banned credit card charges", but what it actually did was ban discounts for alternate payment methods, meaning everyone has to pay the credit card fees, even if you pay cash. (this was the effect, you can still offer discounts, but the base CC fee legally needs to be baked in first.)
This will mean, its harder for competing payment services to function. And its easier for the big credit card companies to up the % they charge without the public noticing, or blaming them directly.
It was fascinating watching the media coverage, twisting themselves in knots to miss these points while cheering how we were 'standing up to the big cc companies', it was actually quite cringe-worthy at times.
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).
> but makes up a disproportionate amount of the fee.
Trying to understand what you mean by disproportionate here. Are the majority of transactions well under $10?
Let's work from the inside out. "Portion", that's a part of something, pro- portion means by, as, of, toward. The -ate make it an adjective, the dis- reverses the meaning.
So it is not based on a portion of the fee (a percentage of it). Disproportionate.
This is bad because it systematically penalizes small transactions, which a proportionate fee does not do.
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.
If I'm reading it correctly, the top comment is arguing that having electronic payments run by for-profit entities adds no value. Not that electronic payments are useless, rather that these should be a state-run service. Which is one way to solve this I guess (not that it will help moral policing stuff much, but at least no more robbing poor Paul to reward rich Peter).
> 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
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.
Is that practice illegal? I've never gotten a discount for using cash or debit.
That is the crux of the problem though. By adding fees and then contractually forbidding merchants from passing those fees on to credit card customers, it is forcing non card users to pay for card users fees since the fees are embedded in prices. Plus they're even giving card users kickbacks in the form of points. So non credit card users end up paying more credit card fees than credit card users which is nonsense.
Not illegal. Card issuers required merchants that wanted to accept their cards to not have separate pricing for cash and credit card. It would have been a lot more difficult for credit cards to take over as the primary payment method if they had to convince consumers that the convenience of a card was worth paying 3-5% more on everything. Exceptions started being added for public entities, like municipalities, that wanted to accept cards.
> So non credit card users end up paying more credit card fees than credit card users which is nonsense.
The business just makes more money on cash transactions. It would be interesting to find if the cost of cash handling/losses is comparable to the card processing fees.
> Is that practice illegal? I've never gotten a discount for using cash or debit.
It is no longer permitted for payment networks to prohibit discounts for cash or surcharging use of credit.
A few of the merchants I use regularly have credit surcharges now. It's pretty common at gas stations near me. Almost all business with my state or local government has a 3% fee for card use.
Yes in the US. It's usually gas stations, small businesses, and less expensive places offering the discount. The only gas station around here that doesn't charge extra for card is Costco, where they also don't take cash.
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).
It's most likely primarily about different credit card "brands" like Visa infinite, signature etc. These have different benefits for customers (like cashback and points) and higher fees for merchants.
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.
> 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"
I get what she's say, but it is kind of a weird comparison, because Apple Pay is more-or-less payment network agnostic. You can pay via credit, debit, or transportation card (and possibly others that I haven't used) on Apple Pay.
In the US you even have Apple Cash which is pretty close to digital cash equivalent... not really workable for a business with the $2k/week limit though.
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.
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.
Not for all banks
Can the courts cap fees? I thought that would have to be something congress does.
Right. All the courts can do is use the high fees as evidence of monopoly.
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.
in the paradigm where rewards programs go away, prices at stores are also 1-3% cheaper across the board because the rent-extraction of credit card fees is removed, so make sure you're considering that scenario fully.
it's possible that with the fees removed cards still have rewards because the premium cards still want your business (they have other mechanisms for making money than just interest + fees, cf https://www.bitsaboutmoney.com/archive/how-credit-cards-make...)
however I maintain that credit card rewards are a net drain on society. Paying for things should just be paying for them, not a complicated system that generates fake money points that you can then turn around and spend in bizarre ways if you remember to. The whole system is stupid.
Okay, so which side is in the majority? The people who have credit card debt or the people who are using rewards programs in a way that doesn't put them in an objectively worse position? Let's help whichever side is larger.
Why would we help whichever side is larger?
The current status quo is a result of free association. If people prefer to have credit card debt or use rewards programs poorly then I have no issue with continuing in this manner.
same. pick a card w good rewards, pay the statement balance to $0 every month, reap some benefits while strengthening your credit score.
The fees are larger than the rewards. Most business people pay with credit card is competitive. Retail and restaurants absolutely do pass savings on to customers because of how high competition is.
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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!
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I think being able to see all the charges (card fee) will help a lot
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.
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.
Easier Bank to Bank settlements would likely have avoided this situation.
Credit card companies are absolutely parasitic middle men.
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 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).
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.
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)
Aren't anticompetitive fees the American way?
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