Mastercard sued for $19B in Britain's biggest damages claim | Hacker News Reader

Mastercard sued for $19B in Britain's biggest damages claim

reuters.com

190 pointsiamben182 comments

> Two years ago, the European Union capped the fees retailers pay at 0.2 percent for debit cards and 0.3 percent for credit cards.

How is it possible that retailers in the U.S. and Canada pay 2-3% for credit card usage, or ten times greater than legally permitted in Europe? I have to assume that 0.3% is profitable, otherwise the credit card companies would simply stop operating in Europe. Could this be a misprint in the original article or are Americans and Canadians being horribly ripped off?

How is it possible that we pay twice as much for healthcare? Same reason.

But we don't pay 10 times as much for healthcare. The credit card fee differential is inexplicable.

Right, only 4 times. Which is still hard to explain.

It's really not. Some country has to provide financial incentives for companies to develop new drugs - a multi million dollar task - and the USA is the country that subsidiaries the rest of the world

I've seen this said a bunch of times but never anything to actually back it up. The fact that big pharma companies tend to have fantastic margins and spend similar amounts on R&D as they do on marketing makes me think that it's probably bollocks.

The idea that big pharma companies are happily scalping Americans just so they can provide drugs to countries that can't actually afford them is just... absurd.

Here is a recent blog post that has some references to economics research papers around this general topic, but likely not directly addressing your exact claim. Nonetheless, you may find it interesting: http://slatestarcodex.com/2016/09/07/reverse-voxsplaining-br...

Grandparent is correct.

For GSK: R&D was 15% of their budget, while 'selling, general and administration' was 39%.[1]

[1]http://www.bizjournals.com/triangle/news/2016/07/19/where-gs...

That's a nice (and popular) story but it really isn't as simple as that. Not only does the accounting get a bit creative, but also the research is more expensive to do in the US for partially for precisely the same reasons that the health care is (a lot of the cost of R&D goes directly into the health care system). Chicken, meet egg.

Even without this, drug development cost doesn't get anywhere close to accounting for the whole cost difference.

The law covers what amount can be tacked on to the consumers bill that depends on how they are paying. Not how much the provider can charge the merchant. In the US very few places charge different amounts depending on payment type.

We pay more than 10 times as much as many countries for healthcare if you're counting only individual expenses. If you're counting both individual and public expense, we still spend almost 10x more than Turkey.

The differential isn't actually 10 times. The part Visa/MC keeps in the US is more like 0.05% to 0.65%, not 2-3%.

In the US, debit card interchange fees are capped at 0.05% + $0.22, since 2010. That was in the Durbin amendment to the Dodd-Frank Wall Street Reform Act.

Credit card interchange runs up to about 2.9%, but that's only on the cards with the most benefits: those that pay the largest percentage back to the cardholder. That's up to 2% back in cash, reward points or miles... plus 90 day accidental damage protection on all purchases, 1 year extension on all product warranties, travel insurance, concierge service, etc.

Interchange fees for the credit cards without rewards programs start at 0.65%.

> Credit card interchange runs up to about 2.9%, but that's only on the cards with the most benefits

Repeating what I asked in another comment, it's important to know what percentage of cards have those benefits. If most credit cards in the U.S. and Canada have cash back, miles, or rewards, then it follows that merchants pay 2-3% on most transactions. In my experience in the U.S. and Canada, almost everyone seems to use a cash-back or reward-type credit card.

Actually, we arguably do. Go try to price a US health insurance policy with the same level of coverage and cost insulation [1] you could get in Europe: get ER or primary care, at any time, with the promptness they would get for appointments, while never paying anything other than the premiums.

I'd be surprised if you could even find such a policy.

[1] And, of course, the same "we won't pay for this" cutoffs impose by e.g. UK's NICE board.

Not a misprint: https://www.adyen.com/blog/eu-interchange-fees-cap (good summary of the regulation and what it covers)

Much of the 2-3% US companies charge is spent in the form of rewards in the US. The fact that US companies offer 1-1.5% back to customers as rewards implies they can support lower fees to merchants if they get rid of rewards. Do EU cards have cash back programs?

They used to but they are being phased out - the EU piously thinks that the merchants will pass on lower costs to the consumer - which is to borrow a line from Sir Humphrey "A brave choice commissioner"

How is that a "pious" belief?

Let's say that retailers' financial services costs drop by 1% of revenue, and they choose to raise their prices by 5%, because they're really greedy or mean. Their competitor across the street is also really mean, but only raises their prices by 4%. As a thought experiment, play that scenario through a few more turns.

The effect of lowering their costs for financial transactions is to lower retailers' minimum price for selling their products. They're "allowed" to charge as much as they like, though there are legal restrictions that make it illegal to collude with their competitors. And, even if they do collude there are motivations to defect from those illegal agreements that tend to undermine them.

A higher level view will appreciate that the higher sticker prices from higher transaction costs largely ended up being refunded to consumers through credit card reward programs, but probably distorted the prices for buyers paying with cash.

You do know what pious means in this context - the shops will just pocket the savings for them selves

The regulation had a noticeable effect in Germany: As soon as it was in effect every chain started to accept MasterCard and Visa cards. That includes the most frugal stores that have razor thin margins. The food market is extremely competitive and if a store can afford to undercut their competition they will the first second they can.

Good point, yet the remainder is still significantly more than 0.3%.

It seems fraud is much worse in the US. That could be a factor too. https://www.google.com/search?q=credit+card+fraud+us+vs+euro...

Chip and pin, yo.

Chip only helps for cardholder present transactions. It doesn't help for other transactions such as online, over the phone, subscriptions etc.

You can only pay online with debit cards if you use two factor authentication in Europe (eurozone). It's basically free though (cash is more expensive to handle), unlike credit cards.

Verified by Visa/3d secure? It's not exactly two factors, it's just more tedious data entry you have to do. And I've got it turned off on my card.

Actual 2fa would be great. I was wondering about the enourmous amount of work that would enable websites to support contactless ..

No, the processor will redirect you to the page of your bank where you need to enter a code sent by sms by your bank. This is true 2fa, it works at least with all Russian banks I've used and I'm sure it works in EU the same way (I thought it was like that everywhere in the world?)

Nope. UK Mastercard, no verification or 2fa. I guess we're not as secure as Russia in this case!

That page always sketches me out, to boot. Could they have made it look/behave more like a phishing scam?

My EU banks (Sweden) implement 3dSecure with either a 2FA phone app or a physical chip card reader that signs a one-time code. Real 2FA.

My Austrian bank has actual 2FA and pretty sure that is nandatory in the eurozone for new cards.

Well you can always try the India model which is Chip and Pin for cardholder present transactions and mandatory two factor authentication for online. One result of this strict policy though is automatic subscription card billing is essentially illegal.

So far, the only result of the switch to chip cards that I've been able to see is that it takes about five times as long to check out anywhere.

So, the card gives rewards and charges higher merchant fees. The merchant raises prices to offset the fees, which offset the customers' rewards. Friction.

This is exactly like subsidizing farm, ranch, and oil but then raising taxes to pay for the subsidies indirectly.

>The merchant raises prices to offset the fees, which offset the customers' rewards.

If this were true, why would merchants care about merchant fees?

Raising your price leads to less sales.

They don't, really, as long as they're not disadvantaged compared to the competition. The people who are getting screwed are people who pay cash or use cards without rewards programs.

Oh...I assure you they do! Why? Because these fees come out of profits.

Merchants will charge more when profits drop. None of this is coming out of profits. They only time it comes out of profits is when competitors have some advantage that prevents the merchant from passing increases on to the customer.

Demand is elastic, usually.

If raising prices increase profits, then you're doing prices wrong! Raise prices!

The key is whether or not everyone else has to raise prices too.

The rewards establish a system where everyone would be better off if no one uses reward cards, but the best strategy for each individual is to use them.

A clever application of game theory to leach wealth from the populous.

I don't get it why merchants should be responsible for covering it?

So the banks fight with each other offering more points/rewards/etc - meanwhile you pick up the tab.

I wish usgov would look deep into this criminal scheme.

At this point, the banks are kind of the usgov. Their interests are cojoined while not aligned with yours.

There are benefits for the merchant too. Those rewards programs get people to spend more money because they get more points.

https://www.nerdwallet.com/blog/credit-cards/credit-cards-ma...

>One of the most often cited studies is one conducted by Dun & Bradstreet, where the company found that people spend 12-18% more when using credit cards instead of cash. McDonald’s reports its average ticket is $7 when people use credit cards versus $4.50 for cash.

>Those who were told they would have to pay by credit card were willing to pay more than twice as much on average as those who were told that they would have to pay by cash.

That doesn't tell us about the effect of reward cards specifically though.

Reward cards and other benefits (such as extended warranties) encourage people to put spending on credit cards. Putting spending on credit cards causes you to spend more. Ergo "those rewards programs get people to spend more money because they get more points."

It's well established that paying with plastic over paper makes you spend more.

http://nytimes.com/2014/10/11/your-money/the-slippery-plasti...

>But the most surprising thing about these studies? When I tracked down many of their authors this week, I found that they, too, can’t quite kick the credit card habit. Why doesn’t Joydeep Srivastava, co-author of the Monopoly money study, use a debit card or cash?

>“Mostly because my credit card is giving me lots of miles,” he said

>Once upon a time Mr. Prelec, a professor of economics at the Sloan School of Management at the Massachusetts Institute of Technology, refused to collect frequent-flier miles (or even coffeehouse stamp cards) because he thought they cluttered his decision making... Now, he doesn’t leave home without American Express card. Why not go debit-only? “The rational answer is, it’s the points,” he said, given that few debit cards offer reward points.

Or like throwing your change in a bucket every day for a year, and then pretending like the money came out of nowhere when you cash it in once a year and blow it on something you wouldn't normally buy.

What's sad is that the rewards cards are generally only available to people with good credit which correlates strongly with the middle class and up. That makes rewards cards a transfer of wealth from lower classes up. Making us all complicit in the ursury evilness of credit cards.

Oh please. Here's a better reward: don't buy anything you don't need. Since credit cards are commonly used to purchase luxury goods -- generally associated with middle class and up -- I could make a similarly inane argument that it's a transfer of wealth from spendthrifts to those that are disciplined and save their money.

Business do a lot of credit card spending too. A real lot.

If you do business travel, or other per-deim expenses, it's a huge boost to have a rewards card... the original bill is reimbursed and you get the points/miles.

Oh great, an incentive mechanism that rewards going for the most expensive acceptable option even if there is not only no business value in it, but also no direct personal value.

That's what limits on reimbursements are for...

Good credit isn't so hard to establish, and not so tightly based on income... My ex wife has incredible credit and she doesn't make that much more than minimum wage. It comes down to money management, and paying your bills on time, over time. Too many people will let frivolous expenses take priority over paying the bills.

I've been down and out... unemployed most of 2002, and saddled with a six figure hospital bill (after insurance max) about 7 years ago... I still have two rewards cards... I put everything day to day on them, and generally pay them off at payday. I try not to carry much of a balance, except for larger outlays that I'll do over time.

The bigger problem is that parents should talk to their kids about bills, the importance of paying them, and actually show them a spreadsheet with how much is coming in, and how much is going out just for bills, and then working with what's left. Parents don't do this, schools should as well, and even then, the stigma prevents parents from showing this to their kids, so they get to be adults with no understanding, prioritization or coping skills.

I don't want rewards. I want the transaction being done as low as possible.

But that won't lower prices... as it stands, even if rewards programs were eliminated today, and fees were capped as in europe, the prices of goods would not go down.

I'll bet they would. Especially online.

Online retailers (esp small ones) are paying ~2.5-3% in credit card fees, and compete heavily on price. I run a small online store - if my credit card fees suddenly dropped by 2% the first thing I would do is drop all my prices accordingly.

The vast majority of pricing I see online is $##.99, not $##.74, etc...

Rounding to stupid numbers (.99) works just like rounding to reasonable numbers: there are some inputs where a sub-granularity change would push the result over the threshold and others where it would not.

But your observation gave me an entirely unrelated idea: could a merchant, online or not, use deliberately random "##.74 instead of ##.99" prices to give the impression of really tight margins, even when they are actually wide?

Debit cards, which are huge outside the US, never have reward programs (that I've seen anyway.) Visa does not charge different fees for different product types for them.

I have a Discover Bank Cashback Checking Account. I get 10 cents per debt card transaction. https://www.discover.com/online-banking/checking/

It's not unique, there's a few Cashback checking accounts out there.

Other banks require a certain amount of debt card transactions a month to remain fee free.

That's cool but that's a fixed 10 cents, so basically Discover is forwarding to you some of the money they receive for handling the debit in the first place.

I have yet to see a debit card do a 1% cash back, which is really common in credit. Here in Canada, the debit charge (handled via the interbank Interac "sort of coop") are really low, 6 cents per transactions is about par. There's nowhere to tack on even a 10 cents cash back.

Yes, there were plenty of reward schemes - Airline, store points, hotels, cashback etc. in the UK (at least) but the number of them and the rewards are getting smaller since this ruling

It's a duopoly. Of course you're being ripped off. Hence the lawsuit.

How is it a duopoly?

Visa and Mastercard account for 85.2% of global payment volume, according to https://www.nerdwallet.com/blog/credit-card-data/credit-card....

I'm actually surprised it's so low.

Can't pay for housing on a credit card (usually). Most rent and mortgage payments are checks in the mail or ACH web portals.

I'm surprised rent as a percentage of transaction volume is so low. We don't all live in the Bay Area, I suppose.

One reason might be the US' extremely strong consumer protection law. It's also the place it was originally rolled out, so it could be a historical artifact.

That's one reason some stores(like Winco) only accept debit cards: The processing fees are much cheaper. And it might be because they don't have to enforce chargebacks, by law.

Certainly it's possible to accept payments with low costs: Bank transfers are pretty cheap.

I seriously doubt that consumer protection laws in the US are better than consumer protection laws in the EU.

It's a hell of a lot easier to do a chargeback in the US vs the UK.

Sure. But I've always heard that's because of CC company policies rather than laws?

It's easy to say "this charge is fraudulent, I didn't make it" and your credit card company will make it go away and mail you a new card.

Neither Citi nor Capital One entertain "I made this charge but I don't want to pay it because I'm angry at the merchant for bad service" (or whatever) easily. At minimum you have to prove that you tried to remedy the problem with the merchant and they're refusing.

They are, when it comes to bank fraud. Particularly the UK. See, for example, a lot of Ross Anderson's work, such as: https://www.benthamsgaze.org/2016/06/02/international-compar...

In some instances it is better. In other circumstances it is not.

One silly example that happened to me. I bought a dishwasher and it had a problem. Under EU law, the retailer covers the warranty the first year and then the manufacturer warranty kicks in for years 2 and 3. Under the manufacturer's warranty they would dispatch a technician to my home. But the for the first year I would have to carry this big bulky appliance back to the store for them to look at and repair it.

In the end I sat on the problem for a few months until the "real" warranty kicked in and had a technician come out.

I don't think this was intentional but an oversight in the original consumer protection law.

Actually, that's not the EU law. EU law states that the retailer is responsible for a 2-year guarantee, full stop. Member countries may then legislate stronger protection if they like.

http://europa.eu/youreurope/citizens/consumers/shopping/guar...

Thus, local legislation in an EU country may give better protection; for instance, here (Finland) there is an additional defect liability which says that if an item is supposed to last longer than 2 years (e.g. a dishwasher), then the liability "wears out" over the reasonably expectable lifetime of product. You won't get a refund if a 6 year old washing machine breaks (yes, I won't buy another LG), but you can get a partial refund if a 3 year old machine breaks down.

This liability falls on the retailer; importer/manufacturer has only secondary liability.

In Argentina it is worst. If you have a plan to buy something in 12 month, the retailer receives a 30% discount up front. This is connected to high inflation BUT the retailers don't give you a 30% of discount if you pay with cash.

American merchants are paying 0.05%+$0.22 for debit and check cards, and the only credit cards where interchange is 2-3% are those that pay 1-2% in cash back or reward points/miles. Non-reward credit cards and gift cards start at 0.65% in interchange fees otherwise.

> the only credit cards where interchange is 2-3% are those that pay 1-2% in cash back or reward points/miles. Non-reward credit cards and gift cards start at 0.65% in interchange fees otherwise.

Those differences in credit card fees between rewards and non-rewards often aren't being passed on to the merchant, though, especially small businesses who have little room to negotiate.

I'm a small business merchant, and they're passed on to me. I pay interchange plus 0.04%. If interchange on a specific transaction is 0.05% then I pay 0.09%. If it's 2.9% then I pay 2.94%.

Merchant service providers have been pushing this "interchange-plus" pricing model to win over businesses from other providers with the old "tiered rates" pricing for many years now. Even "tiered rates" did pass on some of the price differences, just not as directly.

PayPal/Stripe's model of a single flat fee for all card types is pretty much exclusively an internet (card-not-present) thing, except for the rare coffee shop with one of those Square smartphone dongles. None of the B&M stores you shop in are likely paying flat rates. Different cards cost them different amounts of money.

Who's your merchant services provider?

I wonder if he meant "passed on _by_ the merchant", as in, it's not like any business will give non-rewards-card-payers a discount.

That's oversimplifying a lot. All of Visa's current interchange rates are listed here: https://usa.visa.com/dam/VCOM/download/merchants/visa-usa-in... (of course the other networks have their own rates)

But that's just interchange (the amount paid to the issuer); merchants also pay a network fee and usually additional fees to their acquirer.

Not a lot, just a little. Pages 1-2 are just title pages. Page 3-6 every row shows 0.05%+$0.22, because those are all types of debit cards. Page 7-8 are the ones that apply to swiping a credit card, and only 3 of those rows account for what we're talking about here: retail/supermarket/restaurant. In those rows, we have 4 columns that correspond to how many rewards the cards pay back to the consumer. They max out at 2.4% for any brand's variety of Visa Signature Preferred card, which pay up to 2% cash back.

Yep. This low debit fee is due to the durbin amendment (https://en.wikipedia.org/wiki/Durbin_amendment), which is generally how Stripe makes most of its money AFAIK. Stripe still charges the % and takes the remainder.

> the only credit cards where interchange is 2-3% are those that pay 1-2% in cash back or reward points/miles

What percentage of credit cards in the U.S. and Canada pay 1-2% in cash back or have reward points/miles? If the answer is most credit cards, then it seems to follow that merchants are being charged 2-3% for most transactions. Or am I missing something here?

Furthermore, I don't believe that merchants are allowed to pick and choose which credit cards they'll accept based on the fees. That is, if a merchant says that they take Mastercard, they have to take any brand of Mastercard. They can't refuse a Mastercard that gives cash back (and how could they even tell at the time of the transaction anyway?).

There are different types of card that have different fees, like Visa Signature or MasterCard World. These usually have rewards. However, it seems like most credit cards I've seen (at least in the tier I've considered) have 1% CB or equivalent at the least, even without being Signature or World.

There were class action lawsuits in both Canada and the US over the anti-competitive nature of the agreements merchants had to enter into. I can't remember all the details, but in the US merchants rights to charge consumers higher prices or fees for using rewards cards was confirmed. But I've never seen a merchant actually doing this online.

I believe either VISA or MasterCard - likely both - have rules against charging any additional fees when paying with their cards as a merchant, with the implicit threat of them pulling their services and leaving you unable to process cards if you don't follow said rules.

The typical workaround, which isn't against their rules, is to offer a discount for paying in cash - I can't recall the last gas station I saw that didn't do this (for gas at least), and a number of restaurants also offer cash discounts.

The reason for offering a discount for paying in cash is probably that most clients would get angry if merchants tried to charge them more for using a credit card while they are always happy when they get a discount for paying in cash. I think the credit card processors are smart enough to realise that this is happening, so if they wanted & could do anything about it, they would probably write their terms differently (cca. "prices for payments in cash and with cards must be equal").

Plenty of places demand a minimum payment for credit card transactions, with an additional fee in lieu of that.

In the UK, a majority of bars and corner shops will have a 50p charge for card use below a certain threshold or even refuse to take payment.

They do, but they shouldn't. Both MasterCard and VISA explicitly prohibit this practice in their terms.

In the past I've just offered hesitant merchants 50 cents extra. Probably only works when the merchant also owns the business though.

That used to be the case, but as stated by the above poster, it is no longer the case due to a lawsuit a few years ago.

If they do, they aren't enforcing it at all in new Zealand, where a 2% surchage for credit cards is fast becoming the norm.

Cash can often be used to fiddle the accounts too ... which also leads to a cash preference for some.

Before there was the class action, the US Justice Department sued. Visa and MasterCard settled.[1] The settlement required those companies to allow merchants to "steer" customers to less expensive cards with with discounts and incentives. Not that this agreement didn't override state laws which prohibit that practice. AMEX choose to go to trial, lost, and the case is currently on appeal at the Second Circuit (the judgment stayed).[2]

The class action lawsuit was settled in principle back in 2012 and approved by the district court in 2013, but was thrown out recently by the Second Circuit.[3] It would have been the largest class action settlement in history, but many large merchants objected to being bound by a settlement that they had no part in negotiating.

[1] http://www.lexology.com/library/detail.aspx?g=a2722e0c-e0a6-...

[2] http://www.reuters.com/article/us-american-express-antitrust...

[3]http://www.wsj.com/articles/visa-mastercard-class-action-set...

>US merchants rights to charge consumers higher prices or fees for using rewards cards was confirmed.

This is illegal in ten states: http://www.creditcards.com/credit-card-news/credit-card-conv...

Small correction: visa/mc interchange is 1.2-2.4% + 5-10 cents.[1] And that's what banks get to work with in terms of paying out rewards. It's processors that mark up the rates higher... And that can increase what merchants pay for debit as well.

The biggest merchant ripoff going on right now are processors that charge the same rate for debit and credit. If more merchants knew how cheap debit can be there might be more steering.

[1] https://usa.visa.com/dam/VCOM/download/merchants/Visa-USA-In...

3% is absolutely insane, we sell items where our margins are about 4 or 5%

The US has larger rewards programs (one of my cards gives me 2% cashback) and the US has a far higher fraud rate due to their archaic processing systems. Europe has been using EMV with PIN for about a decade so has lower fraud and doesn't have the same rewards programs, meaning costs are lower.

Europeans also use credit cards way differently. Pretty much all cards now have EMV crypto chip which makes traditional credit card fraud impractical. The merchants pay for the EMV terminals themselves, and the risk of offline, non-EMV transactions is born by the merchant alone. This greatly diminishes the risk of the payment processor.

AFAIK EMV terminals are not required in the US, and the payment processor bears all the risk. This could explain why they must charge higher fees, too.

Your information is dated.

Pretty much all new US cards now have chips in them. Nearly the entire market has shifted over to that in the last year. The only cards remaining without chips are those that are running out their expiration date.

Merchants are now liable for fraudulent charges if they haven't switched to EMV terminals. The payment processor hasn't born that risk for nearly a year.

That's good to hear. My information is based off a friend who worked in credit card defaults, but it's some couple of years ago when he elaborated on the differences between US/EU on this regard.

No pin required however. Just to clarify.

Meanwhile pretty much all retail/ATM withdrawals in the EU require both chip (something you have) and PIN (something you know).

>ATM

Chip ATMs are extremely rare in the US. Which sucks, because the chip in your debit card is only as good as the difficulty of finding a non-chip ATM.

Chase bank updated their ATMs recently. Pretty sure it's just a matter of timing at this point before most ATMs are chip-enabled.

It's fun to watch Europeans (like myself) use ATMs in the US.

They insert the card. Nothing happens. After a while they get confused and pull out the card. By then some infomercial is playing.

Eventually they figure out you're supposed to swipe your card in the ATM. There is nothing on the machine that tells them to do so. European ATMs tend to be wonders of usability in comparison.

It's an interesting UX lesson.

>Pretty much all new US cards now have chips in them

Yeah, but pretty much all chip readers in the field are disabled. It seems most merchants would rather eat the fraud then issue a configuration change (!!).

Actually its much more than that; with "discounts" (all the premium points dollar matches etc) its more like 5-6%.

How can it be done and continue for years in the USA, you ask? here: https://en.wikipedia.org/wiki/Lobbying_in_the_United_States

I'm intrigued by this type of case - this article doesn't mention any specific legislative requirement that fees should have been less during the period concerned. It's a strange precedent that a company can be retrospectively liable for charging "too much".

This is similar to the case of Apple and their tax dues in Ireland.

Maybe someone with a better grasp of legal matters can explain a mechanism that gives this case a chance. Otherwise I can't see this claim succeeding without causing a great deal of business uncertainty.

My guess is they are trying to get it labeled as an invisible tax because a mastercard transaction fee wouldn't have shown on the receipt or the customer wouldn't have known they are paying higher prices due to the transaction fee.

It's not that unusual in the antitrust context. The whole theory of antitrust is that anti-competitive behavior allows a company to charge prices greater than they would be able to charge in a competitive market. If a company is found to have engaged in anticompetitive conduct, it's common in a civil suit for the measure of damages to be the difference between the prices actually charged and some judicially-determined market price (usually based on an econometric expert analysis).

This makes sense - I think the Reuters article was quite misleading. I posted another comment [1] with a link to a Guardian article that supports what you wrote.

[1] https://news.ycombinator.com/item?id=12463745

My wife and I stopped using credit cards for most things because we're fed up with the whole system. We use cash for groceries and such, the bank pays all of the bills automatically, and we use debit cards for retailers that we trust online (mostly amazon). Credit card use is fairly rare in my house these days.

How do you build credit history? Also, isn't it easy to dispute credit card transactions as opposed to debit card because with a debit card money is immediately removed from your account.

Why would you need a credit history if you don't use credit?

Credit score effects your insurance rates (in the majority of states) and your ability to rent an apartment.

Getting a mortgage is the big one.

That said, I think people worry too much about credit histories. And every foreigner I've met who moved to the US as a pharma scientist with a 6 figure salary has been able to get a mortgage despite not having a credit history in the US. A good credit history (vs. having none) generally seems to matter when you are getting a mortgage close to the limit given your salary.

Some employers will run credit checks on prospective hires.

Hasn't been an issue in my case.

I've had my credit checked as part of background checks the last two times I've changed jobs. AFAICT they aren't interested in my (abysmally low) credit score, but are rather using it as a signal that I am who I claim to be - which is essentially what the background check is for in the first place.

A very low credit score doesn't stop me renting an apartment either, probably for similar reasons. Although it did mean I couldn't rent in the presidio

These days we don't worry about it much. We pay all of our bills on time (including the mortgage that usually gets some extra to principal) and we do occasionally use credit cards, so I expect that there's some good history there. But I don't plan to ever need it again.

In my experience, I've had to cancel one credit card and one debit card due to fraudulent charges. With the debit card, you're right, some money did disappear for a few days, but the bank put it back as soon as we signed and notarized a form.

For the credit card, they dropped the charges right away without me ever paying for it, but the merchant (ebay) sent my info to a collections agency, so it ended up being more of a hassle then the stolen debit card.

They traced the debit card theft back to a string of thefts at a department store we had shopped at (presumably one particular employee), but we now use cash for essentially all shopping, so that isn't a risk anymore. (Although I do try to watch out for card skimmers on ATMs.)

Having a larger percentage of your total credit unused gives you a better score... and the older your credit accounts are also improves your score... I don't think that using your credit cards increases your score (check out creditkarma.com, they give lots of insight as to how your credit score is calculated)

You sound to be pretty responsible when it comes to money. If you're paying bills on time, why not take advantage of the cash/travel rewards from credit cards?

I'm against rewards cards on principle. I think it's basically a legalized bribe.

But, when I said I pay my bills on time, I actually meant that my bank pays my bills on time. All of my regular bills are paid automatically through my bank.

For travel, airfare and hotels do go on credit cards, but more often then not, we drive and stay with family or friends. (Excluding work travel... but my job pays for that.)

Since the retailers are required to charge the same to credit card customers as to cash customers, when you use cash you are subsidising all the people who are using credit cards.

If my local retailer thrives it is marginally beneficial for myself as well. If some remote payment processor thrives.. not so much.

My point is that when you use cash, some of that cash is still going to the remote payment processor, since your cash is subsidising the card fees.

Wondering if the crux of the suit could be applicable/have implications in other parts of the world as well?

That's almost guaranteed. Most other parts of the world are (even) more corrupt though.

This shows how important for Fintech companies to care for regulations and compliance as equally or more than just focusing on the technology side.

To make sure I understand, Mastercard illegally overcharged for credit card processing, and merchants passed the charge onto consumers, so consumers have standing to sue Mastercard.

If I've got that right, can someone with an understanding of British law explain how that works? In a case like this in the US I don't think consumers would be able to sue a card issuer.

I wouldn't mind using my debit card more often if it had the same type of insurance against fraud as my credit cards.

I don't really care about cash back and I know that retailers pay high fees, but I don't get any kind of cash discount with debit other than gas and I don't want to risk having my check account cleaned out.

If you put everything on a good cash-back card, and you pay off your balance every month, it can really add up. Let's say you run $30k a year through your card and have something like the 2% cash back Citi DoubleCash Mastercard. That's $600 a year you're foregoing by not caring about cash back. Just a thought.

It's not that I don't care about cash back, but I would simply prefer prices in general be 2% cheaper rather than having to claim them via a cash back card.

This type of thing warps price perception and just passes the costs back onto consumers in other ways.

It probably passes the costs back onto poor consumers (or the ones that can't get credit cards).

>Mastercard is alleged to have done this for 16 years between 1992 and 2008 ... Two years ago, the European Union capped the fees retailers pay at 0.2 percent for debit cards and 0.3 percent for credit cards.

Seems the EU is getting rather fond of the retroactive law change shakedown, at least when it comes to US companies.

Two years ago the EU capped the fees, but that's immaterial to the fact that the fees prior to that were determined to be illegal under anti trust laws. The article is confusing, it's written badly and is mixing numbers and laws up. My understanding is this is not a retro active shakedown.

Also, I can only assume you're referring to Apple's case. My understanding is that calling it a retro active law shakedown is misleading. It was always illegal (who to blame for facilitating the behaviour is another question).

Consumer protection was one of the main reasons I voted to stay in the EU. Without the EU's clout these companies would be exploiting consumers relentlessly indefinitely and it's good to have an entity with clout who are able to fight back.

How is a 1% fee excessive? If you don't like MasterCard's rates, then don't accept MasterCard. If the government wants to ban such rates, then ban them. But allowing it for 20 years then digging up some vague "excessive fees" provision and demanding two decades and $20 billion worth of "excess profit" is nothing but a business-hostile dishonest shakedown.

> If you don't like MasterCard's rates, then don't accept MasterCard.

Visa and Mastercard basically have a monopoly on the market. To not accept Mastercard would do orders of magnitude more damage to your business than the impact your protest of not accepting them would have. It's completely unrealisitic to present that as a sensible option.

> is nothing but a business-hostile dishonest shakedown.

From the Guardian:

“MasterCard charged billions of pounds of unlawfully high fees for its sole benefit and to the detriment of consumers. It has already been found to have broken competition law, the basis of which was to protect consumers, and that cannot be disputed. There is no basis upon which MasterCard can contend that its card fees were not unlawful.”

So actually, Mastercard are the ones being business-hostile here.

My whole point is that "unlawfully high" was totally undefined. The intentions of the law are totally irrelevant here, just how it's being applied. I may not agree that it ultimately helps consumers, but if the EU wants to set rules for pricing, that's totally within their right. Applying rules retroactively is not fair and it creates uncertainty that strongly discourages businesses from rising and operating in Europe.

A law is not fair if there is no way for a reasonable actor to know whether their actions are legal or not. It's especially unfair when something is seemingly fine for 20 years but suddenly becomes not fine and the government wants to confiscate retroactively. This isn't some ongoing wrongdoing that was only recently discovered; MasterCard had this arrangement with probably hundreds of thousands of companies for decades.

Well if they have a monopoly then someone should tell Diners Club, Discover and UnionPay to pack up shop and go home.

Oh, cards with <1% market share (Discover) or not issued at all in Europe (Diners, UnionPay)?

There are Diners cards in Sweden at least. Last time I checked, Sweden was still in Europe.

Thanks for noticing, I mixed up Disover and Diners. The former is not issued in Europe, the latter has under 1% market share (according to the Nielson Report).

Who?

I agree the posted article isn't particularly clear - found this one [1] on the Guardian that's better.

The understanding I get from it is that MasterCard could be liable under UK law now that the EU court has decisively shown the fees charged to have been anti-competitive. What's required for the UK claimants is to show that harm was caused to them by these anti-competitive practices and that redress is due.

The Reuters article makes it seem like "the fees were just too high" is the reason for this suit. A court-of-law decision that anti-competitive practices took place makes a lot more sense as a pretext for a claim like this.

[1] https://www.theguardian.com/money/2016/sep/08/mastercard-sue...

Austerity is rough, I suppose.

I'm not a huge fan of credit card companies, but trying to do business in an environment where you are potentially subject to ex post facto laws at any moment sounds like a nightmare.

I guess the only way to protect yourself would be to try to curry influence so that the tides of politics don't run against you.

Antitrust isn't exactly an issue until you have a significant amount of market power. It's not like it's likely to affect most people who start businesses. Hostile to big business maybe, but not so convinced that's a bad thing..

Rather than being a conspiracy against US companies, it's much more likely that because you are American you have not heard about similar cases that only involved European banks.

For example: https://www.theguardian.com/money/2014/sep/27/landmark-rulin... and https://www.theguardian.com/money/2014/feb/03/ppi-banks-miss...

How is it possibly fair to demand repayment for two decades of "excessive fees" which are not defined in the law and were only clarified by the EU in the last two years. Unless I'm missing some crucial information, this just looks like a shakedown of an American company.

Isn't this what happened with Apple in Ireland? They only decided now that it's wrong, yet they want apple to pay back for the last 20 or so years? Even though back then it wasn't seen so much as a problem.

Well no, in that case they decided that Ireland violated the treaties it previously signed.

I can't compare to this case but that was only retroactive in that they discovered the problem later.

which is even more confusing, as the govt is being rewarded for violating treaties by being paid back all the tax. Was the govt not more in the wrong than Apple was? (sorry, thread hijack)

And presumably all the other states will want a share of those profits transferred to Ireland to avoid tax.

It's not a reward for the government, hence why they have lodged an appeal. Ireland has a lot more to lose by accepting that tax money than they would gain.

Just like the Cement price fixing cartel was only found and prosecuted only after it had been running for years.

> this just looks like a shakedown of an American company.

Mastercard being American has nothing to do with it. UK banks have had to repay literally billions of pounds for similar things. See:

https://en.wikipedia.org/wiki/Payment_protection_insurance https://www.theguardian.com/money/2014/sep/27/landmark-rulin...

Depends on how you try and reason about this; The fact that there was no clear definition doesn't mean it wasn't excessive beforehand, just that the definition wasn't clear.

To the extent that this doesn't request damages beyond the fees collected, you could interpret this as a decade-long interest free loan to Mastercard. Obviously that's a bit of a facetious interpretation, but the fact that something wasn't spelled out as illegal doesn't mean it wasn't wrong.

Of course business prefer to get away with as much as they can, but there's no reason we have to accept this as the way things should be.

"Get away with"? We're talking about market pricing decisions. There's no morality involved. Is every business in the EU supposed to be worried about violating some undefined threshold of "excessive profit"?

"Market pricing decisions" are not exempt from moral judgements.

See: recent medical pricing scandals in the US; Martin Shkreli/Daraprim, Mylan/Epi-Pen

Mastercard isn't really in the same bucket, but we do have anti-monopoly/anti-trust measures which aren't particularly well defined and seem pretty applicable here.

MasterCard or Visa aren't a monopoly/duopoly. At most, there's some inertia getting people to switch. The banks had the same problem getting people to use them in the first place, and it's a solvable problem if Visa decided to abuse its power.

They aren't comparable at all to the old railroad, steel, and oil companies. Credit cards are an extension of the idea of a promissory note - a piece of paper with "I agree to pay you $X" written on it. It's way more practical for businesses to not use them to process payments than it is to quit using oil, or to quit using the railroads.

Absolutely incorrect. If it was that easy, things would've changed long back and you would've named more companies than MasterCard / Visa. One simple logical case in point - MasterCard and Visa have such a strong investment in their infrastructure, there are multiple levels of redundancies built in to such a degree that you never hear Mastercard or Visa networks going down. Try doing that for any other firm. Why, just this morning, there was another thread on HN about a game developer suing a service provider for not keeping their systems online. What this enormous investment in infrastructure offers is 'trust'. Trust to financial institutions, merchants and customers. See Dwolla and Rupay as examples of alternative interchanges (Dwolla isn't one, but is trying to disrupt ACH and is similar in spirit). See if they can scale and promise that to the whole world payment traffic. Lastly, talk to anyone entrenched in business about payments and they'll refer to MasterCard and Visa as 'rails'. That's for a reason.

What about all the new mobile payment services? Apple Pay, Android Pay, Samsung Pay, the Walmart one?

I don't use any of them - I have a prepaid cell phone that lays on my desk 100% of the time, and is for emergency purposes only - but even if they were backed by Visa or MasterCard, it seems like they could be backed by a checking account just as easily.

Visa or MasterCard have value from inertia(all the work they did getting everybody to sign up for their cards), from their relationships with the banks(the banks tried and failed to do the same thing), from their ability to process payments worldwide, and from their infrastructure.

It's not clear to me what prevents Google from taking over if Visa started abusing its power. They have the inertia(everyone has a cell phone, though not the habit of paying with it), they have the infrastructure, I think cell phones work internationally, and they're big enough to develop a relationship with any bank.

To be clear, Visa and MasterCard are going to be extremely difficult to replace in the 'plastic payment cards' business no matter what they do. But not the more general 'electronic payment methods tied to bank services' business.

You say inertia, I say network effects. The fact that network effects arise naturally doesn't mean we should be ok with those barriers to competition.

The fact that Apple/Google/Samsung have failed to make a serious dent should be a good indication that there are real barriers to entry.

At least the first two on your list still use Visa or MasterCard under the hood, and still use the same infrastructure as paying with your generic NFC payment card -- and while I'm sure there are other companies providing such services, in practice I don't think I've seen an NFC payment card that wasn't Visa.

The issue here isn't so much getting the kit into the hands of the consumers, as into the hands of the retailers: if they can't use the infrastructure they already have, you'll have real difficulty getting any traction. See Also: Powa, which for all its other failings still had the over-arching failing that they were trying to facilitate two-sided transactions without having anyone on either side.

What's funny is that there's a generic alternative to Epi-Pens called Adrenaclick that works just as well, but that the politicians at the FDA and other agencies have put roadblocks in front of. I have no problem with Mylan raising their prices. If they were the only option, then I think the government would have a case for exercising control on price. But this is just politicians screwing up and trying to blame Mylan.

> Is every business in the EU supposed to be worried about violating some undefined threshold of "excessive profit"?

Every business in the world should be worried about making "excessive profit" if that profit comes from a duopoly or a monopoly.

Only the companies invested in low-competition markets with monoplistic tendencies need to worry. This is framed as an anti trust case, which means that the abuse of privelidged market position is the issue - not the company's profit in and of itself as you suggest.

They are defined in the anti-competition laws. The fees charged were anti competitive.

I could just as easily make an argument that the American company was shaking down European consumers for 16 years and accumulated an unfair windfall.

Also, when dealing with entities of this size, laws really take a backseat. The effectiveness of any law is directly proportional to the economic damage you can inflict on the opponent.

I live in france and many small stores don't accept debit card payments if it's under a certain sum, like 10 or 5 euros. I asked once, and I was answered that banks those stores for each of those payments, so stores refuse payments if it's under, that's what I think is happening.

I already saw stores who don't accept debit cards. I don't know the reason, but the equipment might be too expensive for them. Obviously debit card technology is mostly american.

> Obviously debit card technology is mostly american.

There's a french version since 1967 and it uses a chip since 1992 (probably the first country where cards with chips was in widespread use)

https://en.wikipedia.org/wiki/Smart_card https://en.wikipedia.org/wiki/Carte_Bleue

> In 2010, Carte Bleue was phased out and was replaced by Visa Classic debit.

The system mostly relies on american systems. I don't have anything against it, it's just that originally, it's american, for the same reason PC computers technology is. Non american countries don't really have their own standard, not that it matters, but in term of how the expertise and business are owned, it does matter.

The global system won (because convenience), but carte bleue worked fine for over 40 years. Many country still have their own standard (e.g. EC Card in Germany, Dankort in Denmark, etc.), but yes over time the Mastercard/Visa duopoly tends to win.

And as far as I know CB was not based on american technology (and the fact that they used chip-pin so early was kinda unique), do you have source to the contrary?

There is a transaction charge of about 20c. Not exactly a big deal if you are spending 10-15euros in one stretch. But if you are buying 2-3euros in beers 20c can eat up all the margin.

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