Credit-Card Backlash Mounts as Kroger Weighs Expanding Visa Ban

I believe Amex is only able to get away with its highest-in-the-industry rates because of the association of Amex cards with business expense accounts and high income earners. This is changing now (https://www.ft.com/content/715d785e-23fc-11e8-ae48-60d3531b7...) especially after years of competition from banks like Chase, who have been working on creating what is essentially a structural clone of American Express’ network (https://www.reuters.com/article/us-jpmorganchase-creditcards...).

They charge what they can get away with, and generally they can, or rather could, get away with the higher rates. A couple of percentage points was worth it if it made the sale, especially if there was a high likelihood that your customer only had that one method of payment. Now almost everyone has multiple cards, and many retailers are pushed to much lower margins, so we see the results that we see.

Here is one example from Australia, where 15 years ago I worked on credit card pricing and product design...

When Platinum cards were introduced to Australia, the banks agreed to a high interchange rate for Platinum and an offsetting reduction in interchange on other cards. I forget the exact interchange rates; they were on the order of 150bp (1.5%) and 50bp, giving a weighted average around the then regulatory cap of 65bp.

My bank was ready for this, so we moved most of our high-spending customers to Platinum ("in recognition of their status") and reaped a windfall from the higher interchange. Part of that was used to fund more loyalty rewards on Platinum. But most was pure profit...

Over time, regulators got wise to this, and reduced the overall interchange rates to the minimum (possibly 35bp in Australia now). Essentially in Australia it is enough to covers the scheme running costs and disputes/fraud. Loyalty has to be funded in other ways (annual fees, cross-subsidies from other customer revenue, points caps, reduce value of points, making it harder for customers to redeem points, etc).

This means customers in shops are no longer paying the cost of loyalty schemes even if they pay with cash.

(Amex operates under slightly different rules from Visa and MasterCard because the legal relationship between the merchant, scheme, issuing and acquiring banks and customer is not the same. That is why Amex can often offer better rewards that Visa/MC in regulated markets like Australia, UK and Europe)

I like Musk’s focus on innovation, and I also thought this was interesting because it came from one of the PayPal+ group.

Edit: To clarify, some U.S. merchants do charge a "credit card fee" or enforce a minimum charge amount to all customers using credit cards for their purchases. I have never seen one charge a surcharge only to Visa users or only to Amex users.

Some regulators have disagreed, but in most places the card lobby won out because cards impose tax transparency, so the higher prices shifted to consumers also translate to higher tax receipts for the government.

(I think they used to exist, just not any more)

[1] Citi Double Cash

[2] Fidelity Rewards Visa

The AX card rebates 6% on groceries, 3% on gas, and 1% on everything else. The Visa pays 2% on everything else. No silly quarterly schedules on changing categories of spending.

Therefore, groceries and gas go on the AX Blue, and everything else goes on the Visa (which used to be an AX card, oops, AXP!). And, of course, both cards get paid off in full every month.

If you travel for business a lot, there are a dizzying assortment of deals. But I no longer do, so the above seems optimal for me.

To add to this, back when I was a retail cashier in high school, there was also the threat of having too much money in the register. Either by negligence, due to miscounting a customer's change, or of outright malevolence (by doing the same). Before I even began training at the register, I was told by the store manager that if the cash in my drawer at the end of my shift was over the amount that the transaction history specified I should have (I believe this was > ~$5 lifetime? It's been a few years so I'm foggy as to the exact figure) that I would be let go.

Now, I don't mean to bring this up to debate the point one way or the other, just that it is yet another friction to managing cash as opposed to credit cards.

Also just because cash has costs doesn't mean credit card fees aren't insane. They could be close to 0% if they implemented real security to reduce fraud, and there was actual competition (vendors were allowed to pass fees on to customers).

It needs to have real transaction authentication so I don’t have to deal with fraud and it needs to decline transactions when I actually don’t have enough money in the account (instead of charging $40 in fees.) That’s it, but no one seems to offer that so I use cash instead.

50% of the country is broke, 80% live pay check to pay check.

Many working minimum wage, low income bracket do not have bank accounts.

The idea that cash is ‘hard to operate’ is a stretch, we’ve been exchanging currency for as long as commerce existed. If you handle enough cash to need an armored truck, you are far above most businesses in processing.

There are a few places in NYC that do not take cash, and they exist in their own micro economy revolving around serving lunch.

In addition, with cash, there is another abstract (collective) benefit. It is anonymous. An entity can neither trail a single dollar bill as it moves through individuals, nor arbitrarily prevent certain individuals from spending. Electronic forms of payment are less free and less secure from a very broad social standpoint.

To be clear it’s not a single network, there are two networks that fully interoperate.

Unfortunately we don’t have any regulation on credit card fees, so both credit cards go up to 2% and debit cards take over 1%. This has made the banks (who own the largest EFTPOS provider) reluctant to upgrade the system to support contactless and online transactions, both of which are possible with the technology.

It became popular with the consumers because there is no difference between cash and the debit card. It was popular with retail because it was cheap to handle.

Consumers would typically get the card for free from the bank. If you wanted it to work as a VISA card abroad as well - then you would typically pay $31/year. Points, percentage, milage and whatnot are virtually unknown.

Many retailers opted only to accept this card because the international cards where more expensive (but available!).

Unfortunately regulations are going in the wrong direction. The banks have now gotten their saving by handling less cash - so now they're pushing for more fees.

A brilliant construction which could have been a great stepping stone for a true cashless society now slowly turns into a "same same". It goes to tell - never let liberals near infrastructure.

You are fully covered if you in no way have been negligent.

If the PIN code have been used you have a own risk of $173.

Have you been negligent the own risk goes up to $1255.

In very severe cases you can be made fully liable but that is very rare.

For context, not one person has ever mentioned to me that their card got skimmed here in the UK in the two decades since I've been an adult. They occasionally warn of it in the newspapers, but I've never heard of an actual case of it happening.

As I understand it, most western European countries have had chip and pin for a long time before the US did. I first saw it in Holland about 25 years ago, and in the UK it's been the norm for almost 15 years.

Damn, I feel old now.

You mean the merchant pays a higher fee when you use one Visa card vs. another Visa card? Or you mean compared to Mastercard etc.?

Profit before Visa is $100M, profit after Visa is $80M.

I ask, because 3% cc fee from a 2 percent margin is huge, but a 3% fee from a 80% margin that averages out to 2% because of spoilage is much smaller.

They do want to decrease any costs they have, though. The credit cards charging a percentage of revenue instead of retailers' profits or card companies' transaction costs + reasonable profit is ridiculous. Companies like Walmart and Kroger would love to cut that difference out. Given Kroger's growth and low-profit strategy, my initial guess is that blocking Visa would probably be a dumb move on their part. We'll see.

>20% gross margin

Competition will lead to that. It doesn't happen immediately, it happens in waves. These are called price wars. When that happens, they try to undercut competition at every possible turn, and having lower payment processing fees allows them to go lower. Who wins a price war? The consumer.

Yes: points are ridiculous. The fact that credit card fees are passed on to cash payers is ridiculous. Visa and Mastercard are absolutely minted. Where does that money come from? You and I.

(and: why does competition not work for Visa and Mastercard as well as it does for retailers? Because the feedback loop is much longer. Intractable, in practice. Choosing one retailer or the other is a clear signal we can send. But are we going to choose merchants based on payment processor support? As for merchants, they're stuck in an oligopoly. Competition is gone, leading to this unhealthy market.)

They are probably illegal (or against contracts) in most states, but you see them very often.

It has been amazing to see how fast such apps gain penetration in the market.

Which is basically replacing visa with the Norwegian bank.

I guess I have never wondered about it before, but i am surprised there is not a international common payment request protocol - "move 100 from a to b". Each bank could have their own gateway but as long as it understood the protocol ...

IIRC, a recent figure for US interchange revenue to originating banks was around $40 billion a year. (Interchange fees are a large component of swipe fees.)