Hacker News Reader

Comment by kccqzy | Hacker News Reader

Relevant: due to Ohio v. American Express, merchants are generally unable to steer customers from using a particular card. For example if a merchant accepts Visa at all, the merchant has to accept all Visa cards, not selectively choose the lower-fee cards; the merchant also cannot tell the customer to use Discover instead to save costs and only use Visa if that's the customer's only card. This anti-steering provision is originally invented by AmEx and now all four major networks have this requirement. And the SCOTUS just ruled that anti-steering provisions do not violate anti-trust regulations. So the only possible recourse is to outright stop accepting a particular payment network.

https://www.supremecourt.gov/opinions/17pdf/16-1454diff_6579...

View on HN

AmEx was one of Warren Buffet's earlier investments, and a proof-of-concept of investing in companies with defensible moats. This ruling comes 55 years after his initial investment, and the moat feels as deep as ever.

Later businesses have perfected the art of winning the customer relationship and solidifying their lead with hardball terms for vendors (Walmart), merchants (Amazon), advertisers (Facebook/Google), developers (Apple/Google) and contractors (Uber).

Very interesting quote from Musk: “saying you like moats is another way of saying you like oligopolies”.

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

If your only goal is to turn a large amount of money into an even larger amount of money, you ought to love oligopolies.

Investors love them, consumers pay for them and regulators should prevent their abuse. Sounds like oligopolies alright.

To bring in another PayPal toe-in... Peter Thiel made some waves when he said the whole point of being a business is to create a "monopoly." His definition of "monopoly" is more similar to Buffet's "moat" than the legal definition of "monopoly."

There's something very valuable in those guys' intentionally provocative choice of words.

>There's something very valuable in those guys' intentionally provocative choice of words.

This isn't new thinking via Thiel or Musk. Michael Porter detailed this in his "Five Forces" article in 1979.

https://en.wikipedia.org/wiki/Porter%27s_five_forces_analysi...

True. Nothing novel in any of these statements.

This isn't science though, where someone discovers a thing and now it's known. Moreso, it's the current terms of the conversation. Imo, these are positive contributions.

> His definition of "monopoly" is more similar to Buffet's "moat" than the legal definition of "monopoly."

There isn't really a difference: the whole point of a Buffet “moat” or a Thiel “monopoly” is avoiding commoditization and competition, which naturally tends to drive sale price down to marginal cost eliminating profits. That is, they are about retaining pricing power.

Pricing power is also the key test for the existence of legal monopoly, since the existence of pricing power indicates that there are no actual substitutes in practice, even if there appear to be alternative products in the same descriptive market.

It's a test.

Honestly though, even the trust-bustiest of onlookers probably wouldn't call everything Buffet considers "moat" a monopoly. I buy fairy dishwashing soap. If the supermarket doesn't have it, I like the supermarket slightly less. If it's 10% more expensive, I still buy it. Home brand dishwashing liquid doesn't have this advantage.

That's a moat. It's not really a monopoly though, just a "relationship" with customers.

It's not a question of liking moats or not. Nobody has found any other routes to scale quickly. The moat is fundamental to producing the kind of scaling we see today.

Scaling quickly is not the greater good.

Sometimes it is.

For example?

    [citation needed]

But how many moats there could be in world (or in any given market) ? Furthermore which should ask on which side of the moat are we and if it's good for us to be there.

There was a post yesterday which fundamentally is about this issue https://news.ycombinator.com/item?id=17642551

It's a competitive world full of highly ambitious people. As long as the only tool they have to create/expand/defend their empires is moat building that is all they will robotically do irrespective of the cost.

The pressure on them to do so is massive. And it's the easiest thing for them to do. So they do it.

Ofcourse things constantly collapse. Ask Genghis Khan, the East India Company etc etc And after collapse everyone stands around like Alan Greenspan saying wtf happened?

It's not necessarily moats I'm opposed to; it's moats that are created or defended using crony capitalism that I'm opposed to.

It has been asserted elsewhere in this HN discussion that Visa charges merchants higher amounts for transactions with higher-end rewards cards.

Assuming this is true, and these anti-steering provisions prevent merchants from discriminating, what prevents Visa from issuing cards with 200% fees? What's holding the cash back level at a mere 1-2%?

Competition with MasterCard, Discover, and Amex should hold them back from doing this, because at such punitive rates merchants would definitely stop accepting them.

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...).

Some of the Amex fee changes will likely have been as a result of a nudge from the EU ruling that includes their double-branded cards (e.g. British Airways AmEx) in the 0.3% fee cap in Europe which previously only affected visa and MasterCard.

Visa actually does that from time to time, though not to the degree you suggest :).

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)

Everyone would immediately stop taking all Visas.

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.

I'm speculating that if that happened, we'd see more stories like this one.

In Europe at least, this would be regulation. There are max amounts on fees.

The conservative-controlled court has generally ruled that a contract is a contract is a contract. A contract may void all rights and it may override the laws of the sovereign States. Contracts are the ultimate tool to subrogate rights into someone elses hands.

Once you understand that you can accidentally sign away human rights, a corporation signing away its "right" to speech under corporate personhood also makes complete sense.

When I heard about this ruling, I was shocked. Information and transparency in agreements should not be against the law.

But are they allowed to charge a surcharge to a customer for using a particular card?

If the credit companies have their way, no, they ban different cash/card prices in their take it or leave it terms.

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.

The charge is to the merchant, not to the customer. In general, the price marked on the good factors in the credit card fees, because almost everyone uses credit cards. So, if a buyer uses cash or a debit card, he should always negotiate for a 1-2% discount.

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.

Indeed, Ikea in Brooklyn offers 1% discount if you pay with a debit card; didn't check elsewhere but likely it's the same in their stores over the US.

Given credit cards that offer 2% back, a 1% discount for debit or cash isn't enough.

In Australia the government put in legislation to cap the maximum credit card surcharge that a merchant could charge the customer to the actual fee that they pay on the card.

When I was there I remember things like $10 or $20 minimum and also anywhere up to 5-10% surcharge for paying with a card.

They basically banned the $10 minimum. It isn't all in favour of the CC companies though. They are limited in what they can charge vendors for each transaction, which is why credit card churning isn't worth as much money in Australia as the US.

The UK did too. The cap is 0.

Well, the EU did.

Visa should (and I think already does) prohibit charging extra for using visa versus other payment methods.

Edit: seems like they make a distinction between charging extra versus giving a cash discount and the latter is more acceptable?

I have seen additional charges to the client on certain websites for using credit cards or amex. But I am in Europe, not in the US.

From what I’ve read, VISA prohibits merchants from asking for an ID from customers. However, will you argue with a cashier over it?

Reply on news.ycombinator.com