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Comment by rossdavidh | Hacker News Reader

I'm sure they've thought about it. However, as others have found, getting through the amount of fraud out there with a margin less than the ~3% that credit card companies charge, is really hard. I mean if you were perfect that would be 3% profit. If your uncaught fraud rate is even a few percent higher than that of companies who have been doing this for a long time, you will be bleeding money.

Again, I'm sure they've thought of it, but the credit card companies are actually pretty good at a very hard task, which is enabling super-easy and quick payment verification without getting eaten alive by fraud.

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I am continuously shocked by the amount of defense that people have towards Stripe. I remember mentioning Stripe's 3% fee being too high for me the other day at a community event and I was attacked by people defending Stripe and their fee. These are people that don't work there, and have no true involvement with them (other than using their APIs).

Sorry everyone, but you really don't understand that Stripe's position is literally the middleman of everything. Their "product" is the API. Simplifying and unifying what the various processors have done and marketing the hell out of it.

That 3% fee that everyone defends is truly almost pure profit for them. I currently work with another payment processor (one of the top three largest in the world) and our credit card fees are measured in basis points. For those that don't know... a basis point is one-hundredth of a percent. The fees we are charged by our processor isn't even whole percentage points, it is measured in basis points. Granted it is more complicated because there are different fees for AMEX, Mastercard, Visa, etc. But it is still all totaled out to fractions of a percent.

Keep in mind that my credit processor is still making money while charging me in basis points (and they have way more employees than Stripe does). Stripe is a competitor to this processor. So if this processor makes money charging fees in basis points, than Stripe could make money charging in basis points too.

And before people think that I work for Walmart. I'll just say we charge about 2M a month in credit cards which is relatively small.

I promise that Stripe is doing very well off their 3% charge. I am not saying that they aren't allowed to make good money, but I really hate when people defend them like they are barely scraping by. Stripe is laughing their way to the bank with your 3% processing fee. They laugh even harder when they read you defending their outrageous fees.

Uh, that 3% includes the amount they are passing on to the credit card company. Which, for a little guy like me, is around 3%. It is literally no more expensive to go with Stripe than to roll my own.

Yes. Years back we moved from Elavon to Stripe since 2.9% on each transaction sure beat uncertain 1.9-5% we were getting based on what card customer was using (corporate and point cards carried bigger fee).

Stripe might be taking 30% of that 3% and passes 70% to payment networks. please look at adeyn balance sheet(https://www.adyen.com/investor-relations)

Well I would assume Stripe gets a better deal than a little business would, and I would expect them to take some significant cut, otherwise they would not be a viable long-term provider, yes? I don't want to be exploited mercilessly, but I also don't want to rely on a payment processor that makes no profit, it seems like they would not stay around for the long term.

Exactly. I signed up with stripe maybe 5 years ago. At that time, I was trying to find a processor, and came close to signing with a bank. The bank wanted me to sign a long-term agreement, the agreement had disadvantageous and confusing terms with unclear costs, and it was more expensive than stripe at baseline. The sales process was really sleezy: I only discovered all those terms because I read the contract carefully before signing.

Before that I used two other processors, both of which had a confusing mix of monthly and per-transaction fees.

If you are a very, very large business, maybe you can do better than stripe. But if you are small or even medium size, I am skeptical there is a better deal out there.

Even a small business can easily do better than A (when it comes to fees). The only time stripe would be a good deal is if you are processing almost exclusively high end corporate cards like Amex or corporate purchasing cards.

Stripe and others like them is also the best rate if you are processing very small annual amounts. Because every merchant account has around $10 in monthly fees, minimum. If you are not paying a monthly fee, either your processor is paying it, assuming that they will make enough on the spread to make up for it, or they are running your processing under their own merchant account and taking on the risk. Which is likely what stripe does until an account is large enough to warrant moving it under its own merchant account.

Here is an example of a relatively expensive rate for processing with a merchant account (2% plus 10 cents per transaction, with a 10 monthly fee) versus Stripe. Note how the breakeven for getting a merchant account is when you start processing more than $428 a month(assuming an average transaction is $15).

https://www.desmos.com/calculator/zuzn1lhfdg

My experience in the U.S., admittedly as a very small size merchant, is that 2% +10 cents is considerably better than I can get with a bank.

Banks have 2nd tier offerings for credit and debit processing that don't focus on gaining customers with low rates. There are a handful of platforms, First Data, Tsys, Elavon, Worldpay/Mercury & Heartland, and everyone who sells merchant services is selling you access to one of those platforms.

I was casually chatting with a small business owner about five years ago and he was raving about how much money moving to Stripe saved him, especially on AMEX cards.

stripe gets probably 0.8% + 5¢

I would love to know where you are obtaining an average sub 1% processing cost for US cards. USA has some of the highest interchange fees in the world.

I wonder how this come about. Interchange in Australia is way lower, you can get rates around 1% without too much effort and interchange plus rates even lower on average.

You would think a larger market like the US would be lower not higher because of the volume.

Is chip and pin ubiquitous in Australia? That would lower fraud rates. Also, the EU has a 0.3% cap on interchange. Average in US is 2%. My guess is Australia has a cap as well. So the answer is, lobbying.

Yeah turns out we do have a cap:

The weighted-average credit benchmark of 0.50 per cent will be maintained.

The weighted-average interchange fee benchmark for debit cards will be reduced to 8 cents per transaction, which will apply jointly to debit and prepaid cards in each scheme.

Interchange fee caps will be supplemented by ceilings on individual interchange rates: 0.80 per cent for credit; and 15 cents, or 0.20 per cent if the interchange fee is specified in percentage terms, for debit and prepaid.

To prevent interchange fees drifting upwards in the manner that they have previously, compliance with the benchmark will be observed quarterly rather than every three years. A scheme will be required to reset its interchange schedule in the event that its average interchange fee over the previous four-quarter period exceeds the benchmark.

Also chip and pin is ubiquitous.

Hey if Stripe really is reaping in the profits I have great news for you! Someone, maybe even you, can launch a competing project, offer a similarly polished API, and charge 2.5% and reap slightly less profit but still almost pure profit! Once that happens, Stripe will be forced to reduce its fee and everyone on the internet will be able to keep a little bit more of their money. Everyone wins (except Stripe and NewCo)! In the meantime, people get to choose if paying Stripe 3% is worth all the headache that it saves or if they are better off with a different approach. Hopefully not to many people will get tricked into pay Stripe outrageous fees for being a middleman while we wait for capitalism to work.

This is wrong. Stripe passes 2% or more of it's 2.9% on to Visa/MC and the card issuers. And larger Stripe merchants can negotiate that down as well as enter into an "interchange plus" arrangement which would be measured in BPs.

>>> I promise that Stripe is doing very well off their 3% charge.

I will tell you a secret. Stripe is not doing very well because they have a small volume of payments, all clients combined. A percentage of peanuts is peanuts.

I looked at them when I was working at a startup 2 years ago. The volume of transactions we were processing yearly was a 2 digits percentage of what Stripe was processing yearly across all their clients.

Needless to say, they're not adequate as a payment processor for any medium or large company.

The numbers quoted here[0] are soft and from a year ago, but at that time, Stripe claimed to handled handles tens of billions of dollars in internet transactions annually. If you were doing 10+% of that, kudos to you!

[0 ]https://www.bloomberg.com/news/features/2017-08-01/how-two-b...

Thank you. We were doing rather well by some metrics. Enough for the CEO to pay his first jet and for the yearly profit to fill a swimming pool in $1 bill. Not that we did that last part.

Humor aside. A few billions is actually fairly little for many businesses, remember that a typical margin is only a few percents of revenues (customer payments). A billion dollar company with a 1% margin can only afford 100 employees. You wouldn't be impressed if I told you that we were a 100 people company, would you?

Competing payment providers and banks are dealing in orders of magnitude above Stripe.

I would be impressed if a company had 100 employees today and planned for exponential headcount growth (say, 50% growth per annum). And had taken $440 million in funding. And had a product that wiped the floor with the competition.*

* YMMV, but for this dev, Stripe was a godsend.

Ya, for any dev, stripe is amazing. But for a CFO it's a money pit.

Stripe is great for small websites in the US.

It's disappointing for global payments and for high volume. I wish all developers here to outgrow Stripe.

Hrm, we accept payments globally in over 135 currencies and have special enterprise plans, like high volume pricing—but I'd love to hear more on what we should be doing better. Feel free to email me at edwin@stripe.com

Yes, Stripe's product is literally playing the middleman, but there are a lot of contexts where a middleman is nevertheless a net positive. That said, are your numbers for just the network fees or do they include interchange fees as well?

In any case, I remember the sort of hoops I had to jump through back around 2007 to setup a gateway through Authorize.net and a merchant account for a very small service (annual transactions around 150-200k). Every step of the process, from setting up the accounts to dealing with their API was a nightmare, and recurring billing threw some additional hurdles in for fun if I'm remembering correctly. Beyond that, there are a lot of ways to screw up with billing and payment processing. In my experience, Stripe's generally competitive and easy to deal with.

That's not to say that they make sense for all scenarios. They don't. But if you're a startup looking to make it to launch, there's a strong argument for keeping the billing side of things as straightforward as possible.

1) Stripe pays around 1% give or take 25 basis points depending on card type and location.

2) I highly doubt you’re getting sub 1% rate in the US with only $2M monthly, especially if you do card not present transactions. (See sources, I won’t call you a liar, because you could be in a very tiny niche or not US based, but all signs point otherwise).

3) most folks who use Stripe aren’t doing $2M in volume and likely don’t have the business credit rating / history to get a very low take rate. Further, Stripe doesn’t nickel and dime customers with other fees, so for lower volume customers the 3% actually might be a savings. If not, it’s a low markup for ease of use.

4) was the hostile attitude really necessary?

Sources:

https://usa.visa.com/dam/VCOM/global/support-legal/documents...

https://usa.visa.com/dam/VCOM/download/merchants/interlink-i...

https://www.mastercard.us/content/dam/mccom/en-us/documents/...

Are you in the US? Because interchange fees (which are the same whether you are Walmart or a hair salon) average about 2%.

Unless stripe is processing mostly generic debit cards, then they are most certainly not pocketing that full 3%.

I would guess that the makeup of stripe customers is similar to the US average, so they are probably paying close to 2% and then pocketing the 0.9% plus most of the 30 cents per transaction.

> without getting eaten alive by fraud.

Because fraudulent use of cards is charged back to the merchant, the card companies are less exposed to it than you might imagine.

Where they are exposed is if a merchant goes bankrupt without delivering, and the purchase was on credit card. The merchant account holder would then be liable

But, they have to maintain a system to deal with that. Also, if they pass all fraud back to the merchants, at the levels that would happen if they had no good fraud detection, then merchants would stop allowing credit cards. We take for granted that most transactions are valid. If the credit card companies did not invest a lot in automatic fraud detection, the percentage of fraudulent transactions would be something like the percentage of email which is spam.

They still leave much of the risk to the merchant. Turn on 3d secure, watch how the banks often don't even respond, and watch the conversions plummet as your hard won customers get caught in a whirling loop. Turn on all the fraud tools and watch how nobody ever checks-out again...

Ya, depending on your type of business, you really may not need any fraud tools at all. I deal in b2b SaaS. We had to work to get any and all fraud tools turned off because we have essentially zero fraud (companies that you work closely with tend not to try to pay their monthly recurring fees with stolen credit cards.)

This is a serious issue, especially for small merchants dealing with digital products. A chargeback is too much work to fight and rarely in favor of the merchant.

The average card present transaction charge in Australia for scheme cards is less than 1.5%, even for small turnover merchants. With higher turnover businesses getting to about 1%.

Banks don’t need to charge 3% to deal with fraud. Merchant agreements effectively make it their responsibility to bear the brunt of any chargebacks anyway.

For sure the banks make good money, but the question is whether or not a company that is new at it, would be able to make a profit on 3%. I submit that it is a difficult task, and a new company would struggle. Not saying it's impossible, just that it's hard.

It's more that U.S. companies have various rewards programs (travel points to cash back). One of my cards gets 2% back on nearly everything, and 5% back on their quarterly promotions. I tend to use it for most of may day to day spending, and try to pay it off every month. That's why the merchant fees are so high... much less an extent to fraud handling.

We are in a country where Stripe isn't available and pay 5.5% to our local processor here (and no fixed fee). So yes 3% is pretty good. They also offer custom pricing depending on your business model (e.g. micropayments).

Interesting point. Out of curiousity, is it ok to tell us what country that is? I am always interested to hear about how these things work differently in different parts of the world.

Sure, we are in Costa Rica.

The card brands are nothing more but a network. That's it. They have no skin in the game. All fraudulent charges move like this

card issuer(bank) ---> processor (square) ------> merchant

Not quite true. First, some fraud gets eaten by the processor. Second, the merchant underwriter is on the hook for a merchant who goes bust before fulfilling what has been paid for.

Actually, if you want me to make it detailed it goes like this.

  card issuer(bank) ---> processor (square) ------>  ISO ------> merchant ---> customer
  |                              |                   |
  V                              V                   V
  card network                      underwriting bank

the only way the processor will ever eat the cost is if the ISO couldn't cover the loss, bankrupt. The only way the ISO can't collect from the merchant is the same or if the merchant stops processing. If the merchant can't beat the chargeback and isn't fraudulent, their only option is to sue the customer for fraud. But usually the ISO will take the merchant to collections. Disputes are like hot potatoes, everyone keeps tossing it till there's no one to catch it.

With that said the underwriting bank doesn't eat any of the chargeback on behalf of the merchant. The underwriting bank will only eat loss that they underwrote for a processor or an ISO acting like a PayFac

At least this much I know from my side of the industry, perhaps you work for a bank that eats the cost. I do like to know their name and become a customer!

Do you have a source for any of that? I don't believe ISOs take on any risk. They are "independent sales organizations" and they are a dime a dozen.

They are signing up companies directly to the merchant banks each with their own underwritten merchant account. And they are a dime a dozen. They aren't taking on any risk. Just the effort to onboard new customers.

I believe I mentioned ISOs that are Payfacs. Some ISOs want to act like processors, if they do, then they assume the risk. Some ISOs have their own underwritten, most banks are too conservative and will lose your business by being too cautious, you can underwrite yourself if you are big enough. I work in this domain ;) and have interacted with the plumbing from onboarding all the way to account closure.

You've confused me as well. An ISO is sort of definitionally not the merchant underwriter ("Independent Sales Organization"). Maybe you're saying some underwriters/processors who sell direct? What is an example of an ISO that is a PayFac? There aren't many players in the business so naming names might help the general understanding.

unfortunately, I'm not at liberty to name names. But see this https://www.pymnts.com/digital-payments/2017/wepay-cofounder...

I've always thought fraud would be much more preventable if credit card companies would simply send you a text or verification code each time your card was charged, or require a PIN.

It seems this is difficult for the big credit card companies and banks (which is why it hasn't happened), but I wonder if it might be easier for Stripe to incorporate something like this into their Issuing product.

I think it is/was difficult when the product was just a plastic card. I agree that, as the "card" is increasingly becoming a smartphone, something better should be possible.

My bank, Westpac, calls me up every time I make an online payment with my VISA card or when my card is used at point of sale or at an ATM in a country I haven't notified them that I'm visiting.

My bank will let through thousands of dollars in ATM withdrawals in a country I've never been too. Then lock my card up when I'm trying to buy $12 of groceries in my hometown and force me to call and wait on hold to get it unlocked.

similar here - from US, had a few trips to russia and china over a few years. never told the bank. went over there, used my cards, no issues, ever.

came back home. no issues.

bought $12 from a merchant in sweden - a merchant I'd purchased the exact service from multiple times before - entire account locked for 'fraudulent activity'. Checks bounced, payments blocked, etc. Annoying as shit. Took a couple days to sort out (happened on a friday afternoon, of course). They refunded all charges, but... damn. I think things are better now (this was... 2014 IIRC).

This is already a thing, for merchants that want it. It's called https://en.wikipedia.org/wiki/3-D_Secure

By bank implements it as approving from my phone's mobile app via push notification. It's really slick. Here's what happened when I bought something from PSN https://imgur.com/a/iZgY74b

It exists. Conversion rates on sites that use 3D-Secure in the US went through the floor, which is why merchants focusing on that market have largely abandoned it.

Seems this was downvoted a lot but in Europe it's practically the expected behaviour.

Modern banks (N26, Revolut, Monzo, etc.) will send you a notification through their app and then you use the fingerprint sensor on your phone or a passcode to approve the transaction. With ATMs they will check your location and block any ATM transaction that is not near to you, or in a different country. The limits are very customisable and you can do it on the fly.

Most of the time you just have to open your bank app on your phone and hit confirm. You can lock the card when you're not using it and unlock it when you do, so no need to wait for a replacement or call support; meaning that if you lost your card you can go into the app and lock it straight away, just in case you find it again or it's returned.

It integrates with 3D Secure in a lot of places so you can still press your finger on your phone to approve.

It's a much more pro-active approach to bank fraud than what you get when you can't let go of the legacy system.

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