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Comment by dijit | Hacker News Reader

The card payment industry duopoly (in europe at least) is a really weird one that seems to go mostly unnoticed.

I often wonder how much goes into the pockets of these companies who are essentially providing an easily replaceable service if it were not for the entrenched reality. (IE; to compete you'd need an entirely new card system that would be incompatible with the others, and thus your card would be unusable in most places)

That said, I can't complain too much about VISA; which (Apple Pay and Samsung Pay also uses on the backend, there is no escape in Europe) -- they seem to be processing things fairly well, even if I don't understand how much both parties paying for such a service.

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> The card payment industry duopoly (in europe at least) is a really weird one that seems to go mostly unnoticed.

It goes unnoticed to the consumer because it didn't go unnoticed to the lawmakers. The EU caped the fees those companies can charge to merchants to 0.3% for credit card and 0.2% for debit card back in 2015 [1]. In the US it's less ignored because those fees to merchants are on average 10x bigger! (2% on average [2])

[1] http://europa.eu/rapid/press-release_IP-15-4585_en.htm

[2] https://www.hostmerchantservices.com/current-us-interchange-...

That's not quite true. The interchange fee is the portion of the fee that goes direct to the banks.

The payment processing market is a bit more complicated:

When you make a transaction:

1) Your bank charges Visa/Mastercard an interchange fee (this is the bit capped at 0.2%/0.3%)

2) Visa/Mastercard charge a payments acquirer a processing fee

3) The payments acquirer charges the merchant a fee - this final fee is likely to be a blend of percentage and fixed fee per transaction. There's no cap imposed here.

Indeed. For example, here in Finland the VISA/MasterCard merchant rates for Nets, which I believe to be the largest provider:

EU-domestic debit cards 0.31% (max 0.75€), EU-domestic consumer credit cards 0.90%, EU-domestic company credit cards 1.10%, foreign consumer debit cards 1.25%, foreign company credit cards 1.45%, foreign credit cards 1.65%.

No per-transaction fees, but card readers have a monthly fee (39-53 EUR/mo).

Finnish source: https://www.yrittajat.fi/uutiset/572780-maksupaatteet-hintav...

Could you explain this a bit for those of us who don't know in depth how this works? For starters, what's a payments acquirer? Also, due to inherent ambiguity in English, I'm not sure whether your point #1 means that my bank imposes an interchange fee on Visa/Mastercard or whether they impose a Visa/Mastercard fee on someone else (and who it would be).

Not the parent, but I think I can explain it decently.

So let's say that you swipe your card at a retailer, perhaps an IKEA.

IKEA has a card payments processor (ie: the vendor that the little terminal you sign on / stick the card into is from). This processor deals with a network (usually Visa or MasterCard, although there are smaller vendors such as Amex, Discover, etc) who ultimately connects the payment processors to the banks.

Now, for each transaction, your bank charges a fee to the network (the interchange fee, limited in the EU to like 0.3% I think) as a percentage of the total transaction. The network then charges some fees to the payment processor, which includes the fee that the bank charged. Finally the payment processor adds in their own fees and charges some unified fee schedule to the merchant (in our case, IKEA).

Thank you for explaining this. I had no idea banks charged a fee to Visa and MasterCard; for some reason I thought it was the other way around.

Different banks there are two banks involved in the process the issuing bank who issued the card and from which account the money is taken and the acquiring bank the bank that the receives the payment.

Each of them charges a fee, and can be charged a fee. A credit card transaction is a multiparty transaction with a lot of small fees.

You are missing two parties here and mixing one.

The payment processor doesn’t belong to any of the credit card companies if they are tied to any institution they will be part of the acquiring bank but these days most of them aren’t, all they do is facilitate the transaction and there could be more than one in the chain.

The issuing bank as in the institution that issued the card charges a fee, as well as the acquiring bank the bank that actually receives the payment also charges a fee.

There are fees that are levied on multiple parties across the chain by multiple parties however at the end these tend to be mostly be then baked into the fees that are levied on the merchant.

The merchant where you use your card will eventually pay all the fees. In the first instance, the merchant signs a contract with a 'payments acquirer' which specifies the fee they will pay on all different types of transactions (e.g. any combination of Visa/Mastercard/Amex credit/debit/prepaid consumer/business foreign/domestic). Sometimes this payments acquirer will be a bank, sometimes it will be a separate company.

The payments acquirer will then send on some of this fee from the merchant to Visa or Mastercard (again the exact rate depends on the transaction type). Visa or Mastercard will then send on an interchange fee to the bank that issued the card the customer paid with - this is the bit capped at 0.2% for consumer debit cards and 0.3% for consumer credit cards.

So essentially, card payments is a 3 sided market. The merchant chooses which payments acquirer they want to use. The issuing banks choose which card company they want to use. Customers choose which banks they want to bank with.

The interesting thing is that the EU has capped the banks' interchange fee, but not capped the fees elsewhere. When the interchange fee was reduced, this was passed on as a cost saving to the payments acquirer. This saving might have been passed onto the merchant (especially if the merchant is big and sophisticated enough to shop around), but it was equally possible that the payments acquirer could just enjoy the higher profit margin, or that Visa and Mastercard could raise their processing fee.

Here in Denmark, the story is a bit different. Many consumers here use a Dankort, which is a national debit card. The fees are low and regulated by the government. It is usually combined with a Visa so that it can be used abroad as well.

It’s similar in Switzerland, almost every shop accepts PostCard

Are there any consumer benefits, ala rewards, for using this card?

Who pays for these "consumer benefits"? Something tells me the consumer.

Yeah, that was my interpretation. It sounds like the "low fees" is the consumer benefit. I'd rather everyone have lower rates than a select few being able to "game the system".

Sure. The consumers do (at the end of the day), hence the fees. We also pay for the costs borne by them to resolve disputes, handle those that don't pay back, etc. Also hence the fees.

In Europe, most cards are debit cards, not credit cards.

In some countries and places, credit cards are not even accepted because of the possibility of a chargeback and much higher processing fees.

In essence, many people here treat Visa / MasterCard as just "electronic cash", and therefore spend only the money they actually have.

In my own EU country, only about 1% of private bank customers own a credit card. These are usually the wealthiest people in the country, who have no problems paying the balance back on time.

The credit cards themselves provide very few benefits apart from the international health insurance for the entire family, and 0% fee for up to 45 days.

The reward programs are almost non-existent. Just like the general idea of spending the money one doesn't have.

It might sound like a very conservative society, but people here are a way more relaxed about their personal finances than in the US.

Instead of trying to earn reward points, they try to plan their expenses upfront, and focus on staying debt-free as much as they can.

That's because most Europeans have stable jobs with stable salaries which can neither grow, nor decline by a lot. Therefore, almost nobody expects to become very rich or very poor, and lives accordingly.

Hrmm, many people in other areas only spend money on credit cards they actually have too. I was also curious about the dispute resolution feature of the card itself. It is my primary reason for a CC (rewards are just a perk) so I don't have to rely on government institutions with limited incentive to go to bat for me when the card acceptor did me wrong.

I never heard of anyone disputing his Visa / MasterCard payment in my country.

That's probably because people pay online only at a very limited number of places they trust, and it's easier to solve issues with the local merchants directly.

Another reason might be, that many online payments are made via direct bank tranfers / SEPA, which can be both, fee-free and instant, across the entire EU.

Essentially, everything is based on trust. Nobody puts his debit / credit card details into a form of a website he never heard before, and nobody risks his business reputation if he has managed to earn it.

It's pretty short sighted to think you can trust your "debit" card number with any online merchant nowadays. I wouldn't shop online, or even at physical stores for that matter without the safety net a credit card provides. I don't mind paying the extra bit on top for this protection (which is negligible due to rewards).

what??

what makes you think debit cards are less safe than credit cards? as far as I know here in EU all debit cards are smart cards with PIN code protection, what exactly is the unsafe part?

are you confusing debit cards with magstripe cards?

I know that with credit cards money lost is the credit card's company, and there's a fair number of protections to keep consumers from paying that bill in the case of fraud, but with a debit card money lost would be directly from a bank account, and there seems to be less. Is there more fraud protection for bank cards in the EU?

In France, for all banks I know, you can call, say "starting this date, all activity on my card is fraud", and you are refunded, no questions asked in the vast majority of cases. This seems quite enough for me.

Ah, so you do have those sorts of protections.

In my country, it's possible to get the money back if somebody charged your debit card without your knowledge, but not if you approved the payment yourself. In such case, you are expected to solve the issue with the merchant yourself. Just as you would be, if you had paid in cash. Which seems to be reasonable considering that the maximum allowed debit card fee in the EU is 0.2%.

I definitely wouldn't use a debit card if I lived in the US, just because of the general atmosphere of "suing and disputing" everyone and everything, if something goes wrong. But debit cards work just fine in the EU, where governments take proactive steps to protect consumer rights, and an average consumer is rarely expected to fight for himself. I have personally never had to.

I can dispute a charge on my debit card just as I can dispute it on my credit card. Disputes get harder for payments made using my pin, but any charge from an internet payment is trivial. I can also dispute any SEPA-withdrawal. The best option for a merchant is pre-payment via SEPA transfer initiated from my side. That’s pretty hard to dispute.

You can dispute, but the big difference between credit card and debit card is that on credit card, each transaction is insured through the merchant fee. Mastercard and Visa's rules also specific require the card lender to repay a disputed charge in full, regardless if they can manage to reverse a transaction or not; the same is not the case for debit cards (even if they are branded with the Mastercard/Visa logo).

I exclusively use my credit card (in the US) for all payments that I am allowed to, which is most. I also pay the balance off in full each month. I pay $0 in fees and $0 in interest charges, and the bank pays me about $1,500/year with a cash rewards program, so I end up making $1,500/year by using it. I just wish I could pay my mortgage with it. I did buy a car for my daughter on it (and went home and paid it off a week later). That was a nice chunk of change. The only actual debt I have is my mortgage.

I don't claim to be a typical credit card user, but I do like to game their system and make money off of them (paid for by people NOT paying their balances off monthly and racking up dumb fees). I don't see a downside to it. It's not like they're getting more data on me by using a rewards card. They already know all of the purchases I make with them.

I would probably do the same, if I lived in the US, because that's how the entire country is optimized to operate.

At the same time, I am glad that the EU provides a more conservative alternative and style of living.

I think the US is more about getting rich, and the EU is more about not becoming poor.

And for a money-savvy person the US might provide much more opportunities than the EU can.

Yet, the majority of people are not money-savvy, and the "high risks, high rewards" game inevitably produces more losers than winners.

Actually, it's merchants.

EU drastically capped interchange fees a few years ago. The premise was that it will lower costs for merchants and effectively lower costs for consumers. However, most of the savings were kept by merchants, especially larger ones.

Some EU study confirming that: https://www.europeanpaymentscouncil.eu/news-insights/insight...

Merchants pass-through the fees to consumers. If they charge the same price to consumers using rewards cards and cash (common in the US), consumers using cash or debit cards subsidize credit cards.

I'm pretty sure you're subsidizing the debit card users if using cash, too. They use the same networks as credit cards (visa/mastercard networks).

I remember when debit cards first came out in the US. There was actually a 1-2% surcharge that most merchants were charging (especially smaller mom/pop type stores) to use debits - because it cost them to use the payment system just like credit cards. Eventually the merchants just baked the processing fees into the prices of all goods because most transactions are done with cards. Even checks now are converted to an "ACH debit" at the checkstand and the funds come out of your account immediately. You can't float checks anymore, not that that was ever a good idea anyway.

> I'm pretty sure you're subsidizing the debit card users if using cash, too.

Correct.

> Even checks now are converted to an "ACH debit" at the checkstand and the funds come out of your account immediately. You can't float checks anymore, not that that was ever a good idea anyway.

I don't know what checkstands are but I've never seen a check immediately pull from my account. (Just for example, I wrote a check Saturday and I'm sure the vendor deposited it immediately and it still hasn't posted to my account three days later.) In fact, that would be great, IMO. Instead anyone who wants immediate payment without the risk of a check not clearing (landlord first month's rent, or mortgage, or like a car) will demand a cashier's check or money order or wire, all of which are associated with an additional fee of $10-25. (Or will pull your credit to cover the float.)

How are the merchants paying benefits to credit card owners? Either way you would be fool to believe the merchants pay anything with their own money. It's just like saying that the lottery owner pays the winners.

Fees are higher for those cards than cards without rewards.

Paid through interchange fees. Cards with the most rewards are most likely heavily supported by interchange.

Using a debit card for any transaction is free, which is why cash is going the way of the dodo.

I don't use a CC in Europe so I can't comment on how expensive those are here.

As for who is paying for it? Once you have a payment system set up its really not that expensive to maintain it. Driving around armoured vans with money is actually more hassle.

Of course not. On the other hand, the costs are near-zero.

You can either have low fees and near-universal acceptance, or high fees and not-so-universal acceptance plus "consumer benefits". To me it seems fairly clear which one is preferable.

I am familiar w/ (relatively) high fees and near-universal acceptance so I'm not sure your dichotomy holds. Either way, I do appreciate the features my card providers offer me as a buffer between my bank and the merchant. Don't have to completely trust merchants or the government, can leverage the escrow the card provides to be on my side since I pay them and can leave them so easily. I agree, it is fairly clear which one is preferable.

And in Germany it's Girocard[1]. You couldn't even buy a metro ticket with a Visa / MasterCard in Berlin a few years ago. And maybe you still can't.

[1] https://en.wikipedia.org/wiki/Girocard

You actually can buy tickets with credit cards since summer 2017! (it positively surprised me when I checked for visiting friends a while back)

Thanks, that's great news. My last visit was in May 2017. And for 10 years between 2007-2017 I pretty much carried only cash in Berlin.

The cardless life was very strange in the beginning, but I learnt to love the absolute sense of freedom and privacy the lack of any digital records of my day-to-day life provided me.

I even stopped carrying my smartphone when I didn't need it. It was like back to 1990s.

German supermarket chain Aldi was, until not too many years ago, one of the last places in Denmark which didn't take Visa or Mastercard, only the above mentioned Dankort (which I personally abhor, like everything else coming out of its controlling company, Nets).

I was astonished when I was in Berlin couple of years ago how many places wouldn't accept credit cards. I was used to the US where I could get around for months without carrying any cash, and there everybody was refusing to deal with CCs. And I arrived on week-end, means I couldn't just go to a bank to change cash (there were probably still places to do it, but I didn't know where they were...). Had to borrow cash from local friends to get by until the workweek started. No idea why Berlin is so reluctant to deal with credit cards.

I can answer this :) Because in Germany, everyone uses Girocard. It has a lower fee, so it is preferred over credit cards. We also don't need the consumer protections that credit cards offer because most of them are law here.

But if you already accept Girocard marginal cost of accepting Visa/MC (with which they are co-branded frequently, as I understand) should be extremely low. But what I encountered is a lot of cash-only places, from fast food & restaurants to museums. In US, where I live, I know maybe one or two cash-only restaurant out of a thousand. In Berlin, it felt like the majority is. And the delta in fees can't be that big...

> No idea why Berlin is so reluctant to deal with credit cards.

https://qz.com/262595/why-germans-pay-cash-for-almost-everyt...

A short answer: because of history.

If I recall there is an ATM in Alexanderplatz station that accepts foreign debit cards (used a Canadian card) and also a currency exchange business. You should always bring some local currency with you if you travel internationally. Your bank will likely get you a better exchange rate than the money changers at your destination.

Same in Italy, actually. Every POS accepts Bancomat[1], which is the standard debit circuit over here.

[1] https://en.wikipedia.org/wiki/Bancomat_(debit_card)

Same in Norway (Bank axept)

The individual banks seems to set the fees (card owner is charged) Most banks charge a yearly fee (~25$) (free transactions), though some banks charge as much as 1NOK ($0.12) per transaction on top of that.

Those proprietary cards in most of the European countries have definitely advantages, but are also a big problem: In lots of European countries merchants often only accept the country's own proprietary debit card, but no debit/credit cards from other European countries.

For example in Denmark: "Due to the higher fees charged by banks for the use of non-Danish issued cards (that consist of foreign card network interchange fees plus Danish banks own fees), many Danish merchants only accept Dankort and Danish-issued credit cards, but not foreign cards." (https://en.wikipedia.org/wiki/Dankort)

I really hope that the EU adds some regulation that forces merchants to accept debit/card cards from other EU member states on an equal basis. Especially in combination with the fact that in some cases only electronic payments are accepted, which makes it pretty much impossible for anyone to pay without a national bank account.

The EU already solved (or at least mitigated) the issues with roaming in mobile networks. Doing the same for payments is the next logical step.

> easily replaceable service

> to compete you'd need an entirely new card system that would be incompatible with the others, and thus your card would be unusable in most places

That's basically the definition of hard to replace.

Technically easy to replace but a hard-to-displace monopoly (duopoly) solely due to network effects. Like Facebook, eBay or WhatsApp in the tech space.

> easily replaceable service

For all my disagreements with major payment processors, I must say that there is a lot more than meets the eye in these networks.

Having visited the fraud detection apparatus of a couple payment networks, I am thoroughly impressed. Most of them were doing machine learning at an industrial scale at least eight years ago.

Only tangentially related, but it’s the same in the US. Sure Discover and Amex exist, but fees for merchants are usually high and adoption is lower.

I’ve travelled quite a lot, but everywhere I’ve been there has been the same - Visa, MC, and a local alternative or two that might be popular within the country but don’t extend elsewhere.

Is there actually any other network elsewhere in the world that is of a similar scale? I assume China must have something?

China mostly uses WeChat's payment system and Alibaba's Alipay on mobile devices.

And for the direct equivalent of Visa/MC there's unionpay.

Most merchants also prefer to take WeChat and AliPay because there are no fees.

Not sure why you're getting downvoted. NPR had a story on exactly this - China largely skipped credit cards and went straight for the mobile payments.

https://www.npr.org/sections/alltechconsidered/2017/06/29/53...

It's called "protectionism".

China did the same thing by banning Google and supporting Baidu.

Sort of.

In Baidu's case, they're a locally grown replacement. Per the article, local credit systems didn't really take off; a researcher in the article states their belief it's due to different attitudes on debt in China.

or maybe it's just the case of being "late to the game", when you don't have to stick to particular technology just because there was a significant investment in its' infrastructure, but can choose whatever you want from what is available currently.

Africa did as well for the most part, didn't they? I recall reading how people there are largely "unbanked" but they carry balances with their cell provider somehow and pay each other that way.

In Africa that would be m-pesa, started by a Kenyan telecom and Vodafone.

One fun bit is that it uses SIM applications[0], something that's barely used for anything serious except for m-pesa (and its spin-offs) but exists practically across the entire GSM infrastructure.

[0] https://en.wikipedia.org/wiki/SIM_Application_Toolkit

China has UnionPay, it's accepted at quite a few places in Zurich, so it has some international adoption. No way for Swiss People to get a UnionPay card themselves though.

Interesting, I've been using a Discover as my primary payment method for a couple years now, and I think I've run into maybe two businesses in that time that accepted Visa/Mastercard but not Discover. Perhaps it's regional?

Within the US they’re widely accepted, just as Amex is. A lot of merchants hate them because their fees are usually insanely higher. Outside of the US you’ll find dozens (dozens!) of merchants that accept them, while Visa and MC are nearly, if not totally, universal.

Sure Discover and Amex exist, but fees for merchants are usually high and adoption is lower.

Doesn't that suggest VISA & MC are not making obscene profits? The upstart being more expensive than the incumbent is often a sign that the incumbent is not just resting on their laurels with fat profit margins.

Neither American Express nor Discover are upstarts.... both are old.

AMEX has been issuing charge cards since 1958 and Discover has been issuing credit cards since 1985.

fees are also much cheaper in Europe. Interchange fees are capped at 0.3%, compared to 2%+ in the US. https://en.wikipedia.org/wiki/Interchange_fee

I worry that Visa/Mastercard will use their duopolistic position in credit/debit/etc payment processing to gather more data and spy on consumers. I suspect Visa/Mastercard collects even more valuable data than google or facebook and they've already indicated they want to me more of a technology/ML/AI company.

With data being ever more valuable and a small group near monopolistic companies in position to siphon most of it, it's going to be difficult to lead a private life.

Google is already on top of that data:

https://www.bloomberg.com/news/articles/2018-08-30/google-an...

In germany we have Girocard (formerly EC Card) which has about 4 to 5 providers with 40% marketshare and less, to my knowledge atleast.

That's probably got a lot to do with credit cards being vastly less popular in Europe. Paying with plastic/card usually means using a debit card (many names, largely the same). Additionally in most parts of Europe paying cash is far more common than in the US.

A lot goes into their pockets. VISA is the 20th largest company in the world by market cap and MasterCard is 43rd, and they are still growing quickly.

In a lot of European countries, payment cards use the domestic payment scheme and are co-branded Visa/MasterCard (or V-pay/Maestro).

Are they abusing the market ?

"easily replaceable service"

Yeah. It's called "cash" and "checks".

Just like Tesla would be easily replaceable with "horse" and "buggy".

But Tesla doesnt have a monopoly...

Yeah, in the same way that a washing machine can be replaced by a river and a piece of wood.

As the parent comment explains, nearly every electronic money system in Europe uses Visa or Mastercard as a backend, creating a unhealthy duopoly. The free market needs some competition so it can thrive.

AIUI the two largely act as a fallback and the relevant interbank network (e.g. Girocard) is used directly if possible.

”nearly every electronic money system in Europe uses Visa or Mastercard as a backend”

I think that’s nearly every credit card system. Many countries have debit card systems that, AFAIK 100% outside of Visa and MasterCard, traditionally work across most banks in the countries, and nowadays work across the Single European Payment Area (28 EU countries plus six others. See https://en.wikipedia.org/wiki/Single_Euro_Payments_Area).

I’ve always found the difference between cash and credit to be a wash in terms of ease of use. For cash you need to always make sure you stop by an ATM. For credit you have to wait for a receipt after nearly every transaction, and sign (this is changing with chipped cards).

But ApplePay is actually more pleasant than both. I can pay with my phone and my watch. It is a faster transaction than both cash and credit, and no need to pull my wallet out.

With one big exception! There are a few places in the city that are starting to only accept credit/applepay/etc., but when their terminals go offline, they’re screwed. I saw this exact thing, for some reason they had no backup system to accept cash. I assume this is a rare issue, but still, I couldn’t believe they couldn’t resort to cash.

> I saw this exact thing, for some reason they had no backup system to accept cash

To accept cash as a back up you have to have all the items in place to accept it all the time basically. You need the register and to have enough cash on hand to cover giving change plus the accounting and tracking at the end of the day to make sure cash hasn't walked. So if a place has the ability to accept cash intermittently they might as well accept it always.

For those that don't handle cash, they could get some sort of insurance to make up for lost business (and any brand damage) if the machines go down.

Yeah, I realized that something along those lines is the issue. It's still surprising when a business can't operate in a situation like this.

At least in Norway most visa debit (and/or credit) cards now come with nfc/"tap" payment up to a certain amount (10-15 usd I think) - with no need for chip&pin for "Small" transactions.

Has some issues wrt theft (portable pay terminal with boosted nfc signal/antenna) - but certainly convenient.

Most of the places here in the US seem to have gone to chip only for small payments, with a signature on amounts over some limit, dependant on merchant. Wish we'd catch up and use pins.

As I understand it, the major card companies all required vendors to upgrade their payment systems to use chip. If they didn't (by some date I think last year) then they moved the liability from themselves in regards to credit-card fraud to the vendor.

Isn’t there an exception for gas stations?

I can't remember how long it's been since I signed for a cc transaction. Aren't PINs used in the US?

Generally not for credit cards. It is used for debit cards. It's a problem buying gas (petrol) at unattended stations in Europe for Americans using credit cards. We don't know our PIN for credit cards.

> For cash you need to always make sure you stop by an ATM.

I used to get cash back at the grocery store. Very easy way to keep the wallet stocked since you're there 1-2x a week

The backup system in north america is a manual impression scan, where a carbon copy impression of the front of the card is made for later offline processing. Is this not available as a backup for when the electronic methods go down?

"checks" being a clearly inferior option. While they are convenient they are fraught with fraud / bank balance issues, and add risk to the merchant and to the customer. They also take longer than any of the other options to create as well.

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