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Comment by abalone | Hacker News Reader

Visa/MC are probably going to try to target the margin that fintech startups have able to eek out at the lower end of the card processing market.

From their perspective, the fact that companies like Stripe and Square have been able to obtain unicorn valuations for card processing services means that there's money left on the table. Card processing was a basic commodity business before these guys. Somehow, Stripe et al have been able to convince a large swath of customers to accept 2.9% + $0.30.

Did you know that interchange on most debit cards is just 0.05% + $0.22?[1] That's massive margin.

Visa/MC is like, sorry Stripe, don't try to play our game on our platform. We invented it. (Somewhat cynically you could argue this is why Stripe spends a lot of time/resources on "big thinking" and kind of puffing themselves up into more than a "card processor". It's part of the sell.)

[1] https://www.burlingtonbankcard.com/interchange-plus-pricing/...

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Visa/MC don't care what Stripe (or any other) processor charges, they get their money FROM Stripe/the other processors, by way of assessments.

>Did you know that interchange on most debit cards is just 0.05% + $0.22?[1] That's massive margin.

Except on certain transactions where it's a money loser. Square was charging Starbucks 2.75% and Starbucks' average $5 debit transaction was killing them. They lost millions.

Square’s cost to process a regulated debit card works out to 0.16% of the total sale price (the 0.05% regulated and the assessments from the card brands) plus a transaction fee of $0.2355. (Again, the regulated transaction fee plus assessments.)

So, Square’s cost to process a $5 transaction is $0.2435 (5 x 0.0016 + 0.2355). However, 2.75% of $5 is only $0.1375, which means Square losses $0.106 (0.2435 – 0.1375). It only charged its customer $0.1375 for a transaction that it paid $0.2435 to the bank and the card brand to process.

> Square was charging Starbucks 2.75% and Starbucks' average $5 debit transaction was killing them.

That's a somewhat separate issue. That's because Square doesn't charge an absolute component ("+ $0.xx"), not because their percent component markup wasn't huge. In any case, Stripe suffers no such problem.

Indeed, and it's part of why Square was a (ha) square peg in a round hole. Incidentally, it's also why they have other pricing now that does have a per-transaction fee.

Stripe and Square will just raise their fees. Visa/MC are the network, you still need a processor. For low volume transactions, its normal for a processor to offer a merchant blended rate. For higher volume, you pay interchange + processing fee. Stripe offers interchange plus pricing if you have enough volume.

Visa even owns a low volume processor called authorized.net that charges same fees as stripe. They also own cybersource which specializes in high volume processing which operates on an interchange plus model.

> Stripe offers interchange plus pricing if you have enough volume.

Are there published details on this? What is their markup?

Most interchange plus pricing is negotiated and covered by NDAs.

Generally, Interchange plus fees(not stripes) range fixed of 0.05 with 10bips settlement fee all the way down to fractions of a penny if you're doing millions of transactions per month. Authorized.net used to do 0.10 and 25bips settlement but I think they only do blended rates now.

Wow... Visa purchased Authorized.net in 2010. They were one of the big ones for startups besides PayPal.

Authorized.net was in decline in 2010. They never released a method to pass the card numbers on the front side which made customers servers in-scope for full PCI compliance.

Square is probably the biggest game changer here simply because they also have the POS systems in place to just replace visa/MC if they want. They also have a bunch of apps like cash app....which apparently is going to be integrating bitcoin lightning network soon.

You don't understand payments if you think they can just replace Visa/Mastercard. The whole value add of Visa/Mastercard is the networks they have with the hundreds of thousands of banks, etc, which Stripe doesn't have.

Stripe as an acquirer does have bank relationships. Visa isn't paying the merchant directly.

Different kind of bank relationship. There are two banking roles involved in card networks: merchant acquirers and consumer card issuers. Visa/MC are the intermediary between them.

Stripe only partners with a merchant acquirer bank. To replace Visa/MC they'd also have to get into the card issuing side of things: get a bank or banks to issue "Stripe cards" and get merchants to start accepting them.

> they also have the POS systems in place to just replace visa/MC if they want.

Yeah, that's not how it works. Banks that issue cards contract with intermediary card networks like Visa/MC, not POS system vendors.

> integrating bitcoin lightning network soon

Been hearing that for years. Basic problem is while merchants would love to have lower fees, consumers don't have a powerful incentive to switch off using cards. The usual argument is they would save ~2% on prices but there is actually evidence that this would't necessarily happen. When Australia regulated down processing fees, the savings were not passed onto consumers.

>Card processing was a basic commodity business before these guys. Somehow, Stripe et al have been able to convince a large swath of customers to accept 2.9% + $0.30.

Certain retail industries are willing to pay a premium for simplicity and better UX. Merchant account processing is a cottage industry and it's easier to pass on hidden charges through a merchant than a what-you-see-is-what-you-pay flat rate. Especially one with Stripe-caliber UX.

Definitely the case for some, I know a lot of developers love Stripe's documentation. But some others just plain equate simplicity and low cost. They have no idea how to read their complex merchant processing statement, there are all these rates and fees.. Square or Stripe comes along, bundles everything into a simple-to-understand rate, and they think it must be cheaper.

eke

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