Comment by abalone | Hacker News Reader

Comment by abalone | Hacker News Reader

Request for startup: If you want to disrupt payments, do a gateway that captures U.S. major debit transactions and handles them at 0.1% + $.30 (still a healthy margin) and redirects the rest to a higher-fee processor.

Little known fact: Major debit card interchange is regulated by law at 0.05% + $0.22.[1] That's right, a twentieth of one percent. The gross margin for a processor like Stripe that charges 2.9% + $0.30 on these transactions is just astronomical. A U.S. payment gateway that specializes in low cost debit card processing arbitrage would instantly start saving startups money. It also give them the option of steering their customers to low cost debit, for example by requiring it for discounted annual subscription rates.

This would work where other efforts have failed. Crypto never took off for consumer payments for a variety of reasons, among them no wallet penetration and no consumer protections. ACH is inconvenient to set up and also has poor consumer protections. Debit cards on the other hard are widely available, safe and easy to use.

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

Trying to fight a titan on margin seems like a fool's errand. If customers are truly price sensitive and it makes a noticeable dent in Stripe's bottom line, what's to stop them from a price war with you just long enough to make you insolvent?

There might be a nice business in there somewhere, but disruption is overstating it quite a lot I think.

Definitely a nice niche business - they won't do a price war, they would have to lower their margins significantly, and no big company ever did that except whith bankrupcy on a horizon.

...............

Have you heard of Standard Oil?

You could say that about a lot of companies. Stripe is far from a dominant “titan” in the processing industry which is something like $2T in global volume. As in Trillion.

Do people use debit cards online? Should they?

The (US) regulations around liability for fraudulent charges for debit cards are totally different those for credit cards [1]. Specifically, consumers bear far more potential liability if their debit cards are used fraudulently than if their credit cards are used fraudulently.

The money quote from the section on what the consumer is liable for if their debit card is used fraudulently: "All the money taken from your ATM/debit card account, and possibly more; for example, money in accounts linked to your debit account."

By contrast, credit card liability tops out at $50.

Given the regulatory environment, it is not very consumer-friendly to encourage wider use of debit cards online.

If you have access to a credit card, you should use it instead of a debit card when purchasing online. (And in person, but the OP is about online payments.)

[1] https://www.consumer.ftc.gov/articles/0213-lost-or-stolen-cr...

> Do people use debit cards online?

Yes. Debit is actually more popular than credit for online transactions, according to one survey.[1]

> Should they?

Kind of an orthogonal question. The fact is people use them and there’s an opportunity to process them more cheaply.

[1] https://www.digitaltransactions.net/consumers-increasingly-p...

It is maybe worth explicitly noting that for most online products with small ticket sizes (maybe $5) what you really want is to use someone like PayPal (which supports being used merely as a backend credit card processor) that has a micropayment pricing level (PayPal offers 5% + $0.05). The percent is high, but the fixed cost of $0.30/$0.22/whatever dominates the cost up to over $10.

> PayPal offers 5% + $0.05

How? All I see is $0.30 + 3-5 % (which means 10 % from every $5 transaction - I'd love to lower this!) https://www.paypal.com/us/webapps/mpp/merchant-fees

Do a Google search for [PayPal micropayments] and read the various help articles that result. (edit: ...or just scroll down on the page you linked, which literally has a section on this called "Micropayment Fees".)

Correct me if I’m wrong but I believe PayPal micropayments requires the customer to have a PayPal account linked to their bank account (ACH). So, considerably less convenient than using a card.

I am very sure you are wrong (that, or I'm misunderstanding what you are saying as something more subtle about the account and not about the payment: you definitely can receive payments made by users using credit cards with this rate; it would be entirely useless if that weren't the case, as frankly ACH is too slow to use for a purchase transaction, and I think sane merchants just disable accepting such payments--what PayPal sometimes calls "eChecks"--to avoid confusion).

The debit rates you are referencing are for in-person transactions where a pin number is entered. Debit cards can be used for online transactions but the interchange cost is more like 1.8% + $0.10.

False. Regulated e-commerce card-not-present debit interchange (i.e. online transactions) is 0.05% + $0.22.[1]

Kind of mind blowing, right?

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

What's the difference between ACH and debit cards? Do they both debit a persons bank account directly? (I'm not based in the USA)

Consumers prefer to use credit cards, for many reasons one of which is points.

> one of which is points

Citation needed. I hate points.

Rewards would have been a more general term that still captures the meaning.

I get a flat 2% back on literal everything. I agree that points would be a pain, but extra cash is nice. (I know this functionally means everything is x% more expensive, something something tragedy of the commons externalities blah blah blah.)

> I know this functionally means everything is x% more expensive

Exactly! I hate all rewards systems because they wouldn't be offering it if it weren't a scam. If you don't know who the fish is, it's you.

The "scam" is on everyone who doesn't have a rewards card. The increased interchange fees are shared by everyone, with reward card users reaping the benefit.

Yeah, I use Costco's "Citi Visa" card for exactly that reason. I'd still be charged the %, and at least this way I get the most useful thing /for me/ back as a reward.

That's the why I want a system that completely bypasses the insanity that are current credit/debit cards and goes directly to a modern approach (but isn't some blockchain, kill the planet with mining power, fad).

I wonder which card gives you this benefit?

citi double cash back or something like that

You hate free money? Points are exactly that, as long as you pay off your credit card every month.

The point is at that all merchant end up adding the 3% in their margin so what you buy is more expensive. You just lose if you don’t use points but, you aren’t actually gaining anything.

You're contradicting yourself. Since everyone is paying that extra 3%, by not getting the rewards / points you're at a disadvantage.

No, it's you who, by supporting their toxic industry, are making things worse for everyone. c.f. Tragedy of the Commons. What you're advocating is a slave mentality.

The people paying ~20% interest are slaves. For some, they have no choice and I sympathize with those.

I pay off my bill every month. I pay no interest, no fees, and get free stuff for it. You should do the same.

It's not free. They take the enormous margin they get off the sellers and kick you back a few peanuts. Essentially, the sellers pay a tax, and you get a small distribution of the tax, and as a result all products are more expensive.

Points are useless.

The products are going to be more expensive for everyone. Would you rather have a card that offers 2% rewards points or one that doesn't offer any? You are obviously better getting the points.

I understand how it works. I'm taking a bigger picture view and saying that if nobody had points, everything would be cheaper than if you had gotten the points in the first place.

Obviously in the current climate, a card that offers points is going to be more competitive than a card that doesn't, but that doesn't mean that points aren't a mind-bogglingly stupid proposition to begin with.

Yet those sellers don't offer their own discount or cashback for not using credit cards.

Yes they do. Gas stations have a Cash Price for not using a credit card. The ones who don't are just pocketing the difference because so many people don't think about what they're paying for.

I don't need yet another minigame to manage in my life, thanks but no.

There's nothing to manage.

And protections.

False. More Americans use debit than credit for everyday purchases.[1]

[1] https://www.nerdwallet.com/blog/credit-cards/credit-debit-su...

Most Americans are also financially illiterate. For every day purchases (not cash advances), it is always better to use a credit card that offers rewards points... as long as you plan on paying off your full balance every month. It's free money, period.

That's something only the minority of the population does, though.

"...average individual credit card debt stands at $5,331 in 2019. Additionally, on a monthly basis, most Americans don't pay their credit card balance in full every month - 55% don't regularly pay in full."

https://www.thestreet.com/personal-finance/credit-cards/aver...

Forgive me if I don't take a blog quoting "CreditDonkey.com" as its only source very seriously on this.

It’s like the mirror image of gambling. You get a little money constantly and if you are (un)lucky, you lose a lot. I’m not really interested in playing someone’s rigged financial game for chump change.

Not really. Assuming you never over extend yourself by spending more than you have, you never lose anything.

First, that's a survey (no actual usage data). Secondly, that differs from what consumers with a choice use. Many poor don't have credit cards; many more have impaired credit.

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