Antitrust Troubles Snowball for Tech Giants as Lawmakers Join In

It only drives up transaction volume for high risk transactions, which is bad because those are the ones that increase the amount of fraud.

> The risk is accounted for in interchange.

The risk is magnified from fraud taking advantage of the insurance. You have to pay more because the insurance is a deep pocket to steal from with weak ability to protect itself because the actual parties are no longer vested in preventing it. Or the cost of the "insurance payout" is paid by the merchant who knows that they're innocent but the payment processor has no way to know that.

> The bigger your risk pool the lower your cost. That's how insurance works. The more people you can socialize big losses over, the less you have to charge each person.

That's not how insurance works at all. You buy insurance because you and some other people each have a 0.1% risk of losing $100,000 and you would each rather pay $100 with 100% probability than $100,000 with 0.1% probability. For this to work it makes no difference whether there are a million other people or a billion. It only matters if you get down to something like 1000 people and even then your expected value is still the same, but there is a greater chance that your premium ends up as either $200 or $0 instead of $100. But we're not talking about population numbers that low here anyway.

And the socialized losses are the issue, because that's a moral hazard. Once you're insured you take bad risks and rely on the insurance to eat it, which raises costs for everybody.

When you have to insure a $100K+ loss you can't afford to suffer, you're willing to eat that overhead. But to insure a $100 loss? It makes no sense. You're going to make enough $100 purchases yourself that you can "self insure" cheaper than an insurance company with bureaucratic overhead and moral hazard can do it for you. It costs less to lose your modest purchase price a small percentage of the time than to pay a higher than that percentage for the insurance. And the amount you lose buying the insurance is inherently more than the amount you lose of your own on average unless the insurance company is losing money.

> Your margin on top is a function of your business goals. It's not strictly true that more people equals more money, you can always pass on the costs. Depends on where you make your money. A 501(c)(3) that offers insurance for instance would just charge less.

If your net margins per transaction as an insurer are a given percentage, you make more money by processing more transactions unless that percentage is zero or negative. A non-profit may purposely have zero margins, but then in what sense is it "in their interest" to have greater volume? (And how many non-profit major banks are you aware of?)

> 3% for card present is actually really high, I was using a blended average of the ~2.5ish% charged for card-present, 3ish% charged for online and 3.5ish% charged for card-not-present transactions at the point of sale to small and medium sized businesses. You can expect this to be 1% lower for merchants of substantial scale.

You're implying that "merchants of substantial scale" are paying an average of around 2%, or around 1.5% for card present transactions, for cards paying 2% cash back. That seems a bit fishy, doesn't it?

Square is using "let us mush all this together and average it out for you" pricing, but that only really works if they reject merchants with high chargeback rates etc., and still requires them to raise their rates if cards that give higher rewards by charging higher fees become more popular.

Meanwhile most other payment processors are going to impose chargeback fees on top of that, which is what we're really trying to avoid here -- plus the major cost that isn't in any of these numbers which is the cost of lost merchandise and labor when there is a fraudulent chargeback for goods and services already rendered.

> Again, see [2].

Right, so the merchant is paying 2.9% to Square, but the poor customer has a 0% cash back card because with their credit history it's all they can do to get a credit card offer at all. Then too many of the merchant's other low income customers commit fraud and they get kicked off of Square and have to suffer the high end of "between 2.87 percent and 4.35 percent" from whichever of Square's competitors will take them.

This customer might be quite pleased to precommit to not doing a chargeback with a trustworthy merchant in exchange for a ~4% discount.

> In what way is my getting a one-month-free loan a gimmick?

The thing that actually pays for that is the "oops" that regularly happens at scale when busy people trying to maximize their "free loan period" miss the deadline for the late fee and then get whacked with a charge high enough to subsidize "free loans" for everybody else.

Notice that most banks have an auto-pay option for making the minimum payment every month or some other fixed amount, but not one for automatically making a payment in exactly the amount that you owe that month, on the last day that you owe it.

It's also a bit of sleight of hand to begin with, because the bank has extremely low borrowing costs on one hand (the money in your account doesn't physically exist and they're only required to keep a small fraction of it in reserve), and on the other hand the risk of non-repayment is already priced into the nature of the credit card whether it's one day or thirty, so their cost is negligible. But that also implies that they could still do it even if you couldn't issue a chargeback to the merchant, and make their money in the same way (late fees and high interest charges).

> It's the foundation on which I structure my personal finances, secure in the knowledge if someone defrauds me I don't have to pay until it's resolved.

Then you would pay for the insurance anyway, as would other people like you, so what does that do to your argument that it would become unaffordable?

Though even you probably don't need it for <$100 purchases.

> If you start letting people waive the cost of insurance adverse selection kicks in so now only the people who plan to abuse the system pay for the insurance making it prohibitively expensive. This is why you don't allow people whose houses are on fire to buy fire insurance. Or why until recently you couldn't get health care in the individual market that covered pre-existing conditions. Why on earth wouldn't you not get cover until you needed it then buy it? Because that's not how insurance works.

But that's not how this would work either. You can't wait until after the merchant defrauds you and then buy the insurance. You have to do it at the time of purchase.

Then basically nobody would do it for small purchases from trustworthy merchants, but there is no reason to do it in that case, and that's the point. Meanwhile if you're going to spend $2000 for a refundable ticket you want to make sure is actually refundable, go ahead and pay the extra few percent. But don't do it for the non-refundable ticket and waste the money for nothing, because disputing the charge in that case would be fraud and paying a premium for the ability to is not very valuable.

And yes, the cost of the insurance would be a bit higher because everyone who plans to burn down their house for the insurance money is first going to buy fire insurance, and not requiring everyone else to buy fire insurance means the cost of the arson has to be spread over fewer people. But that doesn't cause fire insurance to be unviable -- and if you want it to cost less, the answer is not to force everybody else to subsidize arson, it's to reduce the amount of arson. But forcing insurance on everyone only creates more of them, because you cause there to be more people in a position to make money by collecting an insurance payout from insurance they wouldn't have bought but were forced to anyway. (The analog here being e.g. people with buyer's remorse wrongfully disputing credit card charges.)

> Debit cards?

Debit cards use different rules than credit cards but they still allow chargebacks under many circumstances. They also typically have fees but not rewards, so people avoid them.

> I'm saying the value you're suggesting doesn't exist. If it did, it'd be an option. And that that's not how insurance works.

Part of the reason it doesn't exist is that laws don't really allow it. It's not a free market outcome. But the credit card companies are largely the ones who control those laws, so it's still completely reasonable to blame them for it.

> I don't understand why you're suggesting that this is some big money-making scam when it's far more profitable for these companies to increase transaction volume than to skim 'chargeback insurances' which just aren't that big a portion of interchange.

The insurers get their vig on every transaction. That's why they want to maximize volume. But "maximize volume" doesn't actually help everybody else -- adding a million more transactions when 20% of them are fraudulent helps the payment processors because they get paid their full fee to process a million more transactions. But the fraud costs everyone else more than the value of those additional transactions. And the existence of insurance for transactions that would otherwise be trustworthy enough to conduct without it induces fraud, because there are many types of fraud only work against an insurer who doesn't know who to believe and not an honest counter-party who well knows whether they've provided you with goods and services or not.

The big cost isn't transaction profits, it's the cost of the fraud itself, which the payment processors are foisting onto everyone else.

> Let me ask this: how much do you think chargebacks actually cost and do you have data to back this up.

If you're just looking for numbers:

https://chargebacks911.com/chargeback-stats/

"All totaled, fraud costs the average merchant 1.47% of their total revenue."

But that's not including the destruction of businesses. When Best Buy eats the cost of fraud, they raise prices and you pay more. But what happens to anything controversial? Their chargeback rate gets above some threshold as a result of trolls and spouses questioning charges the other spouse doesn't want to admit to, and they get cut off by the payment processor and go out of business. What's the cost of that?

You must not have searched very thoroughly. Here’s the first article that came up when I searched “David Farber net neutrality”: https://www.technologyreview.com/s/531671/are-we-really-savi...

> it could have meant something different at that time

Nope. It meant basically the same thing it does today.

> It is unsurprising that investors like Andreessen are opposed to net neutrality: they stand to get richer without it.

The firms and investors backing NN also stand to benefit from it, so this ad hominem is moot.

A highly upvoted informed view, on the other hand, that gets removed, is evidence of censorship by those in charge.