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> Visa and Mastercard are taking a 3-4% cut of every single consumer payment made in much of the world. That ends up being a very, very big number.

In Denmark we solved this the lowtech way. Visa cards have to be Dual visa/dancard, where the dancard has extremely low cut limited by law(0,055$/transaction flat rate)

It’s not hard, it just requires you have politicians capable of dodging the huge piles of cash MasterCard and Visa throw at them whenever talk of breaking the duopoly hits the table.

But maybe for the US, something like bitcoin will be the only way forwards, using technology to try to solve a market problem though “disruptive technology” when what is really needed is just disruptive politicians.

Dancard works for local payments, but the discussion here is about the growing demand to transact with foreign companies online. For example, if you're in Denmark and you want to buy a SaaS subscription from a US company, you're stuck giving them a Visa/MC number. Some of the downsides of this are the 3% fee, risk of the number being stolen, not to mention Visa/MC applying US law and morals to kill businesses anywhere in the world.

> Dancard works for local payments, but the discussion here is about the growing demand to transact with foreign companies online. For example, if you're in Denmark and you want to buy a SaaS subscription from a US company, you're stuck giving them a Visa/MC number. Some of the downsides of this are the 3% fee, risk of the number being stolen, not to mention Visa/MC applying US law and morals to kill businesses anywhere in the world.

If there was political will, there is nothing stopping governments from capping the fees taken by Visa/MC.

Many people feel the solution to bad products is making better competing products rather than adding government regulation.

Many people feel that regulating abusive monopolies which kill competitors in underhanded ways is a better solution than expecting greed to solve it.

I may be in the minority here, but it's possible that there can be a scientific economics.

Sure you feel one way. Other people feel another.

But it's also possible the correct answer doesn't depend on your feelings but on falsifiable theories.

I don't think you can come up with a quality test for economic scenarios in a truly scientific way, many monopolies dominate for very different reasons, many industries have very different mechanics, and worse, regulations are often implemented in vastly different ways and often won't come out the way you'd like them to even if you have a perfect scientific answer to a given problem.

You can't guarantee or even approximate a given input and output for a scenario like this.

I'm not sure I quite understand, but it's certainly possible the equations that govern economics are sensitive to initial conditions. In that case we will never know enough to specify the initial consitions entirely.

But we also don't need to specify initial conditions exactly to do science.

I'm less convinced that the equations themselves are unknowable.

We also won't be able to specify the outcome precisely even if we somehow had a guaranteed outcome in mind.

Politicians will screw up the implementation, businesses will engineer around it and the alternative solution might ultimately come out to be a better one in practice than in theory.

Trying to define economics by simple equations which you expect to define policy is a lost cause.

Look up Hayek on the pretense of knowledge in economics.

Hayek isn't particularly well regarded as an economist, even among those that love his politics.

See e.g. Milton Friedman's comments about how flawed Hayek's economics are and how great Road to Serfdom is.

So my take on that speech is it's political rather than scientific.

In general I'm skeptical of arguments that something is unknowable unless they come with a rigorous proof or at least a well stated conjecture that has stood the test of time.

If you can come up with a scientifically falsifiable theory on the effectiveness of government regulation, there’s a Nobel Prize waiting for you. It’s hard for a lot of reasons, including that it’s almost impossible to create a true test and control treatment.

Macroeconomic theory relies on a lot of spherical cows. In theory I don’t disagree with you, but in practice we don’t have the tools (yet) to do this type of economics in a scientific/falsifiable way.

This. There shouldn’t be punishments to middlemen who provide a service just come up with a better way. Innovation should happen here not governments enacting laws that effectively kill all the profits a company can make.

I think we don't have to go to cryptocurrencies to see that these punishments are severly needed. Just look at the weekly scandals of "disruptive" new startup banks, people's financials deserve a few governmental protections and if the middlemen are shitty at their job (due to malice or mere incompetence) they deserve a little punishment here or there.

I get that this type of oversight is likely against some philosophical POV here but it's not like middlemen making money is an all-to-great and solitary goal a society should try to defend.

There are rent seeking “middle-men” companies out there just milking patents or their position without providing much if anything of value. I’ll admit that. But I would contend that the credit card processing companies charging 3 to 5 percent are providing a value in the complexity that is payments but whether that warrants 3 to 5 percent I’m not qualified to say just I wanted to make the distraction between the types of middlemen.

Agreed, it's not as though Visa/MC will decide to exit a country altogether foregoing any revenue.

The fees on Visa/MasterCard in the EU are capped at 0.2% for debit cards, 0.3% for credit cards.

American Express (and all the other schemes where the issuer is also the acquirer, i.e. Diners Club) aren’t capped.

The 0.3% cap however did kill Amex’s licensing model where they let other banks around Europe issue their cards, so they simply withdrew from those, as 0.3% is not enough to pay for the rewards.

Note that this is just interchange. Payment processors still charge merchants whatever they damn please.

Every additional payment method supported by XaaS is one more reason for using 3rd party payment processing, meaning that there will be a fee even on independent cryptocurrency. It’s not a solution.

> It’s not hard, it just requires you have politicians capable of dodging the huge piles of cash MasterCard and Visa throw at them whenever talk of breaking the duopoly hits the table.

Ignoring the difficulty of avoiding lobbying money, yes, it'd be difficult. This is a large scale financial change and there are always, always loopholes that will come, not just from politicians who make those because of lobbying money. With how giant the economies are, and how often these cards are used, it isn't a simple move at all.

Look at credit card chip readers in the US. The amount of backend equipment change it took to get something "that simple" in action was a lot. I'm not defending them for it not being quicker, but a move like a duel card is absolutely difficult.

"Look at credit card chip readers in the US."

Europe made this jump well over a decade ago.

It isn't a backend equipment problem.

Dual cards are easy btw. I used to have a joint Amex MasterCard. Separate cards, but same account.

Look at credit card chip readers in the US. The amount of backend equipment change it took to get something "that simple" in action was a lot.

I'd wager that the banks didn't give a damn as long as fraud was cheaper than investing into a new, much securer system. France was the first country to introduce chips into debit cards and tha was in 1990[1]

[1] http://www.theukcardsassociation.org.uk/history_of_cards/ind...

Cards are yesterday things. Many countries quickly moving on to phone based payments. Its much secure (requires touch or face ID) than doing fake signatures. I've no idea why visa/mastercard can't move to this. The often given reason for massive 5% cut is potential voided transactions, merchant setup, cashback expected by customers and ofcourse profit. Much of these can be eliminated by phone based transactions. This space is ripe for disruption.

>Many countries quickly moving on to phone based payments. Its much secure (requires touch or face ID) than doing fake signatures.

EMV is a thing, you know. And cards don't run out of battery or get smashed like phones.

> Many countries quickly moving on to phone based payments

Even as a tech guy, no thanks. Phones are mostly ok but still fuck up too frequently to trust them with anything serious.

But that's the point. Monzo is the best bank in the world and yet it's only available in the UK. As soon as you're trying to cross a border it becomes challenging. A cryptocurrency can be a very useful solution here: it skips decenies of progress to set up an interoperable network for banks and custodians to use (and users as well if they want to).

'Monzo is the best bank in the world...'

For small, everyday transactions this may be true but mainstream banks are much better for all the other stuff.

define "all the other stuff"

Being able to provide services when its customers are outside of its home country?

Serious banks have been doing that for literally hundreds of years.

Monzo does that too :| I use it all over the world because it has no fees.

Business banking, loans/mortgages, investment, savings and, when things go wrong, accessible human assistance.

> A cryptocurrency can be a very useful solution here: it skips decenies of progress

The fact that it is a _cryto_ currency is merely anecdotal. Its an implementation detail. It makes people think this currency is actually distributed as most other crypto currencies, while in fact it's just a consortium of companies having total control over all aspects (issuance, destruction, etc.) of the currency.

> set up an interoperable network for banks and custodians to use

This is just plain wrong. It's not banks or custodians that use this currency, it's just end users and the consortium. Banks are heavily controlled and regulated. I _mainly_ trust governments and legal systems to take fair decisions or litigate properly monetary issues. There is nothing like that here. The consortium of companies owning the currency decide the amount they want to create, they decide who gets refund and why, etc. I have much more trust in a country and a judiciary system than a bunch of worldwide companies to handle my currency.

> The fact that it is a _cryto_ currency is merely anecdotal

Completely agree. It's a currency.

> It's not banks or custodians that use this currency, it's just end users and the consortium

I do not agree with this

> I have much more trust in a country and a judiciary system

compared to a protocol that can be monitored for the total amount of money it holds?

The consortium of companies owning the currency decide the amount they want to create, they decide who gets refund and why

Don't forget the amount of support they will provide. Looking at major tech companies and their histories in providing customer support I see a rather bleak picture here.

This goes also for all those new fangled disruptive app banks. Guess how much success an N26 (new German app bank) customer had to contact support after 80'000 Euro went missing from his account. Spoiler: Until it was a massive story in the press, not much.[1]

[1] https://en.wikipedia.org/wiki/N26_(bank)#Controversy

>Monzo is the best bank in the world

That's very subjective.

I suggest you try it :)

I've had many many banks accross the world. Monzo is what everyone wished for.

I’m putting everything on credit cards. Amex for £ transactions, 0% FX MasterCard for foreign transactions. Another airline reward card when the merchant doesn’t take Amex.

I only ever use debit to pay off the balances of credit cards and to withdraw cash.

If you want to constantly live in debts and not be able to track your money I guess.

Actually helps me to track my money better.

What debts? I clear the balances when I get the statements.

> What debts? I clear the balances when I get the statements.

In the mean time you are in debt.

> Actually helps me to track my money better.

Have you used Monzo?

> In the mean time you are in debt

Why/how is that a bad thing?

Not sure if matters but at least to my understanding, DanKort is a debit card, so I would expect it to have a flat rate since the cost of transaction is less dependent on the total amount vs a credit card transaction where there is more clearance and risk involved?

At least in some jurisdictions I lived, debit card is as good as cash (well, not exactly the same but because handling cash has also its cost, most of retailers treat them equally)

> Visa and Mastercard are taking a 3-4% cut of every single consumer payment made in much of the world. That ends up being a very, very big number.

I think you’re overestimating that rate, and by quite a bit. Mastercard’s fees seem to be between 0.2%-1.65%[0] depending on the card and transaction type.

I didn’t bother to look for Visa’s rate, but I’d imagine it’d be similar.

[0]https://www.mastercard.co.uk/en-gb/about-mastercard/what-we-...

You are correct if you interpret "Visa and Mastercard" as literally Mastercard Incorporated and Visa Inc.

He used "Visa and Mastercard" as a metonymy for the entire payment processing network i.e. payment gateway + issuing bank + acquiring bank + card networks. The total fee for the entire network is indeed 3-4%, and as you rightly pointed out, Mastercard Incorporated and Visa Inc. fees actually only make up for less than half of the total transaction fees.

Of course the are not "taking" it either... they are issuing credit, allowing ease of purchase and providing fraud protection

That chart is for interchange fees, which is only one part of the fees a merchant will pay. It's the portion which is returned to the issuing bank.

It doesn't include the fees which go to MasterCard, nor does it include the fees paid by the merchant to their merchant bank.

> If you live in a country that has extremely tight currency and economic controls but with a corrupt government, and are experiencing hyperinflation (Zimbabwe, Venezuela, others https://tradingeconomics.com/country-list/inflation-rate), access to alternative currencies can literally be the difference between life and death for individuals, where the money you make on your salary will be worthless by the time you get your check.

Those same "tight currency and economic controls" apply just as much to cryptocurrencies as they do to Visa gift cards. There's nothing better about "Venezuelans should've used cryptocurrency" versus "Venezuelans should've used dollars".

But beyond that, people have the right to determine their country's monetary policy independent of, say, Bitcoin devs, Facebook executives, or a foreign government (ex: Venezuelans using USD), and it's hard for me to ignore the vague scent of opportunism here. The solution to corrupt governments is not "get rid of all governments", it's "get rid of corrupt governments".

> There's nothing better about "Venezuelans should've used cryptocurrency" versus "Venezuelans should've used dollars".

US has often taken advantage of its dominant world currency position. For example, massive amount of QE that eventually gets absorbed worldwide with little inflation in US. Similarly "petro dollars". The bottom line is that if someone is allowed to print currency at whim, they will.

The true value of any currency is what you can do with it. If someone owns some coin and wants to buy some food to feed their family, the seller of the food first has to accept the coin, but regardless what value the rest of the world places on the coin, the seller of the product is still in control of what they will accept. I am not sure how using a cryptocurrency solves the problem of hyperinflation. It is still not going to be cheap or easy to purchase items in the areas these problems exist. I think your other points about access to banking and storing/transferring money are valid. It implies the person has a working mobile phone and access to a network though too.

"Using a cryptocurrency" doesn't solve the problem of hyperinflation in itself. However, Libra is backed by its reserve ("Libra Reserve") which is a basket of low-volatility assets structured to keep its value relatively stable. If my interpretation is correct, this basket can change over time so that it is always made up of stable currencies.

> Visa and Mastercard are taking a 3-4% cut

have you tried buying anything with bitcoin? currently the transaction fee is almost $2 to have your transaction confirmed within 10 minutes.

Not a lot on big purchases, but that's 20% if you're say trying to buy a $10 lunch with bitcoin.

Bitcoin isn't the only cryptocurrency, and many others have much lower fees

It's the only cryptocurrency that anyone outside of the crypto world has heard of/takes any interest in/would consider letting you buy their stuff with

Have you tried buying anything with Bitcoin Cash? Currently the transaction fee is under 500 satoshi (about 1/5 of 1 US cent) to have your transaction included in the next block.

Because no one uses it, or not? Transaction prices are determined by supply and demand on Bitcoin Cash, too, AFAIK.

> lunch

Bitcoin fees are basically just the price you pay for having drugs delivered to your house.

Visa and Mastercard are taking a 3-4% cut of every single consumer payment made in much of the world. That ends up being a very, very big number.

There are two assumptions you are making, both of which are false. The first is that handling cash isn't expensive, but it is. You have to store in various secure locations, transport it between those locations, count it multiple times... And that's true even if you're a market trader or a small shop. For those people it could easily be a significant part of their day and a significant risk, all of which goes away with cards (and the fee is nowhere near 3-4%, it's more like 1-2%).

The second is that, in a market that has demonstrated a willingness to accept the transaction fees of the major card providers, that anyone would "leave money on the table". Sure they'll undercut them initially to win market share but once they have it, the price will inexorably creep back up to the level the market will bear.

My assumptions are based in that I’ve worked in the industry. There’s plenty of small restaurants that are cash only, because they operate on the thinnest of margins. Gas stations as well. To the merchant, a fee of 3% + .10c per transaction is very common. More for Amex.

The second point sounds like an economics 101 conclusion. Network effects are real. Regulatory capture is real. Starting a new card network is harder than beating google in ad revenue in search.

not saying it is the case but a lot of restaurants I worked were cash only because their supply chain was very low tech (also cash-only) and they simply didn't pay the taxes.

Gas stations might be higher at least in the USA because the kick back for gas is sometimes higher (e.g.: 1% cash back). Also, gas stations seem to really don't want to handle cash those days.

Quite sure that "cash only" means "fake books"

Being a Danish citizen and holding Krone at least in theory you may vote to control its inflation and claim social benefits from the issuer (Danish State). I mentioned the benefits because often they are financed through money printing by the government. With libra you won’t have those rights at all. One can argue that they basically get the same 4% as credit cards by depriving you benefits or voting power.

If you're running some kind of IT infrastructure big enough for the whole world to use, you're going to want a cut of each transaction whether you are VISA/MC or Facebook's blockchain. Some sort of transaction fee is inevitable, even (or especially) on a private blockchain.

Visa and Mastercard have invested so I wonder how they might weigh in on the project. Also, the Libra-coin should also have a transaction cost associated but I would expect/presume it stands an order of magnitude lower than 3-4%

Visa/Mastercard consider crypto an existential threat - the value add that they have in terms of consumer protection, middleman conflict resolution, and fraud prevention does not add up to that 2-4% level of value, and they admit that. Trust and the network effect keep them in play for now.

https://qz.com/1646097/what-does-facebooks-crypto-coin-libra...

Crypto transactions however, have not lived up to the "hype" of being truly cheap thus far. Visa/MC are positioning themselves such that the value they bring is not something that crypto can provide. We'll see where that ends up - I'd expect Visa/MC stock to move a bit if the transaction fees for Libra end up being sub-$.05.

This 2-4% being thrown around appears to be incorrect, as @dan1234 pointed out elsewhere here.

The Mastarcard fees appear to be 0.2%-1.65% as per https://www.mastercard.co.uk/en-gb/about-mastercard/what-we-...

That chart is interchange fees, which is only a portion of the overall "switch" fees paid by the merchant.

It isn't clear to me that you wouldn't still have payment processors anyway.

In the UK right now I can send money to your account nearly instantly, and for free. I wouldn't want to purchase anything like that though, I'd want to use some kind of card, why would Libra be any different?

> Visa and Mastercard are taking a 3-4% cut of every single consumer payment made in much of the world. That ends up being a very, very big number.

I'm guessing some of that goes towards chargebacks and other protections in the form of reimbursing purchases from stolen credit cards. It would be tough for me to trust any online replacement without a very firm and reliable appeals system.

Do we have any indication from Facebook that they intend to use Libra to massively undercut Visa / Mastercard for merchant services? I mean in the developed economies.

yes, their whitepaper heavily suggests that access to finance products for the poor is a big motivation behind Libra. However, it does feel a bit like white washing as the majority of the profits from Libra will obviously be the convenience of paying via facebook owned messengers etc.

The poor, even in developed countries, aren’t well served by the incumbents.

Visa and MasterCard are collaborating on the Libra protect.

For those two reasons I don’t know if it makes sense to say Libra is competing with the incumbents.

The problem with Visa and Mastercard in the developing countries I've experienced is the banking system.

In Cambodia, you can only get a credit card from a Cambodian bank if you have a deposit with them that matches your credit limit (i.e. to get a card with a $5K limit, you need to maintain a balance of $5K in your account).

Most people cannot get credit/debit cards because the banks won't issue them, because they don't trust anyone and won't take the risk involved in issuing cards

I can see how Libra will solve a lot of frustrations for Visa/Mastercard working in poorer countries

What risk is there in issuing debit cards? Other than the obvious fraud potential, but that usually doesn’t originate with the card holder.

to be honest, I'm not sure. They issued me one when I asked for it, but I had to ask, it wasn't normal. And often when I use it, I get a Whatsapp call from a nervous bank staff member checking that it was me that used it. Kind of cute really.

Yeah right. Where do you live? Here in Australia Visa / Mastercard debit cards are very common.

This is Cambodia I'm talking about.I don't live there any more, but I still use the bank account I set up when I did