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Comment by chadlavi | Hacker News Reader

Payment processors generally don't refund fees on payments when the payments are refunded, this isn't new. It's remarkable mainly because (a) it's 30%, not 3% and (b) the App store doesn't position itself as a payments processor the way Stripe does, so it sounds really weird that they would act like one.

If the app store took a 3% chunk and never refunded it regardless of the ongoing status of the transaction, that would put them right in line with other payment processors. It would also still net them billions of dollars, I think!

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Credit card companies (i.e., Visa, Mastercard) absolutely do refund fees on payments when the retailer processes a refund. This is why retailers generally require you to use the same method of payment to get your refund.

It's uniquely online processors that do not refund fees.

Notably, it's a somewhat recent change for Stripe.

They had refunded fees but iirc it meant they were paying a small fee per refunded transaction (which in a sense subsidizes apps that incur frequent refunds) which they wanted to stop doing.

A quick search showed they started refunding fees in 2012 and stopped in 2017. Here's a discussion from the past couple years: https://news.ycombinator.com/item?id=22371330

They stopped doing it for new customers in 2017. Grandfathered customers saw the policies change in March of this year. My company's account saw the change in late March, while we were all staying at home, so that felt like a gut punch. https://news.ycombinator.com/item?id=22371330 was contemporaneous

> It's uniquely online processors that do not refund fees.

It sorta makes sense, since the online processors are usually middlemen that only make money on the fees they themselves charge. I could see their perspective being "we provided the service; that service is not un-provided because the customer returned the item and you sent them a refund... in fact, you used us even more because we had to mediate the refund transaction!"

I think if the fees were just a few percent, I wouldn't have too much trouble accepting that logic, but from Apple, where it's 30%... not so much.

The card issuers don't care quite as much about keeping the fees in a refund scenario, I guess... though I believe you don't get everything back during a refund, regardless.

Why do such fees (online, appstore, etc) have to be "some x% of the transaction value" and not just a flat fee?

Because, money. I can understand, on a credit transaction, there is a larger risk when a larger amount is spent. But even then I would expect some tiers. But for an online transaction, where there is no real risk to the middleman, it is about making more money.

CC Processors like Visa and Mastercard do refund fees on CC processing, but the interchange or % of return is smaller than the actual gross. You don't necessarily get "all" of your refund, if you're a merchant.

Only processing fees aren’t refunded which is like 25 basis points for a mid size business.

It’s highly country dependent. Card present transactions are still several percent in many countries.

That isn't true. They enable the return of the interchange (from the issuing bank), they do not refund the scheme fees.

In fact, you will pay more on the scheme fees to process a refund, as you need to send another message into the scheme's network - often charged per message or per byte etc.

Interchange is not payment scheme revenue - it is just passed through to the issuing bank.

Scheme fees generally don't apply to US credit card transactions...

That is primarily an issue for cross-border credit or debit card transactions.

That clearly can't be true, as it would mean that Visa and Mastercard would be working for free for domestic transactions.

Scheme fees are much lower for domestic transactions as far as I'm aware, though.

Visa and Mastercard don't use a scheme fee in the U.S. The credit card system is structured differently here than it is in the EU.

Generally, Visa and Mastercard simply charge more per transaction for different cards in the US. For example, rewards cards cost merchants more, which is why many gas stations won't accept them.

The interchange is higher, sure, but that still goes to the issuing bank. Working with schemes still involves separate fees, as does processing and acquiring.

My experience with PayPal was that they almost always gave me my fees back when I processed a refund (there were corner cases where that didn't happen); it is possible the rules changed or that I am misremembering the extent of the cases when they don't, though (I haven't processed payments in a year and a half).

Paypal about a year ago changed their policy that they would keep the credit card processing fees for refunded orders.

No, OP is just plain wrong.

That's because they're not the same class of processor. The chain is like

Your bank account -> visa/mastercard/discover -> PayPal's merchant bank account -> the person you're paying bank account

PayPal only replaces the ccs when you pay with their wallet. Otherwise they're just orchestrating the money flow (because integrating with the CC companies is a gigantic PITA)

PayPal is not a credit card processor, it is Money transmitter, different legally

Stripe on the other hand is a credit card processor, and as a merchant you get a Merchant account, the same like Authorize.net who used to be the largest online processor before Stripe.

Back in the day (and I have been out of that market for over a decade) Authorize.net absolutely refunded processing fees on refunds

Just to add, PayPal is also most likely a credit card processor, serving as a Payment Facilitator (PayFac), which enables others to become CC Processors. It happens that PayPal and Stripe are money transmitters, which may come with being a PayFac.

Auth.net is a gateway/portal that facilitates CC transactions, and while you may be refunded on processing fees for the use of the gateway, someone, somewhere is likely eating the interchange and most likely occurring at the merchant level.

Notably, Square, founded in 2009 didn't become a money transmitter until sometime in 2013, IIRC, and I think a few laggard states in 2014. This was in service of Square Cash, not the core payments business. They were, however, merchant of record the whole time.

Authorize.net is not a payment processor but a payment gateway.

TSYS, Vantiv, PaymentTech are processors. your merchant account is usually with (i think) the acquiring bank that's part of the Visa/MasterCard/Amex/Discover network.

Didn't PayPal get a bank license which also caused them to close a lot of accounts that were created decades ago by users that weren't old enough for back accounts back then?

"It's uniquely online processors that do not refund fees"

Uniquely those that provide some higher level thing, like PayPal or Stripe. If you have a merchant account, you can get an actual refund for online purchases.

> This is why retailers generally require you to use the same method of payment to get your refund.

This is for AML, not because of fee refunds.

I've bizarrely been refunded in cash multiple times at Wal Mart for card/app purchases.

The normal structure for credit card processing is a few cents flat payment plus a percentage of the transaction[1].

Something like 5 cents + 1.5% would be a great deal on payment processing, generally. (Apple is a juggernaut and may have been able to negotiate something else, of course.)

That does mean that for a $0.99 app, keeping the fees would still be more than that 3%, at ~$0.07... but not wildly divergent from the 30% amount.

Where the 30% gets really abusive is for things like Codea, the app being talked about in the Twitter thread. It costs $14.99. So it had presumptive fees of ~$0.28, while Apple's keeping $4.50. That's outrageous.

(Also, I see mixed reports on whether credit card refunds refund the processing fees. It might be contract-dependent.)

[1]: https://www.fool.com/the-ascent/research/average-credit-card...

Apple doesn’t charge the user immediately. Instead it consolidates over a few days. So, often, the card processing fees are lower for Apple.

Payment processors also don't typically sell their own hardware, then lock said hardware down so that the payment processor's store is the only way to purchase things for the hardware. Payment processors typically allow you to buy a variety of goods from a range of storefronts. Comparing the Apple store to something like stripe or PayPal seems pretty apple and orangy to me.

PayPal does refund the variable portion of the fee (e.g. 2.7%) but not the fixed portion (e.g. 30 cents).

Not true anymore. Check their website https://www.paypal.com/us/smarthelp/article/is-there-a-fee-f...

> Payment processors generally don't refund fees on payments when the payments are refunded, this isn't new.

This is new, and in fact PayPal and Stripe enacted this policy only this (or last year if I recall correctly).

Some payment processors like Affirm or Amazon Pay have not changed their policy on this yet.

Square used to refund the fees, they changed that policy when I was there and the reason was just to lose less money on refunds. I'm not sure whether they had to pay interchange on refunds or not.

The 30% cut is not a payment process cut or else this would fall under: usury, profiteering, rip-off.

For reference for folks who aren't familiar - in the US,even 3% would be an above market rate for credit card processing. The big companies like square and stripe are usually 2.9% for $0/year accounts, and rates go down from there. Smaller processors can do lower rates, and if you do over a few $100k/year, you can do lower with the bigger players as well.

For online processing, 3% is by no means above market.

For example, the default price on Stripe (and many others) is 2.9% plus $0.30. For a business with an average order value of $30, that $0.30 adds a full percent, bringing your fees to nearly 4%.

If you do high enough volume, yes, you can negotiate lower prices.

To be fair, Apple and Google do a fair bit more than a payment processor does (basically nothing). Not 30pp more, but it wouldn't be reasonable to expect 3% fees.

I'd guess 10-15% is what is actually reasonable. Microsoft has settled for 15% in their store (because nobody was using it so charging 30% is ridiculous).

For that low low price they'll also reject your app for random reasons and make it impossible to find in their store.

> For that low low price they'll also reject your app for random reasons and make it impossible to find in their store.

So much the same as the other stores then.

But the store feature I want to see from Apple is that if you provide the customer referral to your app yourself, Microsoft only takes 5%.

Microsoft is not in the business of making money from apps, right now they need growth, it might even be a question of hey so we need to keep the store running. I say only partly in jest but see them change colors if they ever get a dominant share.

So you're saying that companies who have to compete charge less whereas companies with a dominant market position can extract monopoly rents because they lack competition? But people keep telling me that isn't the case for Apple. Shouldn't they be doing the same thing to try to get store market share from Google?

> So you're saying that companies who have to compete charge less whereas companies with a dominant market position can extract monopoly rents because they lack competition?

Not GP, but I didn’t read it that way. I read it as Microsoft loss leadering their store to get growth.

"Loss leader" means losing money one one product in order to get people to show up who buy more of something else. How do you imagine Microsoft's costs for paying a ~3% credit card fee and hosting a ~50MB app are going to exceed 5%? Also, what's the other product they intend to make money on supposed to be?

You can't attract people to the store with low fees and then raise them later or they'd just leave as soon as you do. Unless you would require them to use Microsoft's store and no other, but then you could just do that from the outset, except that it'd leave you with the same sort of antitrust scrutiny that Apple should be under for doing the same thing.

Generally the reasons for rejection are not random except as a matter of uninformed or misinformed perspective. However, if you are saying they have made some mistakes at times, I’d have to agree.

Yes, they do a lot, but not at the moment of, or as part of, processing a transaction. What work do they do specifically for a transaction so that they get to keep 30% of it?

Apple and Google actually take 15% for subscriptions after the first year of consecutive subscription.

PayPal also keeps the fees when a refund is issued https://www.theverge.com/2019/9/20/20876570/paypal-refund-fe...

Important difference: with Paypal, the seller decides to issue the refund, not Paypal unilaterally (except in cases of alleged fraud), and the seller can determine how much of a refund to provide.

Hmm, when I use PP to refund to my clients, PP returns the fees - it's a line item in the ledger.

That cannot be true or maybe you have a grandfathered account, as paypal absolutely does not refund the percentage fee. Same with Stripe.

My account is a five year old business account. My most recent refund I issued was Aug 2019. A line item on the PayPal statement was called "Fee Reversal" for $12.46 USD

However, a read of their current policy shows it's no longer the case - so I'll likely get dinged on my next refund.

Small business owner here...I use Wave for accounting. They absolutely do refund the fee. Shame on the processors who don't refund it, and shame on those who hasn't been doing that since the beginning (Strip, Paypal...) because they are knowingly sticking it to small business owners. I've used Wave for 4.5+ years and this is how I've known it.

"Regardless of the type of payment you received, the full amount that the client paid will be refunded to the client by clicking on the refund button at the bottom right-hand corner of the transaction details."

https://support.waveapps.com/hc/en-us/articles/115004056523-...

> Regardless of the type of payment you received, the full amount that the client paid will be refunded to the client by clicking on the refund button at the bottom right-hand corner of the transaction details.

That doesn't say anything about what the merchant gets charged. Stripe and PayPal also send the full amount to the card holder, so that blurb would apply to them too. The question is whether the merchant ends up with zero or minus the original processing fees after the refund.

Stripe does refund their fees with a transaction refund. I understand this may be novel for the payment processing industry though.

Is this true? From their docs [1]: "There are no fees to refund a charge, but the fees from the original charge aren’t returned."

[1] https://stripe.com/docs/refunds

No stripe doesn't. They used to but not for a while now. At least not for our SAAS business where we do close to 1M ARR. Am I missing something ?

https://stripe.com/docs/refunds

Same here, they used to but stopped about a year ago.

Ditto. Helping some non-profits, we were really hurt by people typo-ing a $10,000 donation when they meant to only donate $100. We quickly learned from that mistake.

We also learned about how credit card thieves test credit cards. We saw hundreds of donation attempts. Stripe had us refund those that went threw, which costed us money in fees. Fortunately we were able to put some quick measures in place to stop them temporarily & then better measures for long term success.

I am curious what measures did you put in place?

The credit card tests had unique network patterns we could block.

We lowered our online donation limit. Above a certain amount it really is more ideal for a check or some other type of transaction. Though we've had a few people offer to just pay the 3% transaction fee on top of the multiple thousand dollar donation. For those we do a bit more manual process.

For a cost, Stripe also lets you put some additional rules on what type of payments you'll allow & how much info the person has to verify for the payment to be accepted.

We actually raised our minimum online donation limit to avoid issues with those processors. They apparently look for set your own donation sites so they can try to authorize $1 test payments. We changed to a $10 minimum and they seemed to have stopped.

Thank you. It all makes sense. Did you end up using Stripe Radar to check for fraudulent payments? It is working well?

Yes & yes but your mileage may vary depending on your customers/donors. For example, we turned off transactions from several countries.

Honestly a basic version of this should be free. I shouldn't have to pay extra to say I only accept cards with a CVC number & expiration filled out.

I agree with this. I am a bit frustrated with Stripe for making this a paid service given the cost of payment processing. However, I assume when the fraudulent transactions cause a loss you have to pay for Radar.

A common way to prevent that is to authorize only first - settle/charge that payment at a later time when you think it's not a typo.

I guess it's been a long time since I've been personally responsible for the financial side of Stripe accounts. I think it was 5 years ago when I used to run a lot of test transactions and refund for net $0, but times change. Sorry to lead anyone astray.

That's awesome! However, it WILL result in stripe attracting a LOT of the crappy billers (ie, folks who mislead / make customer unhappy etc). If your business is < 1% refunds, no worry if fees stay. A fair number of business have just 1 or 2 refunds PER YEAR.

Other business obviously have MUCH higher refund rates (sneaky autobill businesses etc). For these loosing 5% on the refunds matters if they have a lot of refunds, so they'll be very tempted by no costs if you autobill and get caught. They'll just autorenew everyone, autosign up and then be VERY good about refunds to avoid chargebacks. Even if just 30% of customers don't catch a few months you end up with real money.

Of course, CUSTOMERS may hate these players, but stripe I guess is focused on what works for the businesses generating lots of refunds.

Having a disincentive for merchants to have many refunds makes a lot of sense.

The reasonable thing to do is to ramp up the fees based on the number of refunds. You want to push away the crappy billers, but not hammer developers that have the occasional bad release.

That is not accurate. Stripe does not refund us the fees.

Not anymore

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