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Comment by satyrnein | Hacker News Reader

I definitely have concerns about the stranglehold the payment processors have, but does it really make everything 3-5% more expensive?

My understanding was that a good chunk of the 3% fee is given back to consumers as cash back or rewards, and that dealing with cash also had costs for businesses.

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This is correct. The best you can usually do is 2% cash back, so really the consumer is being charged 1% for the convenience of using a credit card. Obviously most consider that worth it, which is why credit cards are so popular.

right now we have a situation where the rich (who pay for things with expensive premium credit cards) are being subsidized by the poor (using cash or basic credit cards) because interchange is much higher for the top of line credit cards.

Retail isn't paying 3% on their transactions. It's more like 1% for card present transactions.

Generally cashless is cheaper for the retailer. Fewer losses to employee fraud and robbery. You don't have to pay for employees to deposit cash.

The downside is that you're liable to fraud and chargebacks.

Banks basically break even on interchange after paying out awards and security costs and then the merchant acquirer + network get like .2% - 1% depending on the size of the merchant. V/M is one of the most benign duopolies out there.

I mean, if it wasn't I guarantee some fintech company would come out of the woodwork to disrupt it because the potential upside is huge once you scale.

Most merchants bump their prices to account for the fees, without any discounts for paying in cash. This means that the ~25% of US households that are unbanked or underbanked are paying a 2-3% "tax" without any benefit -- further harming the poorest population to the benefit of those with good finances & credit.

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