Tech companies are clamoring to give you credit cards | Hacker News Reader

Tech companies are clamoring to give you credit cards

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34 pointslxm80 comments

The entire idea behind credit cards is to force processing fees upon store owners. As a store owner you are required to pay up to 3.5% of your revenue to the processing company (the percentage can be even higher than that if you sell stuff for small amounts, like just a dollar). With cash you can choose your bank and there is more of a free market, while with credit cards you can't get around not accepting certain brands. It also ruins the business for banks, which have to increase their processing fees, causing the cost of cash payments for the business owners to increase further and further.

If the US regulated interchange fees like Europe did (In the EU, interchange fees are capped to 0.3% of the transaction for credit cards and to 0.2% for debit cards, no cap for corporate cards), everyone would still get the benefit of cashless transactions without the processing rake credit card processors and related entities take.

Worth noting that credit card processors do take on credit risk, which for "normal people" is, sure, basically negligible. But black swan events (covid, for example) and fraud attacks (card cashers etc etc) are major issues.

This might be mitigated by the dominant form of payments in the regulated marks you mentioned being debit cards, which in some ways flips the equation on risk around.

However, this might not sit well with consumers. Lots of people in the US like credit cards because of the substantially superior risk profile they present (to the cardholder).

Let merchants charge customers the credit transaction fee as a surcharge [1] [2], and let consumers pay to receive the benefits if they so desire. Everyone else can use debit cards now, and instant payments when they arrive in 2023-2024 [3] [4]. If it's transaction insurance customers demand, let them vote with their dollars (versus mandating everyone pay it as a transaction tax).

[1] https://usa.visa.com/dam/VCOM/download/merchants/surcharging...

[2] https://www.mastercard.us/en-us/business/overview/support/me...

[3] https://news.ycombinator.com/item?id=24103753

[4] https://www.federalreserve.gov/newsevents/pressreleases/othe...

If card processors cared about fraud they would have rolled out chip & pin 20 years ago. They don't and the fees aren't that high because of it. The fees are so high for the profit and the stupid minigames that trick americans into having a wallet full of plastic cards for "savings" and "cashback".

Is chip & PIN a worthwhile investment into security, considering the growing number of online transactions?

> Lots of people in the US like credit cards because of the substantially superior risk profile they present (to the cardholder).

How so? Fraud liability?

And headache. If there's fraud in your debit account, it's a big problem for you because the USD that got stolen were yours. That's less money you can now write a check for.

Versus with a credit card, the money that got spent is only barely yours. Sure you're gonna have to dispute it etc but if it comes to it, you could always just let the account sit with a balance while a protracted dispute process works through.

Ha. Other fees nearly always take this above 1%, often closer to 5% and as far as 20% only sub dollar transactions. Other fees are your scheme fees of which there are many, avs fees, and your acquirer fee (the people who take the chargeback risk - e.g. adyen 0.65%)

That may be true for ecommerce.

But for physical card-present EMV transactions the rates are typically under 1% in Finland, see comparison: http://www.maksupaatevertailu.fi/ (in Finnish)

Nets is the most common physical merchant services provider here, I believe, which has 0.41% for Visa/MC debit and 0.91% for Visa/MC credit (though there are surcharges for foreign cards etc.).

Valid point, I refer to card not present tranx, but are you sure the 0.41% is when via the mc/visa network though (even if we accept an interchange of 0.2x), many of these cards in europe have an alternative national pay network for local cards - you will actually see the choice on some POS screens too. And asia too - TPN dual branded with err can't remember that name of the Chinese pay network that has failed to infect se Asia now, ah unionpay

Yes, AFAIK there is no local payment network in Finland (unless it is completely hidden from users and merchants somehow), and Finnish cards are definitely not co-branded.

The Nets rate for non-Finnish in-EU debit cards is 0.51% and for non-EU debit cards it is 1.71%, and +0.80% for corporate cards (all 2017 rates and for Visa/MC only).

No.

The entire idea behind credit cards is to reduce friction in commerce resulting from handling cash. This attracts more customers to businesses through increased convenience.

Taking cards is voluntary, there's no "forcing processing fees" involved. Plenty of businesses opt not to take credit cards.

In fact, interchange fees (which in the US now top out around 2.7%, not 3.5%) are at an all-time low because of technology improvements. The first credit cards had a processing fee of 7% (https://www.businessinsider.com.au/history-of-credit-cards-2...).

> Taking cards is voluntary, there's no "forcing processing fees" involved.

Lol, sure. That's why they make stores promise to never, ever, under any circumstances make interchange fees visible to customers.

Hiding in the shadows is not the sign of voluntary mutual-benefit value creation, it's the sign of a good hustle that someone is hoping to milk just a little bit more before the Sauron's Eye of public attention turns their way.

I usually see it, but inverted: "we offer a 4% discount for cash payments" signs

But usually only in small individual shops

If that's allowed under the credit card processing merchant agreements it's a new development.

If I had to guess, it's still forbidden, but small shops don't know/care until the CC company actually asks them to stop.

If people could get a 5% discount everywhere with their debit card, the gig would be up, and the CC companies know it.

Not sure why raised public attention would reduce credit card usage. People like the convenience, and I don’t see why they would care that it shaves a few basis points off of merchants’ margins. You’ll notice that in transactions with razor thin margins, credit cards aren’t accepted, restaurants being the major exception.

If people could get "5% off" (really: not paying CC fees) by using a debit card and also use it for rent and government payments, CCs would be gone in a few years. If merchant margins are razor thin, reductions in cost go to the customer, not to the merchant's margins.

I’ll draw an analogy. Most tech firms will make you sign an NDA as a condition of employment. That doesn’t mean that you are forced to work there.

Uh-huh. Much freedom. Very liberty.

Credit card companies would get bowled over in a second if we didn't let them leverage their size into anticompetitive contract terms, but this is America! We love oligopolies, low-competition markets, anticompetitive behavior, and rent-seeking. Freedom, baby!

If it was about reducing friction, why would credit card companies make it mostly against the terms of their contracts to charge different rates for credit card using customers?

Who knows, maybe their argument is that works against the image of convenience for customers? You’d have to go ask them, but it might be proprietary information.

Card processing companies provide a convenience, for which they charge a fee. If it was such a big deal, businesses would not sign on, and many don’t because it doesn’t work for them.

Enough businesses decide that the extra set of customers they can draw by accepting credit cards is worth the 2.5% processing fee, which is why credit cards still exist. It’s not some kind of extortion racket.

Do you think we don't know how Nash equilibrium works? The fact that the rules of a game can be adjusted to drive it away from optimum -- far away, sometimes even to the opposite extrema -- is a pretty basic economic concept and this is a pretty basic example of that concept. Market inefficiency 101 type stuff. That's why everyone else here is focusing on the metagame.

And no, 2.5% is not typical. Maybe Walmart gets 2.5%. I've seen between 4% and 15% in those few instances when the man behind the curtain has been distracted and true rates have snuck past his veil of secrecy.

> The entire idea behind credit cards is to force processing fees upon store owners.

No. As a consumer, I enjoy immense value by carrying around zero cash. In fact, I don't even carry around physical cards (thank you Apple/Google Pay).

You are paying a price for that. The second someone steals your phone, you lose it, drop in into water or your battery runs off, you are temporarily poor and if you might find yourself in trouble if you can't get somewhere where you can charge your phone

The second someone steals my cash i don’t have it anymore. If someone steals my phone, it is locked and the money attributed to it are safe. Sure, i may have lost my phone but my money is safe.

If someone steals your cash (as much cash as you can carry): you don't have it anymore.

If someone steals your phone (you will lose at least the value you paid for the phone) and once they force you to unlock the phone and to hand over the passwords, you will lose:

- as much cash as they can take out before you can access a device that will allow you to freeze the card

you will also be a more attractive target for hacking (especially if you are using Android and your phone is like the vast majority of targets that receives security updates very late or it simply does not receive them)

Seen it happen more than once. Yes, you are smart but so are thiefs

Most phone thieves (at least in europe) take it out of your pocket in a busy place. They are not making you unlock yout phone.

In that particular case, you still lose a device you paid a lot of money to have and you might even lose any data not backed up

Of interest, and I really don't know as I've never had a smartphone, if your phone is stolen, what stops it being used to pay for something? The point of the convenience was - I thought - that you just swipe. Couldn't a thief?

Also how do you do anything if your phone is gone - travel, call, let the bank know, buy a new phone, let your partner know you're in trouble, anything?

Also how much is you phone worth? A quick look suggests ~£1000 for an iphone 11, although I guess that's needlessly high, but you're carrying a large cash equivalent, highly attractive? I've never had £500 or the equivalent in my pocket, ever (max ~£350 for 1/2 hour IIRC).

And cash doesn't break if you sit on it. I'm not entirely convinced of your case quite yet.

You need to unlock the phone to pay with it.

You will just unlock it at the thief's request

that does not contradict or invalidate that the idea behind them was/is to force processing fees on merchants. whatever benefits you may or may not enjoy are unrelated to the purpose behind cards being offered.

What is this 'immense value'?

Not carting a pocketful of loose change round your entire life. Not an issue for some people, but I really like carrying less stuff.

Loose change is both heavy and worthless. You can carry cash around without bothering with loose change.

A very privileged perspective. Most of the world still counts their pennies, and the surcharges on non-cash monetary transactions make a sizeable, noticeable dent if pointed out to them. It's a tough balance they have to navigate.

Though I'm extremely privileged now myself, I'm not so far removed that I have forgotten those days when down-to-the-penny accounting mattered. In the US at least, if you had the right education (which sadly many lack), you can live amazingly inexpensively by forgoing many societal conventions and expectations.

less hassle, enhanced security. I can spend hundreds of dollars without having to carry that much cash on me, or having to go to an ATM ever. It's more convenient and more secure, which is almost never true today.

I would not necessarily call it enhanced security if you are using Android and your phone is not one of the latest models. Plus of course someone can just steal your phone, force you unlock it and steal more than they could ever steal from you if you only had cash.

Your enhanced security is a box containing more money than you can carry. This box can (most of the times) only be opened with a key but this key is always with you. So whoever steals your force will just force you to open the box

Sure, if someone specifically wants my money, but that is unlikely in a Bayesian sense. And the bank will interrupt in any case because of anti-structuring and max-spend limits.

You don't have to outrun the bear.

If it's bayesian-unlikely they want your phone then why should it be any less bayesian-unlikely they want your cash. That's one weird argument. And BTW your phone is usually quite visible, like sticking out if not actually being used.

> and max-spend limits

Ok, now they've got your expensive phone and can spend up to your limit.

> If it's bayesian-unlikely they want your phone then why should it be any less bayesian-unlikely they want your cash.

Because phones these days are mostly bricks when you steal them. Cash still works.

> Ok, now they've got your expensive phone and can spend up to your limit.

Haha, no, they can't. That's not how any of this works.

But listen, it doesn't matter. Carry cash if you want. I won't. And may the chips land where they may.

Phones becoming bricks when stolen AND reported hasn't and won't stop most thiefs from stealing them and it won't prevent you from losing your expensive phone and having to buy a new expensive phone. And if the phone is insured, well then you are paying a monthly fee for having a money holding device

indeed it's down to personal choice and I can't criticise yours but then I don't want a personal tracker on me almost as securely as if it were a collar, not having my buying habits tracked. This to me is normalising personal monitoring. I thought that's what americans were so idealogically against, and so loudly. There will be consequences, but I guess convenience trumps everything.

Is cash that hard?

Yeah, I carry around a grand on me usually (for drugs and stuff) and it's really bulky. Then you've got the denomination issues.

If you take the speed you've just bought everything will be less tiring.

This is true, but the deleterious effects are fairly significant.

You have to sort cash, count it, deal with counterfeit bills, run it to the bank, etc. There must be a break-even point if a business values its time.

It's nowhere near 3.5%. It's probably an order of magnitude less. My mother spent a decade as the controller of a luggage store chain. She told me the amount they spent on credit card fees was at times in excess of their stores' payroll. It is rent seeking at nearly unfathomable levels. Even the shady check cashing operations for the unbanked are able to operate profitably on a 1% cut.

I'm not convinced the margins are as big as you might think. My understanding is that the margins are thin but they make it up in massive volume.

Stripe charges 2.9% plus $0.30 per transaction. If you have an average transaction size of $100 you're paying $3.20 in fees (3.2%). There are several no annual fee credit cards that give the consumer 2% cash back. That leaves 1.2%. This 1.2% isn't pure profit. Things like fraud protection will cut into this. There are also several groups that need to split whatever is left of that 1.2%. Stripe needs to make money, Visa/MC need to make money, the bank offering the card needs to make money.

Visa and Mastercard are both publicly traded. You can go look at their financials. I believe Visa still holds the crown for the highest gross margin and price-to-sales ratio of any stock in the S&P 500. Mastercard isn't far behind. These are not marginally profitable businesses. They are money printers that rely on tightfisted control over merchants and the payment clearing infrastructure.

I took your advice and looked at some financials. The total revenue/cost of revenue for Visa in their most recent info was 5.5. That does seem like a more than healthy profit margin.

For context, here is the same ratio for the FAANG companies and a few telecoms. I would've included some banks as well but they report their income differently so I didn't see an easy way to calculate the same ratio. Facebook 5.5 Amazon 1.3 Apple 1.6 Netflix 1.6 Google 2.2 AT&T 2.2 Verizon 2.4 Comcast 3.2

Out of all these companies the only one with a better ratio was Facebook. However, if you look at total revenue Visa was by far the smallest of the companies I've listed. Based on this info I can agree that Visa could reduce their fees and still have healthy profit margins. If you want to use this as evidence they charge too much and need some form of government intervention you might want to look at Facebook first and keep an eye on the cable companies.

Cash businesses are also some of the ones the most prone to employee theft, especially bars. Also, the 3.5% is just passed on to the consumer is happy to pay for the convenience it brings.

> the consumer is happy to pay

Happy to pay? Or ignorant of the cost? Or ... not offered any discount for cash? I'm not particularly "happy" to pay these fees, but there's not much way around them. They get baked in to prices, and I'm not offered a way to opt out.

And here I thought the entire idea behind credit cards was to make up to 22% interest from the user. The 3.5% per transaction from the retailers just seems like bonus. If not even considered a double dipping since most retailers will take the 3.5% into consideration of their pricing.

This depends on the card. The cards people associated most with Amex (platinum, gold, etc) are charge cards and you're expected to pay them in full every month instead of carrying a balance. That's part of why Amex historically had higher fees for retailers. Those fees were their only source of income.

I'm sure most banks have good enough financial modelling that they can tweak their credit card approvals to get whatever balance between retail fees, annual fees, and interest they want for that card.

There is a difference between "credit credit cards" and "debit credit cards". Debit credit cards are a bad idea for consumers because of those 22% as well as liabilities when being victim of a crime. But yes, many people treat the limit of those debit credit cards as a way of having money. It isn't though.

Would the distinction be there are credit cards and then there are debit cards? Credit implies some sort of ability to be able to pay for something essentially out of the creditor's pocket with the agreement you will payback the creditor based on agreed upon terms. A debit card is a digital version of cash where if I don't have any, there is no transaction as the bank says no funds.

I have never heard of a debit credit card. Are we using the term credit card as a generic term meaning the little plastic card in my wallet?

Can you explain this a bit more? I have no idea what you mean by "credit credit card" vs "debit credit card".

Here is an FBI employee explaining the difference between the two when a breach happens: https://youtu.be/vsMydMDi3rI?t=2737

A more general article: https://www.investopedia.com/articles/personal-finance/05021...

OP said "debit credit cards" (not debit cards) and 22%. What's it?

At least in the U.S., there is no such thing as a "debit credit card", and debit cards do not have interest rates as they're (usually) coming straight out of a checking/savings account.

I'd wager the average card purchase is way larger than 3.5% compared to cash, as the money being spent feels less real.

Outline link for anyone who has trouble accessing this article like I did:

https://outline.com/nEmsbN

I understand some of the appeal of metal cards and the like but this seem short order as the move to contact less payments increases. To be honest the less someone knows about my purchase which includes the brand on the card the better

Now I can see the appeal to some, example the Apple card, where pricey items can be paid for at no interest with the added hope they use your card elsewhere. I haven't look into Apple's card but does it give you "points" for later Apple only purchases?

I still see more appeal in products like Chase Prime cards as there are many more products I can pick up at Amazon to get five percent on at all times instead. I only keep two cards and this one was chosen as having the biggest impact.

The Apple Card is great - I switched to it and closed all my other credit accounts (even though the others had better overall cash return when factoring in their points value).

I did this for a few reasons.

- Better software: The iOS integration with Apple Card is really good. The second best I've seen was Amex, but they were still a distant second.

- "Daily Cashback" - just automatically putting the 1%/2%/3% back onto the cash card on my phone daily rather than having to deal with the card software/points etc. The time/value return on point optimization is fun, but ultimately just not worth it to me.

- Third party transaction protection: Apple made [edit: Goldman Sachs] agree to not resell transaction data.

- No upsell: Other cards are constantly spamming you with offers to get their checking account, services, etc. I don't want any of these things, often the attempts to disable the emails doesn't totally work.

- Easy cancel: Other cards require you to call and deal with retention services in order to cancel.

Other card services really dropped the ball on this, AMEX in particular is user hostile. Want to use the airplane points? You must pick an airline (not obvious). You want to get the money towards rideshare? You must click the boxes the enable it or you don't get it. Oh - you also get the rideshare money doled out $15/month without rollover to make it maximally hard to use. Paying $550/yr and then feeling like they're screwing you at every turn doesn't create much loyalty. The Chase Sapphire Reserve was probably the best overall card before I switched to the Apple one.

If the other companies actually cared about their users they could have made a much better product. There's huge opportunity in this space to make something that doesn't suck with rewards that people actually want.

>Apple made [edit: Goldman Sachs] agree to not resell transaction data.

I thought they agree not to sell personal data, ( which as far as I am aware no bank does that ), but still sells aggregated data. ( Which belongs to Goldman Sachs )

small nit: the underlying creditor is Goldman Sachs, not Morgan Stanley :)

Thanks - fixed :)

Apple Card is 1% cash back on all purchases, 2% if you use Apple Pay, 3% if you shop at Apple (and a couple others now). It as Apple Cash so it can be used anyway you use Apple Pay (or just on your statement, I think). It’s not the best card but it’s decent.

Funny to think that as well as tech companies trying to give out credit cards, a few financial companies (Capital One) are now seeing themselves and identifying as tech companies.

Although based on the article, it doesn't seem like the latter is really related to the former.

> a few financial companies (Capital One) are now seeing themselves and identifying as tech companies.

Is it branding or an actual shift?

I've seen many companies pivot to being "tech companies" but still didn't have incentives in place to attract real talent, and more crucially that still treated software and tech as a cost center.

But hey they had bean bags!

Before their infamous AWS breach, a former coworker of mine tried to get me hired there under a fancy cyber security operations title. He gave me a tour of the new(ish) building around Tysons Corner, VA. It is a very modern building, with a lot of charging stations and Tesla model S EVs in the parking garage. Public events happen there, they have two cafeterias, and probably a whole bunch of networks supporting all of that. They constantly evaluate new cyber tools, so I was told. It seemed to me that, yes, there could be something behind this idea that they are "a tech company."

So I went through the hiring process. There's an online proprietary aptitude test that's required of all candidates, and it's apparently such a big deal, that you can only take it once per 6 months. They start you off with a practice test served from a non-CapitalOne FQDN, then the real one served from a CapitalOne FQDN. Well, I took both, and got an error at the end of the real one. Apparently, Firefox is explicitly supported on the practice test, but only IE11 is supported on the real one. The error meant none of my exam results were recorded, and due to some technicality, that meant I was SOL for 6 months.

My experience with CapitalOne, the "tech company" whose aptitude exam required a legacy browser, ended right there.

> So I went through the hiring process. There's an online proprietary aptitude test that's required of all candidates, and it's apparently such a big deal, that you can only take it once per 6 months.

Is it at least a technical test?

"Aptitudes and psychometric tests" are, to me, a red flag at tech companies, that it's HR and not engineering that's in charge of hiring.

Having worked for banks that have said this, I can say it's branding without much substance behind it.

They say this to attract talent. The talent doesn't remain long unless they get into all the politics and butt sniffing that goes on at large established companies. Those that actually produce end up being taken advantage of and credit goes towards the people that manage them.

It's what I observed with banks.

No matter how much the tech contributes to the bottom line, bonus and incentives are still focused on the trading floor and salespeople.

Capital One has always been a tech / big data powered company.

Not a great article. Cobranded cards have proliferated because of lower interchange fees. Customer loyalty isn’t the main benefit to the company.

Because in capitalism the end state of every successful business is finance or real estate.

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