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Comment by unethical_ban | Hacker News Reader

The idea that the ongoing cost of moving money between parties varies on the amount of money moving is very "sus" as they say. Whether they move $10,000 in a transaction or $3, roughly the same number of bits move, the same number of algorithms kick off, and so on.

Is there a cost-based rationale for doing a percentage-based pricing model, or is it really "because they can"?

I could brainstorm and say "fraud" or "defense against lawsuits involving large transactions" but those both feel weak.

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Much of the interchange rate is charged directly by Visa / Mastercard. The merchant bank will then add basis points to that, and often you get another mark-up by the individual ISO (independent sales organization) in a typical set up. So, then, why do card processors charge percentage? Well, when you see those Capital One commercials where you get 1% cashback on this type of purchase or 2% cashback on this, that's where the money is coming from.

Companies like Stripe shield you from the intricacies of interchange pricing but if you operate on interchange + (meaning, the merchant account provider is charging you interchange + X %), you see that processing corporate rewards cards are the biggest killers, because you are essentially covering their 2% cashback programs. Additionally, some of that cost is insurance. If you have a fraudulent charge on your card processors work with your banks to cover some of that money, which they make from the overall % of total volume.

Not saying any of that is right, or an ideal situation, that's just the why.

Just to note, interchange in the EU is capped at 0.2-0.3%. Stripe charge 1.4% + €0.25, so that's not the full story (there are scheme fees too, but I assume Stripe is still making some margin on the % fee - but open to correction on that)

Though only for consumer 4-party scheme cards.

If you have mostly EU customers, then it would make sense to switch the acquirer and probalby get an Interchange++ rate.

If you have customers from all over the world, using mostly business cards or cards from Amex, then the Stripe rate might be okay.

Isn't that rate part of the 2.9% + 30c fee? Not the additional 0.5% for Stripe Billing.

Absolutely. I took the question as to why a percentage is charged for card transactions at all. The additional 0.5% is most definitely a "because they can" type of pricing and that's more an economics theory discussion. The market has shown a willingness to put up with that pricing and therefore a value proposition is set so until something changes no reason to price differently if the market is willing to pay a model with a much higher margin. I don't necessarily agree but that's a sound short-term business decision. I know from experience that sometimes going into a market with an established pricing model, however unfair, with a better pricing model for the customer can be bad for business and result not only in less profit per sale, but fewer customers making the buy decision because of the pricing model expectations that have already been set by the market. It baffles me, but I'm no economics major.

> Is there a cost-based rationale for doing a percentage-based pricing model

Liability scales with transaction size.

> Is there a cost-based rationale for doing a percentage-based pricing model, or is it really "because they can"?

It’s definitely because they can.

There is no rule that pricing must be cost based.

This thought is exactly what the company I work for is thinking: https://www.paystand.com/about (B2B SaaS payments, fixed monthly fee)

The majority of the current payment cost (2%+) happens when paying by card. But as you say a payment right now is just moving bits. The main reason why cards charge so much is due to Risk. If you read about "interchange fees" you will see how Visa, Mastercard, AmEx, etc. classify different cards into different levels and charge a different exchange rate for each of them.

But the thing is, this system and networks were created last century (around 1960) and nowadays there is better technology to assess risk and to perform the transactions.

Mo' money mo' problems.

Percentage of revenue based pricing is very common in enterprise software and not without reason.

How angry is a customer over a $10 payment not going through vs a $10,000 payment not being processed correctly? We're likely talking the difference between the inconvenience of not having Netflix for a few minutes vs you've just cost me $35,000 in lost sales because my subscription failed and you can't find out why on time.

I want the company who made $50 on that transaction helping me, not the company who charged $1.40 flat rate and needs to budget their offering by limiting development and support.

Risk.

The simplest way to fairly charge everyone an appropriate amount for the risk that Stripe takes on by processing their transactions is as a percentage of the transaction.

The pricing everything, in general, is “because they can”.

I think its a form of value-based pricing.

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