Comment by toomuchtodo | Hacker News Reader

Comment by toomuchtodo | Hacker News Reader

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The current market so far. Interest rates will rise and CC transactions will migrate over time to less costly rails starting in the next 12-18 months (although Radar, Identity, and other value add products are likely to see continued use and rev growth). Imho, Stripe should've IPO'd at the top ~12+_ months ago.

EDIT: @pbriet (HN throttling, can't reply directly to your comment)

In the US, Zelle does $490B worth of volume annually (2021), all CC networks combined do about $1.9T (2021). That's significant volume for a real time payment system, and it's not even fully baked within the US financial ecosystem. FedNow [1] [2] [3] rails go live next year with instant settlement, moving up to $500k in value for 5 cents (what the bank partner charges the banking customer is up to them). I expect that to move the needle, considering merchants can charge a CC surcharge per SCOTUS' Expressions Hair Design v. Schneiderman (No. 15-1391) ruling. If you compare India's UPI implementation to CC volume, the open platform is fairly successful [4], hence my thesis (and this pattern is repeated, you'll find, across other economies where a low cost real time payment system is present).

CC companies are raising their rates because their margin is soon to be compressed. Ignore BNPL, that's a feature/product masquerading as a business (see: Klarna's down round, Affirms' decline in share price, etc) and regulators are coming for it [5].

TLDR A new fintech product from the Fed is likely to shift higher cost transactions from legacy payment rails to a utility product.

[1] https://www.moderntreasury.com/learn/what-is-fednow

[2] https://frbservices.org/financial-services/fednow/community/...

[3] https://corpgov.law.harvard.edu/2020/08/31/fednow-the-federa...

[4] https://www.business-standard.com/article/finance/upi-most-p...

[5] https://www.pewtrusts.org/en/research-and-analysis/blogs/sta...

"CC transactions will migrate over time to less costly rails starting in the next 12-18 months"

People have been saying that for decades. And in fact the opposite is happening. Visa/MC raising rates. PayPal raising rates. Volume shifting to more expensive BNPL.

Timely thread: https://news.ycombinator.com/item?id=32100777 (UK lawmakers tell Visa and Mastercard to justify fee rises)

FedNow hasn't been available for decades. It's a real threat to the entire cc ecosystem.

UPI in India has effectively killed credit cards as a payment method. Any similar system will likely do the same in the US.

You wrote --- > "People have been saying that for decades. And in fact the opposite is happening. Visa/MC raising rates. PayPal raising rates. Volume shifting to more expensive BNPL."

He wrote--- > "CC companies are raising their rates because their margin is soon to be compressed."

He's talking about fees for transactions. Not rates. They are raising rates to make up for the lost fees.

BNPL is a feature for large companies to implement themselves or platforms like Shopify, but if you’re not a large company and either not on a platform with BNPL, or like a third party BNPL’s terms better, you’re definitely a target customer for third-party BNPL. So I think third-party BNPL is a legit business though the individual companies have risks of being outmaneuvered or over-reliance on single customers.

I agree with your other points though.

In Australia we've had free real time bank payments for four years now. I am still yet to make a bank transfer as a payment for a regular consumer purchase and have never seen it so much as offered as an option.

Would you know enough about the different systems to talk about why ours hasn't touched b2c but you expect the US one to upend the cc industry?

Credit cards, compared to Zelle or even higher-dollar direct-transfer things, have a pretty big moat:

* for people who don't have the money up front, it covers "spending money that isn't in their account today" (for better or for worse). BNPL seems like worth paying attention to from this front, though.

* for people who do have the money up front, why move to something with more of an immediate hit to my bank account in case of fraud? For large stuff (car downpayments or above), the fee was already significant and a reason not to use them, but unless BestBuy is going to drop support for CCs, why would I move off?

Is high-dollar consumer goods what you expect to move away from CCs? Will US consumers let them?

I suppose we will need to see what happens when someone like Walmart or Amazon decides to prioritize instant payments over CCs in their checkout flows. The cost savings to them from avoiding merchant fees at their volume makes it inevitable they’ll test it. I can’t say if they’d start to pass along CC merchant fees, but I’m interested to find out. They can even offer BNPL or credit directly to their customers without the customer needing a credit card, whether underwriting them by order history, credit underwriting, or a combination.

With regards to your fraud point, you assume a level of sophistication of your average financial services consumer that doesn’t exist in my experience. CC surcharges will allow consumers to self sort regarding whether they want the CC transaction benefits (and will pay for them) or not.

Gas stations do this widely in my area, I wonder what their take rate on debit vs credit is. I've never seen data on that, unfortunately.

Amazon/Target/Walmart etc are in an interesting situation re: who would blink first on implementing surcharges. They haven't yet in 5 years, but of course that doesn't mean they never will. Walmart is the one that would seem most likely in terms of targeting value-first customers, Amazon in terms of technical flexibility (e.g. you can already link your checking account if you want), but a lot of the other ones desire those sorts of more financially-sophisticated customers.

Local gas station said their CC payments were 2.5% while debit card payments were $0.25 per transaction. At one point they had a sign up encouraging debit card use

Online shops in Germany do that for a decade. Payment with direct bank transfer is free, and things like credit cards and PayPal may have an extra charge of 2%. If the free options offer the same level of convenience, I assume people prefer those.

I work in payments. Can you help me understand how fednow is a threat to credit card transactions? Who even benefits from credit card transactions outside of the credit card user and the network? So what is actually being threatened?

I work adjacent to payments in fintech. I’ve had conversations with largish merchants who have mentioned their intent to attempt to move payment flow to these new rails when available to reduce CC processing costs. Will they? I cannot say for sure, I speak the lens I see through. A real recent quote from a CFO: “why am I handing over 2% of my revenue just to take a payment if I can avoid it?”

I just did a very quick read-through of fednow. It'd be awesome for businesses if they could get their customers to pay via fednow over CC. Just the data requirements alone are less costly (e.g. no PCI DSS requirements for bank accounts).

The problem I think of is getting the customers to use this. If you can entice your customers to consistently use this rail, that's awesome. No idea how you'd do it other than increasing costs to pay via CC. It seems like it also targets digital payments and isn't too focused on in person transactions (e.g. grocery stores).

FedNow will allow instant bank transfers. That means that you can build a payment system on top of it similar to Windcave Account2Account (that we have here in Australia and New Zealand)

Windcave Account2Account is not a full replacement for debit/credit cards. It does not have PayWave (solvable). It has a clunky UX (solvable). It does not do credit transactions (not solvable).

It can be a minor headwind to VISA/Mastercard and slightly reduce their new signups and tx volume, but I cannot see it fully replacing credit/debit cards.

Wonder how FedNow's instant bank transfers will impact crypto; isn't "instant transfer" one of the advantages of i.e. bitcoin?

> FedNow payments will operate year-round for businesses and individuals. Since funds will transfer and settle instantly, all payments are final and cannot be reversed.

https://www.moderntreasury.com/learn/what-is-fednow

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