Can the Visa-Mastercard duopoly be broken?
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If I end up on a random, self-hosted ecommerce site and decide to make a purchase - what guarantee do I have that the item will show up or be as-described? If I bought something through a bank transfer, reversing that purchase would be incredibly difficult. And, suing a merchant is prohibitively slow, expensive, and arduous.
Also, modern B2C SaaS is built on credit card subscriptions. The ability for a merchant to pull payments on a recurring basis from a credit card requires an incredible amount of trust. If consumers had to push payment every month or year to continue subscriptions (instead of having it automatically debited), then churn rates would skyrocket and modern SaaS multiples would crash - taking company valuations with it.
So, I'm sure online merchants are happy to keep paying their ~3% fees as long as sales continue. Nobody wants to go back to "Cash on Delivery", and nobody wants to hire workers to knock on doors asking for bills to be paid.
The EU has capped debit interchange at .2% and credit at .3%, Australia in the low 1s if I recall correctly. They just don’t really have rewards.
We do have a non-Visa/MC payment system here in 'eftpos', which is ubiquitous. AFAIK this is exclusively debit not credit, but this isn't my area, I'm just a consumer.
I don't know when I last used EFTPOS.
There's a terminal, I wave my [phone|watch|card] at it, it beeps, I walk away. Happy days.
In that case if it's a Visa card, is Visa the processing entity?
So, if you have a Visa credit card, and the money comes from your credit account, like many, then it is clearly using Visa Paywave.
But historically, it was Visa and Mastercard that started it with "no pin required" as an opt-out thing(IE it was enabled for you by default), and their main market is credit. Most people just rolled with it.
Using the phone NFC however should give you more control I would think. But I honestly have never set it up.
We don't have them in Europe, and some people in the USA think they have them.
What they have is crazy high credit card fees and the need to juggle a bunch around to get a few things credit card companies decided to buy for you en masse.
When I buy a $5 latte, I give Visa $0.01. When you do the same, you pay $0.15.
Come the hell on. "REWARDS". Smh.
There are a bunch of free 2% cash back credit cards, so people would at least break even if they wanted to.
I am going to have those same investments anyway in VOO at one brokerage or another, so there is no opportunity cost.
You are correct that it is sort of a wealth transfer from poorer to richer. But merchants are free to offer discounts for non credit card purchases, and they do many times.
This is correct. But it's a far cry from "nobody really has rewards." Framed a bit differently, our credit card system is a regressive tax on consumption.
Which credit card do you have? I'd like to ugprade to that one.
My regular Chase card gives me 1.5% of everything I spend back as cash. That's typically about $1k/year.
I pay nothing in (direct) card fees at all.
Interchange benefits merchants too - there's real costs associated with holding cash, and average cart sizes are significantly bigger for credit cards. They also miss out on fewer sales.
You may not value rewards programs but customers, card issuers and certainly those who operate those programs do. They're massive business. Frequently the only profitable part of a US domestic airline is its frequent flyer program - which gets the bulk of its money from credit card reward programs.
Credit card companies have even provided debtor in possession financing for airlines in the US by pre-purchasing multi-billion dollar blocks of frequent flyer miles. Here's when Amex did it for Delta in 2011. [1]
[1] https://www.eastvalleytribune.com/money/american-express-rea...
Wells Fargo Active Cash is the other such card that I know of among big banks.
The cynic in me wonders how long before they devalue them. It's easier to start changing the rules for "points redemption" when they aren't saying outright "You have $112.75 in cashback value" on the statement.
They recently had a promotion-- use the points directly to buy on Amazon, but if you paid that way, it was debased-- something like 120 to the dollar. It was actually better for me to buy what I wanted on credit, redeem the points as a bank transfer, and settle the bill at the end of the month.
Chase - United
Citibank - American Airlines
AMEX - Delta
Its annual fee is a seemingly ridiculously-high $550.
However, it automatically offers reimbursement for the first $300 in "travel". The definition of travel is very broad - we're not just talking airplane tickets, this can be taxis, parking lots, trains, buses, highway tolls, hotels, and many other things. And I do mean automatic - I don't even need to log in and select which charges, it just happens.
As such, the annual fee is really $250.
Still too high? Let's say you ignore other specialized perks (reimbursement for TSA Precheck/Global Entry, premium memberships such as Doordash (through 2024) and Lyft (in the past, expired now). Let's ignore real perks such as PRIMARY rental car coverage that means you can decline the pricey loss/damage waiver when renting vehicles and Chase takes care of any claims before your insurance - there have been years when I made most of that $250 back from that single perk alone. Let's just look at cash back.
At an absolute minimum, you're getting 1% back on everything. 1% means 1 Ultimate Reward point, or UR. At an absolute minimum, you can redeem 100UR for $1.00 in straight up cash/statement credit. The actual value is higher (we'll get to that later) but we'll start with this baseline.
You get 3% when dining or travelling (with the same broad definition of "travel" above that probably covers some of your commute to work if you take transit, pay to park, or pay tolls). If you pay attention and use Chase's portals for various travel purchases you can earn 5-10% back (to be honest I'm lazy and almost never bother).
So we're already at the point where depending on your lifestyle, if you put 15-20K on credit cards each year (that's less than $2000 per month) you're probably breaking even - assuming the absolute lowest valuation of points. But why do that? It's trivial to redeem the points at 1.5x for travel by booking through Chase - that is, if you use their portal you can book a $150 hotel room for 10000 UR points. So now we're at 1.5% on everything or 4.5% on travel, and needing to spend only more like $12000-16000 per year to come out even. During the pandemic they made it even easier and let you get reimbursed for various purchases such as restaraunts at that same rate, so even when I wasn't travelling I was getting that full benefit.
If you want to minmax and are flexible on your destination/time, you can transfer UR to various airline/hotel portals and get higher values: https://thepointsguy.com/guide/sweet-spots-chase-ultimate-re...
Did I mention that when you sign up, if you spend enough in the first few months you get a bonus of enough UR to more than make up for the first year or two of fees?
I've had a CSR for quite a few years now (back when I signed up the bonus was 100000UR) and have redeemed the points I've earned each year for more than the annual fee. That is, every year I've had this card I've profited to the tune of hundreds of dollars.
In response to other complaints about spending requirements, the Chase Freedom line earns UR points (without the 3X dining multiplier or the ability to redeem at 1.5X on travel) with no annual fee and no deposit requirement.
Just on credit cards we get:
- 7-10% back on flights (Amex Platinum and transferring points to airlines)
- 10%-14% back on hotels (Amex Hilton Aspire)
- 5% - 8% back on dining and groceries. (Amex Gold)
- 4 - 8% back on Uber (Amex Green)
- 2-4% back on everything else (any of the above cards).
This doesn’t count hotel and airline loyalty points.
Yes, I’m taking into account annual fees. But all of the cards above have enough perks that they more than make up for annual fees - Uber credits, Clear credits, credits for hotels and airfares etc.
I’ve estimated that’s about 6.5% back a year on our budget. That’s more than we were paying in state taxes before we changed our official residence to a tax free state.
I also work in consulting, while I only travel 5-6x per year for work, many of my coworkers spend 40 weeks a year traveling a rack up credit card rewards by putting expenses on their personal cards and getting reimbursed. But they keep the rewards.
There is also an entire culture of “churning” credit cards for their sign up bonuses.
But I agree, for most people it isn’t worth it.
[1] we do have investment property that we have to pay the mortgage and a few bills on.
> This doesn’t count hotel and airline loyalty points.
Can you show your calculation for this? Hilton pesos get devalued on a daily basis in my experience, and they even nerfed their free weekend night with the Aspire credit card so that it is only useful for “standard” reward nights and not “premium” reward nights. Of course, all the nice hotels like Waldorfs and Curio will require premium reward nights.
I have never seen Hilton points worth more than $0.005 per point.
But I’ve literally been looking at points vs money in every major city in the US and a few in Canada as I’ve been creating our itinerary.
With Hilton, when you pay with all points, you don’t pay taxes and fees and if you stay five nights and use your points, you get the 5th night free.
We stay exclusively at Embassy Suites, Homewood Suites and as a last resort Home2Suites so we can have two separate rooms (Embassy and Homewood) or at least have more space and a full refrigerator (Home2Suites). I work remotely and need the separate room to work.
You can’t really stay at a Waldorf or Curio when you are staying at hotels 280 days a year. During the winter we stay at our 2nd home/investment property.
Next year, we will be staying at the following places with all points for 7 days and getting values between .7 cents and 1 cent each: Los Angeles, San Diego, Santa Fe, NYC, Chicago and San Juan. This is just staying in mid range Embassy Suites. San Juan is at the Caribe for 10 days.
We won’t make it to the following cities until 2024. But I’ve seen good values in New Orleans, DC and Hawaii.
I was just referencing credit card rewards above. But you get 10x per dollar at Hilton, 10x for being a Diamond member (automatic with the Aspire card) and 14x with the Aspire.
The calculation was based on .007 * 14.
You're wrong, the rewards (cash back) is real.
At some philosophical level you're correct. Sure, the merchant is being charged extra fees and the cash back is less than that.
But pragmatically, the merchant already included that cost in the price of the item so it is what it is.
You buy that $5 latte cash, it costs you $5. You buy it with a debit card it costs you $5.
I buy it with a credit card it costs me $5 but I get 10 cents back at the end of the month.
They do of course make money by charging a high annual fee, but another commenter already explained how the rewards offered by this card can still give more in value than the annual fee costs. This is absolutely true in my case.
[1] https://www.bankrate.com/finance/credit-cards/why-american-e...
How long will Apple selling in-store products to 800 FICO score consumers be willing to subsidize eBay vendors and gift card resellers?
Apple likely has a deal that borderline costs merchant acquirers money and that gift card vendor is probably paying 10%.
- Consumers can pay stuff on credit
- Consumers can 'chargeback' if they feel something went wrong
These two mechanisms are the lubricant that provides a +% in online commerce greater than the % charged for processing payments.
To extrapolate the idea some, I’d be comfortable using an irreversible payment method for various B2B SaaS subscriptions. Those can reach perhaps more meaningful amounts to you.
It seems that you’re rather dismissive of this conversation, so I’ll wish you a pleasant day/evening.
Not only is the irreversibility less important, but potentially some of the usability/security issues for users (hacked/stolen wallets etc...) become less important as well (assuming users keep only smallish balances in crypto wallets).
I've been testing out the Lightning Network (Layer 2 of BTC) recently and it seems that the future has arrived. I can accept micropayments in BTC over LN, which get immediately converted to dollars and deposited to a bank account in USD. All for ~$0.01 fee per transaction. Here's how:
1.) Open an account at https://strike.me. This app is very similar to CashApp, but supports getting paid on the Lightning Network. I believe CashApp is also working on this functionality.
2.) Set up your own self-hosted install of https://lnbits.com (or use cloud hosted version at https://voltage.cloud for ~$10 USD/mo).
3.) Connect LNBits to Strike. (Note: there is an open PR for this, if you want to test then check out the PR on Github)
4.) Set up a Point of Sale (or paywall, or event tickets, or tip jar, or line-item invoices, or anything else) on LNBits.
5.) Collect a payment in LNBits.
6.) That BTC is immediately forwarded to Strike, converted to USD and available for withdrawal to your bank account.
Following these steps you can collect micropayments in USD for next-to-nothing fees and have no exposure to the volatility of BTC.
Your potential customers can hold their balance in USD as well, if they don't want to hold any crypto. They just deposit some USD into their Strike account to pay these micropayments.
The bigger point of crypto is that this trust can be parametrized and made transparent in a public ledger with less intermediaries. I see it as getting to feature parity, not as something that undermines trustless-ness - don't throw the baby out with the bathwater.
The reality is very few people know they can chargeback and most use debt & instant payment option for low ticket high volume transactions.
If something was holding crypto from being used to pay for daily essentials, it is not charge back ability.
And these services do exist and are in use on some tor network marketplaces.
I don't expect fees to be much lower for a third party human-in-the-loop escrow system. And there's nothing wrong with "re-inventing" either. I think it's critical however that you can have strong censorship resistance and opportunity for innovation. So personally I'm more interested in the unknown unknowns, rather than recreating exactly the same.
While possible, this is a claim made without evidence.
American page:
https://faq.usps.com/s/article/Collect-on-Delivery
Canadian page:
https://www.canadapost-postescanada.ca/cpc/en/support/kb/sen...
So on delivery I pay either contactless by NFC or by QR code. Super easy, barely an inconvenience.
PayPal are a dick on fraudulent merchant account detection and it’s well know assets can be frozen on a whim, but at this point it’s the one of the few other options.
The reality is that most low-margin B2C businesses are brick and mortar service-based businesses, such as restaurants. And, therein lies the problem for Paypal and for crypto payments: The low-margin businesses that care about CC fees are not early-adopters of payment networks. Restaurants can't conceivably introduce a non-traditional payment network as their exclusive provider.
For online your choice is to poney up the fee or not get paid at all. You’ll also probably target a wider audience and region restricted payment networks become less viable.
Offline credit cards processing currently has super low fees, but it’s also a field where there is already way more competition than VISA/Mastercard, in particular there will be national card networks, and prepaid NFC that rise up as an alternative.
> Restaurants can't conceivably introduce a non-traditional payment network as their exclusive provider.
In my experience they do. They always have cash as the fallback, so they can pick and choose more freely than other businesses (think of all the restaurants that won’t accept anything other than cash)
For instance a lot of lunch focused restaurants won’t serve much alcohol if at all. High volume low check size restaurants also abound. Do we also call cafes “restaurant” if they serve hot food at the table ? etc.
A tourism oriented restaurant will go so far as to accept American Express and swallow the fees, while a local restaurant can refuse anything other than cash and the local prepaid card, it really varies a lot.
PS: we might be missing context on if we’re only taking USA, as the article is about that, or on more global range, which I think is more interesting on the Visa/Mastercad discussion.
He had to do a chargeback with his credit card company and got his money back that way, but of course PayPal banned his account in response.
I hate to say this, but there will always be loopholes as long as scamming js lucrative enough.
When it's easily verifiable that actual fraud has taken place I would say yes. It would've taken them literally 5 minutes of their time to investigate by going to the website, seeing it presents itself as a retail furniture store, and to go through the checkout process and seeing that it ends up at a form for a personal transfer, and that no goods ever end up being delivered, all of which clearly indicate the transaction is 100% intended to be fraudulent by the supposed seller.
Fraud management is hard. Most actors in the domain are also jerks, but that's orthogonal to it being hard I think.
Mindlessly clicking through OK buttons is end-user negligence, not fraud. Your brother presumably had multiple opportunities to notice something was not okay before completely signing off on it. It's tantamount to signing a contract without so much as even glancing through the terms, then turning around saying you never meant to sign it.
Fraud protection does not absolve someone from being a responsible adult.
PayPal's "redirect the user through our services" flows provide more uniformity than some random site with a hosted-- or even baked-into-the-shopping-cart-- credit card form-- but I wouldn't say it's uniform enough that people would be able to reliably identify something outside the norm.
Just think of currency-- could you spot a decent quality counterfeit? Particularly if you're dealing with a more edge-case design that you don't encounter every day (say, a Series 1934 $50 note)?
Even today many people in Germany still don't have a credit card or if they have one largely use it for travel. Of the people (in Germany) I know, they also never use charge backs on the cards (I suspect many don't even know that you can do it) and instead rely on the court system to get refunds etc..
Float. If I charge $10k to a card, I get an interest-free loan until the balance has to be paid off. In a zero-rate environment that's meaningless. But even at the 30-day's 2.22% [1], that's almost twenty bucks. I'm probably paying about 1% more for the CC fees, but I can use my card that gives me 1.5% back on everything.
[1] https://home.treasury.gov/resource-center/data-chart-center/...
But in Europe credit cards don't give cashback.
And the pin is required here on both (and rightly so IMO to protect against skimming). Only for minor contactless payments it isn't. But the same goes for both.
And we don't get much additional fraud protection or other benefits like insurance on them that we don't get with our debit cards.
I'm surprised the payment systems are so completely opposite. Despite being the same tech from the same companies.
The only reason I have one is that my work insists that I get an Amex due to some dirty deal they have. Which is a horrible card for traveling in Europe, nobody accepts it besides hotels. Try getting a taxi in Paris for example..
I also had my personal one as my debit sometimes didn't work but these days it works everywhere.
Across Italy, France, Britain, the Netherlands and Portugal, over the last thirty days, I never had to provide a PIN over contactless. This was true for minor purchases to €5,000+.
But on the card itself I have to above €75 (or after transactions accumulating to that amount)
Mobile wallet based payments also don't need one, usually (since authentication already happens on the customer's device).
There's also generally a limit over the volume and the amount of consecutive payments, so that if someone steals your card, they won't be able to spend huge sums with contactless. It is set by your bank though
But I haven't been to France since I got Samsung Pay so I haven't had the chance to try it out. Here in Spain it works with any amount. Well, up to a few hundred anyway, I haven't bought anything over 1000 in ages :)
In the US, loans are distinct from lines of credit and credit cards. Just having a credit card won't make it easier for you to get a loan, but having a history of on time payments while making use of the credit cards will increase your credit score. Having high utilization on your cards will decrease your credit score. Mortgages will take a variety of factors into account, with credit score being among them.
>The only reason I have one is that my work insists that I get an Amex due to some dirty deal they have. Which is a horrible card for traveling in Europe, nobody accepts it besides hotels. Try getting a taxi in Paris for example
I've actually been quite successful in utilizing my Amex card across roughly two dozen countries in Europe and Asia, so this doesn't really match my experience. I haven't specifically tried to use it for a taxi in Paris, however. I do keep a Visa in my wallet in case I need it, but my bigger issue has been places that don't take cards at all, and having to carry cash. Cash only locations are basically nonexistent in the US - even the smallest hole in the wall type places and random food stalls in gas stations tend to allow for cards ever since Square became popular.
I've never used it in Asia, but for example the main Taxi companies like G7: https://www.g7.fr/en/paris-taxi-fares do accept credit cards but are very difficult about amex. When you wait at Charles de Gaulle airport there's some bouncer in the taxi queue who will ask specifically what card you have and if you have Amex then they have to haggle with the queue of waiting taxi drivers for one to accept it. And often when you do get to your destination the machine is suddenly 'broken'.
One of the taxi drivers told me that amex charges them a lot more than the others.
In Romania you'd be hard-pressed to find a taxi that accepts cards at all and if you show them an Amex they will laugh in your face (though taxi drivers aren't very nice people there generally speaking, two of my colleagues even got literally robbed).
The same with other minor expenses. Like rail tickets, food in a 7/11 style shop etc... The big hospitality outlets like upmarket restaurants and hotels do generally accept it. But my work requires me to pay all my travel expenses with amex and I get a lot of bitching from them if I don't. But especially in Eastern Europe I just don't get anywhere with it.
Amex gives its customers great benefits. It charges merchants an arm and a leg to do that. Literally double the fees. Merchants then refuse to accept it a lot of the time, but every time a customer "only has an Amex card" they lose business, so a lot do accept it, grudgingly.
Of course customers prefer to use their Amex card whenever they can, because benefits. So they often pretend to "only have an Amex card" (much like "the machine is broken" in taxis, that then miraculously fixes itself when you pull out some loose change as "the only cash I have").
the customer is king, as always.
Which part of Europe? That's not how it works in the UK. You build up a record by using credit products and it benefits your score to keep them in good order.
Though it is how it works here in Australia. When you apply for a mortgage they take your credit card limit into account as a negative.
> And we don't get much additional fraud protection
That's interesting. The UK (again) has significant legal protections for credit that mean the credit card company is jointly liable for the debt in some circumstances, like fraud, and must return your money pending an investigation. There's much less protection with debit cards.
And the advice for customers is often to buy mid-to-high value items using a credit card for this reason. If you order £10k of furniture for your new home from an online retailer that goes bust before delivery and you paid by credit card then you might well have a claim against your card provider instead for example.
Of course the direct connection between whether you have certain consumer protections by law and whether you technically paid on credit doesn't actually make much sense today and mostly exists for historical reasons. The corresponding risk created for card companies also contributes to the raw deal that merchants get in the terms for accepting card payments, which is a drag on the whole economy.
Lots of (for example) food stalls in London were popping up as card-only businesses over the last few years, because it was easier than dealing with cash. The EU rules (which presumably still apply until actually repealed) capped the fees pretty effectively.
Typical terms for merchants accepting credit card payments are probably the most one-sided legal agreements I've ever seen.
Good point, Europe is not one entity. The UK is more aligned with the US legally (common law etc) than the rest of Europe. Especially now with Brexit.
In the Netherlands it's definitely something that works against you. Even something simple like a phone contract with subsisided hardware will lower the credit score.
I really wish US credit cards would finally switch to PIN as well. We all end up paying for lost/stolen card fraud indirectly, and PINs are extremely effective at preventing that.
The downside would be if banks would use that as an opportunity to shift the liability for all remaining fraud onto cardholders as well, but the same scenario already exists with ATMs and debit cards.
> Also less fraud protection
Practically, not really. Most banks go above and beyond the legal requirements for limiting fraud liability for unauthorized debit charges and offer zero liability as well. The same chargeback framework that exists for debit also applies to most credit transactions.
While with a credit card, you do still have money in the bank and less instances where you are assumed to be the liable person.
Also culturally in the USA it's a common feeling that debit is not as good or the consequences are more dire with debit cards and fraud.
Bank balances are very important for most Americans to avoid late fees and so on to pay their bills, while you can hypothetically walk away from a credit card debt.
Card companies decided that the friction & support burden that PIN entry gives is not worth the revenue decrease vs. the cost of fraud AFAIK.
IMO I want push permissioned payments and not have this basically auth-free pull system of payments, but that wont happen for a long time. Subscriptions should be a subscription request send to a card, you approve in your bank app and then you can cancel unilaterally on your side on you app. None of this pull crap. Same with tap to pay.
In many circumstances, banks are required to either resolve the issue quickly or provisionally credit you in case of disputes. Fraud liability is also limited by regulation, in addition to card scheme rules and bank policies:
https://www.forbes.com/advisor/banking/what-is-regulation-e/
> Also culturally in the USA it's a common feeling that debit is not as good or the consequences are more dire with debit cards and fraud.
I suspect that it's primarily that: Common knowledge with a lot of truth to it, but not entirely up to date and correct in many instances. Germany obviously has a lot of that as well, but with very different axioms leaving to very different outcomes in terms of guidance and behavior ("only cash is real money", "debt is bad/a moral failure" etc.)
> Card companies decided that the friction & support burden that PIN entry gives is not worth the revenue decrease vs. the cost of fraud AFAIK.
The problem is that due to market dynamics (leaving aside card scheme rules for the moment), it's really not up to individual banks to change that. The first bank to introduce a PIN on their credit card would lose a lot of purchases to their competitors due to convenience, forgotten PINs etc.
In Europe, it took heavy regulation to get banks to use 3DS – the dynamics there in terms of a first-mover disadvantage were very similar, and the existing (significant!) financial incentives were not enough.
> IMO I want push permissioned payments and not have this basically auth-free pull system of payments, but that wont happen for a long time. Subscriptions should be a subscription request send to a card, you approve in your bank app and then you can cancel unilaterally on your side on you app. None of this pull crap. Same with tap to pay.
The various stakeholders (card schemes, regulators, banks) are well aware of that customer demand. This industry is one full of legacy technology, and it'll take a while, but I think we'll get there eventually.
2. Fees. The whole point of credit cards - for the CC companies of course - is fees.
On the merchant side, yes.
On the consumer side, no. There aren't many examples than Amex which is mostly popular in US charging high fees for their credit cards.
Most credit card companies make money from merchant run programs and overdraft & interest on late payments and penalties. They make half of their profit from vulnerable and poor people to pay rewards.
They offer excellent customer service, the concierge offering has done quite a few excellent things for me (for free!), every time I have had to perform a chargeback the experience has been painless and the investigation concluded quickly, they generally have promotions related to merchants I frequent, etc. It's a much better experience as a customer than any bank I have ever had an account with.
Nearly every (probably every) bank issues credit cards (they'll ultimately be Visa or MC, but cobranded by your bank) if you want to get everything from one place.
> Fees. The whole point of credit cards - for the CC companies of course - is fees.
What fees? There are no fees. In fact there are nearly always cash back (or points, or something) that benefit you.
Sure, the merchant pays CC fees, but those are bundled in the price of the item so you'll be paying those even if you pay cash. So might as well use a credit card and get all the legal protections that only credit cards guarantee + some cash back.
I guess that depends on the legal system. In some places the merchant frequently passes the fees on to the customer (and any contract between the payment network and the merchant which prohibits it is invalid to that extent by law). Then you need to consider the rules of the place you're in and decide which card to pull out, and you probably have your default card on Apple/Google/Samsung Pay set to be the debit card.
I think it's also common for a credit card to have an annual fee that probably doesn't apply to a debit card.
In the US that is exceedingly rare. The only exceptions I've seen are the government and a few discount gas stations.
But, you're right, in the end it's important to always be aware of the payment rules of each place and optimize accordingly.
> I think it's also common for a credit card to have an annual fee that probably doesn't apply to a debit card.
Most normal credit cards (at least in the US) have no annual fee. A good one is the Citi Double Cash card, no annual fee and unlimited 2% back on everything.
The premium cards have fees, those are rarely worth it unless you travel so much that you can take advantage of all the discounts.
2. The law requires banks to pay for any fraud
Yes, the money is always coming from somewhere and arguably products might be cheaper without credit cards. However, it’s the game we’re in, so why leave money on the table?
Please don't use your credit cards for cash advances unless you REALLY know what you're doing and why.
> Get up to 3% cash back on every purchase you make
https://apply.applecard.apple/
I've always assumed I'm paying that 3% so might as well try to get some of it back.
It's an interest free loan for upto 45 days. Many banks will provide 3.5 - 6% interest without risk. If you spend a lot monthly, it's a free nice dinner every month without doing anything. If you can use the capital, it can be worth more.
They provide free lounge access and food at airport + concierge service for discounted bookings at hotels.
Chargeback protection is necessary in India.
Why?? Practically all transactions using debit card/UPI require PIN/OTP.
I've had official employees from a big company try to scam me. I now only pay using credit card.
the x% CC processing fee is essentially fraud/non-payment insurance
"There is no chargeback right however, which can be considered a disadvantage for the consumer using this payment method."
Laws and security adapts to whatever medium people tend to use, so common problems tend to have solutions. The laws in Europe are made to make debit card transactions and security reasonable, because almost everyone uses debit cards.
My credit card was compromised and AMEX has a problem. My debit card is compromised and I have several problems.
The big problem with credit cards is that all the info needed to authorize a transaction is right there on the card. The second problem is that quite often you submit that data directly to the merchant or to whichever payment provider the merchant chose.
With a credit card, on the other hand, you see what was taken _before_ you pay them. So you can tell the credit card company "this amount that was charged to me is not me, I'm not paying that". Then the credit card company has to look into it; they have incentive to figure out what happened (unlike banks) because they aren't getting payed back their "loan" to you until they do.
Merchants will usually not ship goods or provide services for a direct debit alone.
AFAIK none of the banks will reverse this activity, since technically you've authorised this transaction.
Same with my (UK) DD card, when I use it online. I occasionally get challenged by Visa/Mastercard for some passphrase or whatever. For retail purchases, I can usually just swipe. Periodically I'm asked for a PIN.
I prefer DD over CC, because I have full control over my liabilities, should someone try to drain my account, just by adjusting the balance on the account (and I can't link my deposit account with the card; so that's where the rich pickings are kept).
Also, way back when, I was pretty relaxed about credit balances, and the CC company kept raising my limits; I got into a lot of debt. Nowadays I don't use credit unless I'm forced to (which hasn't happened for 20 years). So I have a CC, with a zero balance (and the CC company is going to shut it down, because I'm not using it).
[0] https://plaid.com/resources/ach/how-does-an-ach-transfer-wor....
A notorious celebrity in the UK famously revealed his bank details as a stunt to show that a large-scale data loss incident wasn't a big deal and he ended up making an unexpected payment to a healthcare charity shortly afterwards.
Direct debit instructions require nothing beyond a name and account number.
You need a SEPA dd "mandate" which is a (paper or electronic) document account owner asks their bank for, containing a unique identifier
"Immediate refunds. You can get a full and immediate refund from your bank (also known as an “indemnity claim”) for any payment taken in error."
https://gocardless.com/guides/posts/dd-guarantee-in-plain-en...
You'll have to explain to the company that deducted the money why you reversed the charge though, and if it was legit after all you still need to pay them.
https://www.europeanpaymentscouncil.eu/what-we-do/sepa-direc...
In the UK we have a system of Direct Debits that is popular particularly for making recurring payments like household bills or subscriptions. You provide your bank account numbers to the merchant and they can collect the required money directly.
It sounds like a huge opportunity for abuse by merchants but the easy setup is balanced by a universal Direct Debit guarantee for account holders that basically says if any erroneous charge is made then you get your money back from your bank first and questions are asked later. Merchants are required to provide all customers who pay this way with certain information about the guarantee scheme (and everyone actually does).
That in turn sounds like an opportunity for abuse by customers but having personally run a business that accepts Direct Debits I can tell you that we have never seen a single abusive reversal of a Direct Debit payment. In contract we've had a few problems with legitimate charges to cards being reversed later and the whole system around chargebacks with credit cards seems to be unreliable for both merchants and cardholders.
"SEPA Lastschriftverfahren" is what it's called.
There's two ways this could happen, but neither is super easy:
1) You've handed over your physical debit card and it's PIN code to a baddie and not informed your bank. Unlike the security code on credit cards the PIN code is not on the card. Unlike credit cards you need the actual physical card to transfer money.
2) You've given a baddie your online login info and had him send you a QR code which you then scan and approve the amount.
Notable what does not happen, which does with credit cards, is making a payment at a webshop and that webshop then leaking your card info to a baddie. No one other than the bank ever sees the "secret" part of the card info.
No proof or even reason for this is required in the first 8 or so weeks since the charge (or more than a year if the debiting merchant does not have a "direct debit mandate", which essentially means some sort of evidence of the account holder agreeing to be debited).
According to stats I can find, the European central bank reported 1.03B Euros of fradulent transaction via cards back in 2019 (https://www.ecb.europa.eu/pub/cardfraud/html/ecb.cardfraudre...).
So the only way those fraudulent transactions won't hit your bank account is if your bank account is not directly tied to the card, which makes it a credit card by definition (because you are being given credit for purchases and not having to pay for it immediately).
So it seems like what the parent is saying is true outside the US as well?
It isn't more work than credit either, instead of paying it off every month you fill it up every month.
And for fraud protection, 3% is only worth it if every 30'th purchase is fraud in some way. Personally I've never lost my card and never fallen for fraud, so it would just be 3% of my money thrown away for nothing.
You can set up daily/weekly/monthly limits for debit cards, and separate ones for online purchases, physical terminals or ATMs, if you want.
And yes, it's reflected in the fees that a card issuer is allowed to charge.
At first I hated the rule, but then I realised it was exactly a rule that put the decisions in the hands of the customer and the merchant and took power from the card networks.
(I don't live in Australia at the moment so maybe this is changed. I gather there is now also app-based credit payments which have eaten into Visa/Mastercard's market, both for credit payments and for POS transactions. But how significant, who knows)
2. Most cards have a cash-back arrangement, where you earn credits for what you spend.
Together, that means you're generally not paying anywhere even close to 3%.
For people with good credit, as the article mentions. It's effectively yet another tax on the poor.
(Before 2018, it could also apply to personal credit cards. It seems a step backwards to exempt them, as the national sysetem, Dankort, has much (much!) lower merchant fees, but now there's no incentive for people to prefer it to Visa/MasterCard.)
Legoland example: https://servicecenter.legoland.dk/hc/en-us/articles/20258981...
If I owned a business, I wouldn’t accept cash at all.
And no, it’s not a federal law that you have to accept cash except in service of debt.
Its kind of a messed up system honestly. The people who are already well off and can get the top of the line credit cards get all kinds of great benefits. And the costs are subsidized by those who cannot get them.
You're not paying anything for the protections the credit card offers.
Or more precisely, you are but we all are, even if you pay cash or with a debit card, since the vendor prices the items accordingly and there's no cash discount. (There are exceptions, but very rare in the US.)
And most credit cards give you cash back so it's actually cheaper.
Do you really think that banks and card networks work for free?
Even if you use the best rewards card and never pay a cent of interest or fees to your bank, you can bet that the program on aggregate is running a profit for the issuer, or they would not be offering it in the first place.
In effect, your rewards have to be either paid by the merchant (i.e. you, in the end, in the form of higher prices for goods and services), or by other cardholders in the form of interest, fees, using a suboptimal card/rewards category combination etc.
> Do you really think that banks and card networks work for free?
They certainly don't work for free, I addressed that above.
The credit card fees the merchant has to pay are bundled in the price of each item, so you can't escape them. By using a cash back card you can recover some of it, so you're leaving money on the table if you pay by any mechanism other than a cash back card.
A few gas stations around here offer a discounted cash price. In those, I'll pay cash.
The benefit of credit cards is...credit, and the ability of the card to abstract the idea of spending money away from the consumer. Few things exemplify "out of sight, out of mind" better than credit cards. The model is amazingly profitable as well. Like printing money, literally.
In other words, you'd go to some electronics store and by a $2000 TV and they'd ask "how many payments". You'd say 10 and you'd end up paying $200 a month. I don't know the origin of why they did it that way. To be clear, this was bank credit cards, not store cards. I imagined it was something to do with the commitment and knowing you couldn't just pay off some minimum. Purchases under a certain amount and/or by store you were not allowed to divide up.
I've had Japanese friends come to America and want to buy something for $500 and ask if they can have ask for 4 payments and have to explain that system doesn't exist here. If you want to make 4 payments you make 4 payments.
I've never looked into if the bank is giving all the money to the merchant and then charging the customer per month or if they're sending to the merchant per month. Nor did I ever look into interest fees. I just know it is (was?) common.
Your spending limit is reduced by the whole amount but those interest free installments can be useful. Esp when you get 12-24 for stuff like TVs or furniture.
Other than that option, they act like normal credit cards. Pay next month, minimum payment, huge interest if you don't pay them in full, can contest any transaction, yadda yadda.
How does the German banking system prevent an unscrupulous online retailer from charging you 500€ for a 50€ item? Or charging you twice?
There are related payment schemes though that do initiate a push payment (i.e. SEPA credit transfer), giving the accountholder control over the amount and payee, but they are not yet as ubiquitous or usable internationally.
The payment page spins until I click ok on it in the phone, since my bank wont accept the transaction otherwise.
What you are referring to is called 3DS, and it's a feature of both credit and debit cards. (It's available worldwide, but most commonly used in the EU, since it's mandated for ecommerce card transactions in many circumstances.)
I do think it's possible to authorize an unspecified amount; automated gas pumps seem to do that, but they seem to be the only ones, and it probably has a hard maximum.
Of course any PIN transaction that goes through the merchant's equipment is not quite as secure and relies on a level of trust that's not necessary for online payments, where I give my authorization through my own bank's website.
shop [> mollie] > iDEAL > ABN > shop
or
(pc) shop QR > (phone) photo app > iDEAL > ABN
I suppose someone should tell the criminals.
> there's a limit (which I can change) to how much can be transferred per day.
I expect many banks/cards have this ability as well. People just don't use it.
Hell, I have a virtual card I frequently use on websites that has a $50 limit per day. I'm sure most other companies have something similar available.
Outside of the US, the banks do tell the criminals - otherwise the banks would be the hook. This is the fundamental difference between the US and the RoW: in the US, fraudulent withdrawals are the depositors problem[1] which banks don't expend too much effort into, elsewhere, it's the banks' problem, consequently banks go the extra mile to prevent fraudulent withdrawals, and when it does happen, are quick to make the depositor whole.
1. This and "identity theft" are emblematic of a mostly American tendency to pass the buck (and losses) to the least powerful and least informed entity (the depositor) for fraud committed against financial institutions using depositor's information.
I think they already know, because their efforts are mostly focused on trying to get that authorization. But whether you know about it or not, no authorization means you can't access the money. Requiring explicit authorization is key to security, and I'm extremely wary of payment systems that don't require it, like credit cards.
This difference is a consequence of law, not payment technology. It's entirely possible for someone to make fraudulent charges on a card up to its limit (which would be the analogue of draining a bank account), but CC companies are required by law to absorb fraud beyond a token amount. There's no technical reason why bank accounts couldn't be similarly protected, but banks have thus far been successful in preventing such laws from being enacted.
For example, US also has similar laws for debit cards, but, by definition, when a charge is made to your bank account, it is made to your bank account.
My bank's (Chase) policy limits debit card customer fraud losses to the same $50 that the law requires of credit cards.
Not sure about other banks, but while I'm not sad that I have this protection, Chase's anti-fraud measures for debit cards (mostly programmatic, I'm sure) are pretty draconian.
If I travel any significant distance from my home, transactions with my debit card are almost always declined and I either have to contact customer service (a big time waster) or use a credit card.
That's incredibly annoying, although if that's the reason my debit card fraud responsibility is limited to the same as a credit card, that's a trade off that some may be willing to make and some will not.
Given that my debit card has been the subject of fraudulent activity several times and the bank has made me whole every time, perhaps there's something to be said for the harshness of the debit card anti-fraud algorithms.
But it's still incredibly annoying.
Yes, many banks do. But be aware that when using a debit card, it's just the bank policy of being nice that protects you. They have the right to change that policy on a whim.
When using a credit card, that protection is built into the regulations so you can count on it.
Always use a credit card, never a debit card, is the safest approach.
With credit cards, you get an invoice with fraudulent charges at the end of the month. You can choose not to pay those charges, citing fraud. The bank will clear the charges if they agree.
With debit cards, the money is withdrawn directly from your account. You can report the unauthorized withdrawal, and the bank will reimburse you if they agree. In the meantime, you don't have access to the money.
I usually keep around $200 on my debit card, which means I lose at most $200. This way I also get a sense of my spending in terms of how often I have to transfer.
If I need to pay for more, I just transfer before paying. Takes me about 2 seconds with an SMS or through the bank app.
Yes, that's the beauty of it. When using credit cards you can know you're not liable for losses, full stop. The bank can't suddenly change their policy because it comes from regulation.
To be fair, things are improving a little bit. But we're still so very far behind the EU banking system. Instant, cost-free transfers between any two accounts, completed faster than you can lift your finger off your smartphone.
This is available to most people in the US via Zelle. I have been using it for nearly 10 years I think.
https://www.zellepay.com/get-started
Ideally, the federal government would have already made it a utility available to all, but for now the functionality is there for those who can get a bank account.
> Zelle (/zɛl/) is a United States–based digital payments network owned by Early Warning Services, LLC, a private financial services company owned by the banks Bank of America, Truist, Capital One, JPMorgan Chase, PNC Bank, U.S. Bank, and Wells Fargo.[1][2][3][4]
Those are all the biggest banks, so they probably have all the transaction information anyway.
https://www.nytimes.com/2022/03/06/business/payments-fraud-z...
> “It’s like the banks have colluded with the sleazebags on the street to be able to steal,” said Bruce Barth, another victim. In late 2020, Mr. Barth was hospitalized with Covid-19 and his phone disappeared from his hospital room. A thief got access to his digital wallet and ran up charges on his credit card, took out cash at an A.T.M. and used Zelle to make three transfers totaling $2,500.
> All three accounts were at Bank of America, where Mr. Barth has been a customer for more than 30 years. When he filed fraud reports, the bank quickly refunded his cash and credit card losses. But it denied his claims for the Zelle thefts, saying the transactions were validated by authentication codes sent to a phone that had been previously used for that account. Bank of America was essentially saying that the Zelle transactions were authorized — even if his phone was stolen.
basically friends in the same country using a select few major banks are likely to have instant sepa available between them and it seem like the normal thing, while the reality is that instant-sepa is a massive patch work of availability between countries, banks, currencies
an outsider to the EU trying to do business is unlikely to be a part of a social circle where everyone is using the same thing
theyll encounter super slow multi business day SEPA, where no bank knows where the transfer is yet, the same as ACH in the US
It's possible that it does require both banks to have implemented these instant payments. Both side have the ability to delay the transfer, but it's possible that these days they're required to support instant transactions.
Is there any percent chance that the government doesn't wiretap all those transactions?
The government doesn't hide the fact that all this data can and will be used by the IRF equivalent in Brazil (Receita Federal)
I would assume the same for any credit card payment in the US
They are working on it: FedNow https://www.frbservices.org/financial-services/fednow/about....
http://www.citi.com/chipandpin (note, pdf link)
So I can understand why nobody any longer wants to have to verify signatures.
Most people that ask me for a signature (usually deliverymen) don't care what I scrawl on their device; it's usually not even an attempt at a signature, it's just the simplest <squiggle> I can manage on those awful devices.
I haven’t signed in the US for a credit card transaction in at least 5 or more years.
I do if I use my card outside the US.
Credit card processor doesn't require a signature.
The only exception to this is restaurants, however that is also the case in Canada, and even if I use my debit card, they still bring me the reader, make my stick my card in, print the receipt, and sign by hand.
Where are you in Canada? I regularly visit parts of eastern Canada, including Toronto and Quebec.
Zelle launched in June 2017
> In April 2011, the clearXchange service was launched. It was originally owned and operated by Bank of America, JPMorgan Chase, and Wells Fargo.[6][7] The service offered person-to-person (P2P), business-to-consumer (B2C), and government-to-consumer (G2C) payments.[8]
My auto loan credit union offers 0.5% off on loan APR if I bring my direct deposit to them, but doesn't support zelle.
ADDENDUM: The official marketing page for Zelle at https://www.zellepay.com/faq/how-long-does-it-take-receive-m... has this to say about transaction speed:
> Money sent with Zelle® is typically available to an enrolled recipient within minutes.
> If it has been more than three days, we recommend confirming that you have fully enrolled your Zelle® profile, and that you entered the correct email address or U.S. mobile number and provided this to the sender.
Note the weasel word "typically" in the first sentence. If all Zelle transactions went through Visa, all such transactions would be instant and they wouldn't have the need to add the word "typically" in the first place.
The second paragraph asks you to wait three days. That's basically the Zelle fallback path when it uses ACH under the hood.
ADDENDUM 2: This HN conversation really piqued my interest and did more research. So apparently Zelle now uses one of three different networks. According to https://www.americanbanker.com/payments/news/how-the-clearin... :
> The Zelle P2P service currently uses two separate rails to settle payments, depending on the particular transaction, including the ACH network and the two debit card networks: Visa Direct and Mastercard Send. By adding the RTP network, Early Warning will be able to reduce its reliance on ACH, which can at times take days to settle and is operated only in batch mode during business hours.
https://www.bankofamerica.com/online-banking/zelle-transfer-...
So it is owned by the banks, but the banks that own and offer it don't give any protections.
They do try very hard to suggest this doesn't apply. This isn't true in practice, but I'm certain many would give up without trying.
It sucks for the 0,0001% of people who get scammed some time but is it really needed that the bank takes on this role?
The protections are part of the regulations.
A consumer can reverse a SEPA Direct Debit transaction at any time. This is called a chargeback. A chargeback is allowed up to 8 weeks after the date of the direct debit with a valid mandate and up to 13 months without a valid mandate. At most banks, the consumer does not have to give a reason for the reversal.
https://help.mollie.com/hc/en-us/articles/115000796469-How-d...
BillPay seems the only viable option and that ends up with a physical paper check being mailed to your landlord every month so you have to set them off a few days early to account for possible delays in the mail.
- Limits how much you can send
- Identity is based on email or phone number (what?!) that then needs to be managed/tied to the bank account. If you switch banks or whatever, you need to re-active with the new bank.
- For awhile, I could only associated one email with one account in Chase (despite having 4 checking accounts for business, etc.)
- Recipient also needs a Zelle account setup.
UK system is simple: give me your sort code + account #. Done.
As I understand things, the US equivalent to BACS would be ACH. Which is also sort code and account number, but allows pulling money without further authorisation as well as pushing money. Obviously doing that when you're not supposed to would be very illegal, but unfortunately that's not enough to stop everyone.
You can also schedule in advance “standing orders” which pay money to an account on a certain day. This is how pretty much everyone pays rent. We have direct debits where you can pay companies on a regular basis and almost everyone uses this for bills like for local government taxes, energy, water. With this, the company asks for permission to withdraw money for your account on a recurring basis with your details and you have to approve it. Guarantees are built into this system though, so if the company takes more money than they are supposed to, you can call your bank and they are able to pull back the funds.
Both of these have been around since the 60s so when online banking came along it was just implemented in that. It got faster at some point I don’t remember - it used to take about a day for UK transfers but it’s usually seconds now.
You can also send money abroad but it has slightly different limits and takes a bit longer. You just need the IBAN of the account though and can still all be done online in a few clicks.
Meanwhile, in the US, I was stuck listening to radio trying to figure out if my school was closed or had a delayed opening on any inclement weather day.
You may also be interested in Paym which uses mobile numbers https://paym.co.uk/
Check it out: https://en.wikipedia.org/wiki/Unified_Payments_Interface
Unified Payments Interface (UPI) is an instant real-time payment system developed by National Payments Corporation of India (NPCI). The interface facilitates inter-bank peer-to-peer (P2P) and person-to-merchant (P2M) transactions.[1][2] UPI is an open source application programming interface (API) that runs on top of Immediate Payment Service (IMPS).[3][4] It is regulated by the Reserve Bank of India (RBI) and works by instantly transferring funds between two bank accounts on a mobile platform.
Singapore has an equivalent system called PayNow, which is equally instant and ubiquitous.
And when Indian Government declared BankNote Demonetization in 2016, it further boosted UPI because people don't had the cash, so ultimately online transaction is the only option. At that time, E-Wallet also made a hype but it wasn't feasible.
UPI has many advantage for both users and merchants. And further Google also introduced their UPI app Google Pay along with some local players like PhonePe and PayTm which makes UPI transaction easy not just to send money to other be it friends or a merchant but mobile recharge, Bills, insurance, etc. can be done from these apps via UPI.
If you're referring to SEPA transfers, then frankly that's a joke. There are 40 cent fees for every transfer and it usually takes hours if not a full day to process as the bank closes the system at like 4PM for some gdamn reason and all further entries have to wait until tomorrow. Like are they processing this shit by hand by actual workers or something?
Maybe my bank just sucks.
Edit: Both debit and credit card payments use chip-and-pin or tap everywhere, and have for a well over a decade.
When I want to do a domestic transfer in Germany, if the recipient's bank does not accept SEPA Instant Pay (looking at you, Baader Bank), then it takes around 2-3 _days_ for my funds to get to the other person. That's insane. In India, our slow transfer (It's called NEFT. UPI is the new shiny instant transfer system) takes at most a day and even before UPI no-one was using NEFT because there were faster alternatives. I've always thought that the slow fund transfers were a German thing and that the US would be better. Guess the grass is not greener on the other side.
We are behind the times even with our own "hack" invention. Remarkable.
I was married with kids 13 years ago and I never touch checks - that’s not a wide spread US thing, it’s a generational thing. Anyone who used checks for ‘everything’ 13 years ago was a massive outlier.
Youre right about the rest but in the US card acceptance is very very high (same in the UK, Nordics, etc). Germany definitely is not a shining light of electronic payments imo.
This seems to indeed have started to rapidly change with covid.
The only way it makes sense is if you are evading tax, as you'll happily pay 1-2% in cash losses to save 20, 30, 40%+ in taxes.
It doesn't make sense to me however that the economics are ostensibly so different between e.g. Germany and France, where in the latter basically even small shops don't care. Either it's something to do with taxes like you said, or German shop's margins are razor thin.
Especially because in Europe we lack all the cool payment protection and insurance stuff that US cards offer.
Here it's been banned from all payment terminals since 2014 IIRC. But skimming is still a thing because they send the card scans to other countries where magstripes are still permitted :(
In the USA, gas station transactions only had this shift in 2021.
> The magnetic stripe will start to disappear in 2024 from Mastercard payment cards in regions, such as Europe, where chip cards are already widely used. Banks in the U.S. will no longer be required to issue chip cards with a magnetic stripe, starting in 2027. [1]
My cards' magnetic stripes haven't been used for at least 10 years.
[1] https://www.mastercard.com/news/perspectives/2021/magnetic-s...
Not being able to use my card in remote areas abroad without chip+pin is not an issue for me. I'm much more concerned with skimming. Especially because even if the bank guarantees it, it's still a big hassle.
Your friend is strange, the only thing I used checks for 13 years ago was rent.
Fraudulent charges can be reversed immediately, don’t impact you at all (since the money isn’t yours). Chargebacks can force a retailer to give your money back.
The benefits are endless.
This isn't really a benefit, it's a fix to a problem caused by credit cards that doesn't happen at all (or at least rarely) with debit cards.
Disagree.
This is like saying "This illustrates that the US bankruptcy system is a solution for the deficiencies in the US credit industry".
What you see as a "deficiency" I see as "pro-consumer". As a credit card customer, I carry almost no risk of fraud. Why? Because my credit card company controls payment and will just reverse it if needed. They are also happy to keep retailers in line by holding them to contractual obligations.
It's a system I'd prefer than some direct payment from my bank where the risk of fraud and its resolution is entirely on me.
Neither SEPA direct debit nor SEPA credit transfer offer any means of dispute resolution, though (SEPA direct debit defaults in favor of the payer, credit transfer in that of the payee).
This means that all but the largest retailers (which can afford to do fraud management entirely in-house) still depend on third parties to arbitrate the risk of non-payment (for merchants) and non-delivery (for customers).
> Of the people (in Germany) I know, they also never use charge backs on the cards (I suspect many don't even know that you can do it) and instead rely on the court system to get refunds etc..
This indeed seems to be the case, which is unfortunate e.g. in the case of travel provider insolvencies. The card scheme rules are very clear in this case, but way too many German banks have in the past declined these disputes (claiming that they are "incompatible with German bankruptcy law"). Cards (both credit and debit) do offer more customer protection that almost any other widely accepted online payment method.
If you buy stuff from e.g. C&A or H&M (two clothing chains here) and pay by invoice (which is basically always a wire transfer you initialise), then there is always much more hassle. My ex-girlfriend had to have 3-letter discussion with them that they had to find the stuff she didn't want in their warehouse. If she'd just paid via credit card, this discussion wouldn't have lasted that long, because we could have had the bank take care of it. And I'm reasonably certain that ability influence their CS department's behaviour
However I love cheque, it is still available in France and I use them regularly. You can actually use it to pay your shopping, it is accepted in a lot of shops. It is perfect to pay something by mail, or to pay sports clubs license. No need to request the IBAN, no need to type it and hope you didn't make a mistake, no need to confirm with 2FA using your secret code and no need to wait for the transfer to go through.
As for charge back, this is not something you can do yourself, you need to complain to the bank. By law they have to credit you back and investigate (and possibly charge back)
Explains why so many real world shops are still cash only.
That's a major reason Argentina is taking steps to mandate acceptance of debit cards - so that income is accurately reported for tax purposes: https://www.bcra.gob.ar/MediosPago/Politica_Pagos-i.asp
Cash isn't some 'free' panacea for a business.
There might be an opening in subscriptions. Those merchants know their customers, and may be willing to take on fraud risk for material bump in revenue.
But, then you're trading one evil for another - because Apple will want their cut, too.
At the end of the day - it's a battle between value centers and cost centers. Businesses would generally rather make more money than save money.
You have to get one side to trust it. Visa and MasterCard succeeded by making it easy for consumers. The counterpunch is likely in winning over merchants. If Netflix or Spotify gave me a small discount for running over alternate payment rails, I don't need to trust the intermediary, I trust Netflix or Spotify to not screw a decade-long customer over pennies.
Or a 0.1% fee.
That seems like circular logic. If there were alternatives to credit card and CC companies, SaaS would use that. In fact, in some countries, there are and it does.
> The ability for a merchant to pull payments on a recurring basis from a credit card requires an incredible amount of trust.
Why? If the merchant can't pull this month's payment, then services stop. Perhaps you mean making a large payment in arrears?
Such as?
Andorra, Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Monaco, Netherlands, Norway, Poland, Portugal, Romania, San Marino, Slovakia, Slovenia, Spain, Sweden, Switzerland, United Kingdom, Vatican City
They all use the same system, namely SEPA Direct Debit. It has only been around for 13 years or so. The Stripe website has a decent introduction: https://stripe.com/docs/payments/sepa-debit
So yeah, as a Dutch person all of my subscriptions use this. In fact, I get a bit annoyed when someone does not offer it, because I do not own a credit card.
Outside the US, credit cards are much less common outside the US. The alternative to credit cards isn't CoD, it's debit cards, which are connected directly to a bank account. Merchants love debit cards because they have near-zero transaction fees.
You don't need credit card for chargebacks, just strong consumer protection laws that permit the bank to claw the money back from the merchant.
As for fraud, I don't have any data, and I'm sure there's plenty, but we have had chip-and-PIN in Europe for decades, and for more than a decade cards have been protected with 3D Secure and similar types of mandatory 2FA, so having the card number is not enough to complete a transaction.
People seem more wary of accruing debt in Europe; it's easy to lose control over your personal finances with a credit card. But we have middlemen like Klarna now that offer credit-card-like payment deferral. Klarna appears as just another payment processor, but takes on all the risk, similar to a credit card company.
The only thing I miss from US credit cards are cash back rewards.
> People seem more wary of accruing debt in Europe; it's easy to lose control over your personal finances with a credit card.
Well using credit means you're taking a loan, and subsequently paying interest on that loan even if it's just a month. Why would you pay interest on a loan that you don't need and pay an exorbitant amount in monthly fees just to have the card? Seems like absolute lunacy. And here it doesn't tie into the credit score system much so there isn't a reason to do it solely because of that.
Luckily these days there are fee-less prepaid cards that work like debit cards, but function as credit cards. That's my go-to.
For example, in The Netherlands *everyone* uses iDeal. Basically, the store does a 302 redirect on checkout to your bank, sending along the money owed and the destination account. The bank authenticates the user, confirms that they indeed want to pay it, and redirects back to the store. It... just works!
Please tell me how the hell I should input a 19 digit debit maestro card into 16 digit credit card number slots. It even has letters.
> iDeal
Seems like it's only a Dutch thing according to the wiki.
There are also credit + debit combination cards, which have two different numbers to use. They also let you choose which side to use on the payment terminal.
Actual debit cards are issued by banks and only have the much longer account number on them.
Maestro, given you mention it elsewhere, doesn't necessarily have longer payment card numbers than most credit cards (which are mostly 16, except for Amex which is mostly 15): it merely has a number made up of a number of different prefixes, and the final section is determined by the issuing bank… and several of these are variable length.
Anecdata: I'm from Germany, which is one such country. I've recently had a conversation with someone who had a "credit card" that charges directly to their bank account.
Everything in your opening sentence is incorrect.
Huh? That hasn't been my experience. At all.
I make online purchases nearly (yesterday I made two!) daily with my debit card with no problem at all.
Perhaps that's an issue where you live. I'm in the US, so YMMV, I guess.
The lower fee debit card networks operated by the interbank networks that run the ATM system (Pulse, NYCE, STAR, etc) do not seem to be available for online purchases.
So while you absolutely can pay with them online from the merchant's perspective it is a credit card, and only the issuing bank is treating them differently.
While Visa et al do know this is a debit card, and could could offer lower interchange fees, I'm not sure if they do, and they certainly don't lower it to the same level as the debit networks.
This may very well be different outside the US, as they may not be fully seperate networks in every country.
Yeah. So what?
It doesn't make any immediate, practical difference to me.
Sure, it would be great if fees were lower. That would (presumably) reduce price increases over the long term and allow merchants to increase their gross profits. Having high "processing" fees is rent seeking at best and is likely a drag on the economy.
That said, GP's comment[0] (which is what my comment was addressing) that "The thing about debit cards though...they don't work for online payments which makes them effectively useless." is (at least in the US) flat wrong.
Edit: Removed extraneous editorializing.
To be clear, they're VISA cards issues by the bank with a 16 digit main number and the payment appears on my bank statement within about 5 minutes.
The only hick-up is that they default to 2FA: using a smartphone (domestic bank system) or card-reader (chip-and-pin). My bank has supplied me with a small card-reader for home use, which I also use for on-line banking. To order from an on-line vendor that does not support chip-and-pin, I'd have to also log into my bank and temporarily enable "Internet payments". This has worked for me every time I've ordered from US, Australia or Japan.
You make it sound like that is a good thing. They are loose cannons that time and time again have shown they shouldn't be trusted.
In addition, visa Mastercard can cut off any business from doing commerce, and often do for political reasons.
A much better system is one with: - extreme low fees (like 0.1%) - consumers can dispute anything within x days and merchants have to issue a refund. No administration. - any merchant with a bank account can use it (or similarly broadly available)
I ask because most lower-margin businesses tend to be brick-and-mortar and service-based, like a restaurant. If a typical restaurant's profit margin is ~3-5%, then going from 3% credit card fees to 0.1% fees could conceivably increase their profits by 60-100%. So, if your margins are <10%, then I understand how transformative lower network fees could be hugely impactful.
For ads: Many ecommerce businesses spend far more than 3% of their gross revenue on acquisition/marketing costs. So, in some ways the 3% credit card fee is closer to a marketing expense that increases conversion rates - and payment network fees are often less than overall facebook/google ad spend. So, if you're spending >3% of your gross revenue on ads, then the high conversion rates of credit cards factor into your advertising acquisition costs.
Er merchants will get instantly crushed with first party fraud. As soon as people realize they can acquire a good and then get an instantly approved dispute the day after, game over. Unless thats not what you mean?
As a merchant, credit cards suck.
No matter how you argue, the people who do not abuse the system and are honest to the degree of hurting themselves will always be at a disadvantage versus the people who either refuse to replace an item or just file a chargeback instead of even contacting the merchant.
Or the customer support is so bad that you enjoy filing a chargeback.
"Hello, the tracking site says the item was delivered. It was NOT delivered and I asked the neighbors, it's not here." "Thank you for contacting us, the tracking site says the item was delivered. Have a nice day!"
This. There's so much incentive to encourage shitty consumer behaviour on the CC side and it destroys margins on ecomm.
Those who are interested in learning more should read this article[1] on a cycling ecomm company and their issues with fraud and chargebacks. It's very accurate with what I've experienced.
1 - https://cyclingtips.com/2022/07/interview-silca-on-amazon-e-...
I only have anecdata about this, but every taxi driver (50+) I've ever discussed CC vs. cash (this is in NYC and limited to medallion taxis) has said they prefer cash every single time.
That's mostly because of the 5% CC processing fees on every transaction, as well as delays in receiving their money from CC transactions.
I imagine it's different elsewhere, but not (at least AFAICT) where I live.
Edit: rather, it's easier to not declare cash income, than income from credit cards. Also keep in mind that the taxi company may take a cut of the revenue too.
In NYC medallion cabs, all taxi rides are recorded by the taxi meter in each car. It records the distance and the fare charged, regardless of payment method.
So that's not really the issue.
2.1 Why does the proposed Regulation cap interchange fees at 0.2% and 0.3% for debit and credit card transactions respectively?
The 0.2% and 0.3% caps were proposed by schemes (Visa Europe, MasterCard, Groupement des Cartes Bancaires2) in competition proceedings and appear practical as providing legal certainty while not threatening the viability of these schemes. These levels are based on an estimate of the fee at which a merchant would be indifferent between being paid by card or in cash. The figures have been developed using data from the central banks of Belgium, the Netherlands and Sweden on the cost of payment instruments.
And $2500 dispute fee for each order deemed against their Acceptable Use Policy.
Reeeeally now. You don't say?
What a wonderful world that would be.
Disliking wallet-draining, hard-to-cancel subscriptions, I'm not entirely opposed to this scenario.
That sounds amazing. Let's do that.
The recurring option, yes I wouldn't give out a bank account or a debit card for recurring payments even with high trust SaaS merchants, even if they accepted one ( most don't ).
My issue is that that they should be regulated as such.
They shouldn't be allowed to unilaterally withdraw access (eg wikileaks).
Is that true because credit cards mean there's no incentive to make the court process more efficient?
That is, without credit cards playing that role courts would become more efficient and less expensive.
Agreed. A dispute resolution mechanism baked-in would go a long way toward making crypto a more viable alternative, especially if it delivered more effective justice than the credit card companies' stale policies and their opaque decision makers who don't really give a crap.
Systems of justice are probably the earliest institutions of civilization, and have evolved over millenia. There's lots of runway to learn from what's worked and what hasn't.
A potential starting point might be an arbitration approach where multiple parties are selected at random from a pool of candidates who gradually build reputation as fair and impartial adjudicators. They'd review evidence and arguments independantly and issue their vote for the verdict.
Commerce, including crypto, is as much about people as it is anything else.
Recurring bank transfers are not that hard to setup and would probably be even easier by now if credit cards weren't available. If your argument is that this would give users better oversight of their recurring payments and the ability to cancel ahead of time without restrictions then I fail to see how this is an argument for the current credit card system.
The institutions (at least in my country - UK) are not interested in dealing with that. Police will not view it as fraud (unless they get a massive number of enquiries, but still they may be ignoring for a long time before it comes on their radar), the Trading Standards will say talk to your bank, bank will say I should have done more due diligence. Then you won't be able to take the seller to court if they used fake address. Police will not be interested in finding it for you. You can hire a private detective to locate the seller, which will cost probably many times over the loss. Now even if they locate them, they may not have a permanent residence, which again makes it difficult to lodge the case in court and before it happens you have to first try to mediate. Good luck with that. Basically the current system is created for fraudsters to thrive.
I always understood the cash-only ones. If you can get plenty of customers who are willing to pay in cash, why would you want to pay credit card fees?
The card-only ones were harder for me to understand, until I realized that handling cash costs money, too. Somebody needs to count it all at least once a day, if not more. Employees can steal it. Robbers can steal it. You need a safe. You need cash registers. You need to get the cash deposited in the bank, by paying someone to go do that. You need to maintain an inventory of smaller bills and coins to make change. You need to train people on all of this.
Even just the accounting costs might make up the 2-3 percent in fees. "Your register said you made $150 in cash that day, but the deposit that night was only $135." That's what you pay accountants to deal with, rather than just exporting from your Square account to Quickbooks or whatever.
I had this realization because I went to a new coffee shop that had opened up. It appeared to be owned and operated by just one lady, and she was really nice. So, as I normally do for the nice local business owners in my neighborhood, I got out some cash instead of a card, thinking it would benefit her business. But then she told me they were card-only and it dawned on me: she's just one lady running a store by herself, _of course_ she doesn't want to deal with cash.
So, I'm not sure the 2-3 percent fees are all that bad, though I could be convinced otherwise. Plenty of small business owners seem pretty happy just setting up a Square reader and not dealing with the headache of cash. I think there's a lot of value in that for them.
In fact over here, Credit Cards incur more fees for the business than debit cards. In all my years of being alive, I've never understood the need for a Credit Card.
https://abcnews.go.com/US/cashless-stores-restaurants-banned...
[1]https://www.reddit.com/r/nyc/comments/vcebns/im_an_ex_employ...
This would not apply in a shop of course as they could just refuse to sell you the goods.
In the US at least.
I work with a lot of unbanked individuals in low-income areas of NYC, so I am familiar with some of their struggles. I can't say I agree with this law, though. There was a store near me robbed at gunpoint not too long ago, and I felt so bad for the worker who had to go through that, not to mention how scary it is to feel like armed robbers are casing my neighborhood. So I feel glad for people like the coffee lady I mentioned, who have chosen to avoid that risk entirely.
I understand the good intentions behind the law, but I think there are other ways to help unbanked individuals that would still allow business owners to chose how they accept payment.
The Federal Reserve Bank of Atlanta did a study showing 97% of consumers had some kind of payment card(debit, credit, prepaid), and 99% of consumers used cash. So there is probably still some consumer that is not being satisfied by either payment cards or cash. If I was running a business, I don't think I would particularly care about that small of a slice of users to base my decision on it - it would probably come down to other things like overall cost of supporting cards or cash.
https://www.atlantafed.org/-/media/documents/banking/consume...
> FedNow is an instant payment service for both individuals and businesses. Once launched, the initial transaction limit will be $25,000. This means that FedNow be more useful for small businesses and retail payment needs until it is widely adopted and the transaction limit grows.
> In early 2022, the Federal Reserve released pricing and fee details for their real-time settlement network. Because FedNow is government-operated, it’s mandated to break even and not turn a profit. A possible advantage of this is that FedNow may offer more competitive pricing than other payment systems, which encourages widespread adoption at a faster rate.
Merchants can pass the CC surcharge through; I’d expect them to do so when a very low cost immediate settlement option is available. This will allow consumers to self select if they want the benefits of paying with a credit card (but paying for the privilege). Credit can be extended if needed by a financial institution, without using CC rails. Net 30? BNPL? Special financing arrangement? Pick your poison either prior to or after value transfer has occurred. The innovation is utility priced financial infrastructure, cutting out the rentseekers mentioned.
(my note: it’s about five cents per FedNow value transfer transaction)
Can they? I was under the impression (unverified) that they are under contract to provide the same prices for CC customers as they do for cash or debit card.
I believe there are a few states in the US left where merchants can still be required to charge the same, but in most places in the US that's not the case.
The no-surcharge terms are plainly anticompetive and should have been reigned in a long time ago. But customers get really mad about extra fees and think it's the merchant that is ripping them off and not Visa/Mastercard.
[0] https://en.m.wikipedia.org/wiki/Ohio_v._American_Express_Co%...
I think you can also advertise the credit card price and offer a cash discount.
Debit cards still have transaction fees, though lower ones I believe, so they usually get the same price as credit cards, but none of the benefits like points.
Every single app/store/site is gonna be begging you to enroll in fednow and will be offering 2-3% discounts/bonus points for any purchases made through it.
FedNow will get adoption as a replacement for ACH / Check writing. Paying bills and getting paid. Instant deposits of paychecks will a big benefit to a lot people living paycheck to paycheck. It will displace a bunch of Zelle market share.
I could see it being useful for interbank transfers and for bank to billing (e.g. credit cards, etc.)
I assume with FedNow (same as if I were to transact using debit cards), money leaves my bank account more or less immediately when a charge happens. That means if someone manages to fraudulently charge something, I am out that money (up to $25,000!) until the dispute process is resolved.
Also, do I really want the central bank to have a record of all my transactions? Not sure I do.
Since then, I've only used a debit card very sparingly and usually more as an ATM card in the event I need cash.
The issue is that you can process most debit cards through the credit network without the PIN for convenience.
That said, PIN isn't terribly secure either; for a common 4-digit PIN, there are only 10,000 possibilities. Too many to test by hand, but trivial to automate if you have access to the algorithm. And for the first PIN cards, the data was on a trivially readable magnetic strip. So if you have the algorithm and the contents of that mag strip, it's trivial to just run through all possibilities. That algorithm was a closely guarded secret, but still, security by obscurity isn't great, so later they replaced the mag strip with a chip that doesn't spill its contents so easily.
So not all 2FA is a guarantee for good security.
Second, this happened circa 2004-2005. In the US, at the time, all card use was magnetic strip swipes. Debit cards occasionally used a pin at terminals equipped to do so; but, it wasn't a requirement and most use didn't involve the pin. As an example: a grocery store terminal at the cash register might require your pin; but, if you paid the bill at a restaurant, it would get swiped like any Visa/MC.
At the time, in an online setting, asking for additional information like CVV or using address for AVS wasn't standardized so not all merchants required anything beyond a card number and expiration date.
In that era, nearly everyone I knew had experienced a debit card or credit card stolen and used in this manner--and those with debit cards paid the extra price of actually losing our money for a time.
Unless things have changed in the last 20ish years, if you accept credit cards you’re not allowed to charge different prices for CC vs non-CC payments (although there are apparently some carve-outs for gas stations).
As a side note, many government services aren't allowed to eat the transaction cost, so they actually do pass the cost to the consumer (e.g. when I pay my annual car registration, an ACH (electronic check) payment is the same as paying cash in person, but a credit card has an additional fee tacked on.
[1]: https://www.ftc.gov/business-guidance/resources/new-rules-el...
Here are the Visa rules for it. https://usa.visa.com/support/small-business/regulations-fees...
Basically you can add a small surcharge amount, but nothing more than the actual cost of the transaction.
They absolutely have.
My guess is that they'll just raise their prices to include the fee no matter how the customer offers to pay for something.
Canada has had low-cost Interac debit cards for a long time, and although they've been very popular, merchants generally don't impose any credit card fees.
Also, even Canadian online businesses generally don't bother implementing payments with Interac online, so for online shopping it's not even an option.
Perhaps some of this will be better at US scale.
The fee rates are pretty dramatically different.
Consumers already have a choice that has lower interchange fees to merchants (but also has way less chargeback protections) and that’s a debit card.
Basically you get a similar cost.
The President of Brazilian Central Bank recently said that "credit cards will soon cease to exist" src (pt only) https://www.poder360.com.br/economia/campos-neto-diz-que-car...
Personally I have made use of "impossible" chargebacks in Romania, Austria, and Germany. Of course the process was obtuse and frustrating compared to the US.
Src (pt only) https://www.poder360.com.br/economia/bc-libera-mecanismo-de-... and https://www.in.gov.br/web/dou/-/resolucao-bcb-n-103-de-8-de-...
If you're in a "tourist destination" area, then no worries, I'm sure they will offer credit card as a payment option to keep you in business, but it's likely to be more expensive than paying using PIX.
When I was in the south of Brazil I used the "iFood" app (biggest food delivery app in Brazil) and I could only pay using PIX. In other regions, other options were available such as credit card.
Even if you need to do a PIX as a traveller, you can simply pay in cash to some person (hotel recepcionist I guess) so they can use their account to pay the PIX for you. Technically this person will scan a QR code and pay using their bank account.
If you want to have a PIX account yourself, at the moment you need to have a bank account in brazil afaik. After having your account, you have to register it using specific types of identifier, for example your mobile phone. Non-brazilian numbers are accepted in the standard, but not all banks accept them for now. It certainly will go over changes. It's a relatively new technology.
AFAIK, you only have to register if you want to receive payments with a short identifier (like your CPF, which is the Brazilian equivalent of the USA's SSN, or your phone number), and even without registering you can receive them using your full bank account number (the registration exists just to map the identifier to the bank account number); you don't need to register to send payments, having a bank account is enough.
"Merchants hand over some $138bn in fees each year; according to the National Retail Federation, a lobby group, it is their second-biggest cost after wages."
Unless they're talking about more than just credit card fees? From the same article:
"But credit-card fees are unregulated and meatier, usually sitting at about 2% of the transaction and rising to 3.5% for some premium-reward cards."
Are they saying that retailers pay less than 4% of the retail price to acquire their goods? They pay more for credit cards than rent?
> "Regardless of size, the fees are most merchants’ highest operating cost after labor"
but I'm as incredulous as you are. Obviously things like cost of goods, and also usually rent, are also going to be higher.
I can only assume it's based on some really misleading survey, and I'm honestly surprised to see The Economist, of all publications, repeat something so obviously economically questionable. (To be sure, they attribute the claim rather than state it, but they present it as if it's true.)
[1] https://nrf.com/media-center/press-releases/retailers-say-sm...
I don't understand how this is possible
according to the National Retail Federation, a lobby group
You also get charged for each chargeback, which is likely included in that $138bn number. And if you have a high enough chargeback rate you will be fined an additional amount.
But I think the network effects are too strong and we are seeing a pretty normal Pareto distribution. Even if you added 20 new market entrants with good coverage, consumers and businesses would still prefer to have Visa as the lingua franca of payments.
I think it will also be pretty hard to get away from that 3.5% processing fee. That covers a lot of fraud prevention work that credit card companies take on for consumers and businesses. Will consumers be happy to give up those protections and reap back a percent or two on prices? And emerging payment technologies seem to create more opportunity for fraud.
The US has effectively no effective 2FA. Signature is never verfiied in practice, and magnetic strips are dead simple to clone.
What interchange covers mainly is the cost of capital to give a consumer a 60 day interest free loan. Capital isn't free and this has real world costs to the bank underwriting the loans. Why you Chase or BOA debit card interchange rates are 0.05% because they aren't lending out their own money.
It's not the 'network effect' it's that the financial institutions i.e. the banking system want it that way, and will thwart any system otherwise.
It'll be easy to get away from the 3.5% fee we know that because of how it works in other countries.
America, shockingly, still does not use PIN chip cards, it's unbelievably nuts.
The simple addition of a PIN and a few other things can help reduce fraud substantially.
The complexity of the VISA network and disintermediation of 'ownership of the customer' creates problems for fraud tracking. At my bank the 'VISA' dept is totally separate from my other accounts - the entire customer service and data chain is separate. It's nuts.
It's extremely common to be confronted with a display like this at the register of a chain store detailing the bewildering array of supported payment options https://i.imgur.com/jmYrgHR.jpg
It has many upsides (especially increased acceptance). The only downside: There are no real or good cashback programs (like getting 1-2% back) in Europe because of this.
Not only do they drive spending, but they eliminate the casual embezzlement and pilferage that plagues cash businesses. My grandfather ran pubs, and use to quip that he’d fire any honest bartender, because the guy was smarter than him.
When I was in college I worked for a company one summer that installed parking gates with credit card payment systems at big institutions. One customer was a hospital who reported 28% increases in parking sales… the guys who worked there were skimming the toll for years.
You also need to pay labor to count the tills, manage the cash, etc. In any case, show me someone whining about a 3% fee and you’re showing me someone who’s out of touch with their business.
Most places still accept cash as well so they still have all the expenses around cash management, that's not going away. And most places also have records/safeguards to see if employees are skimming -- bars are one of the few exceptions where it can be trickier, simply because almost no cash-paying customers want a receipt and it's dark and busy.
And when you factor in the fact that cash income can be hidden from the IRS in a way that credit card income can't, you can see how certain businesses might really wind up "paying" a lot more than just in credit card fees... ;)
It's not the 'credit' that drives this, so much as the 'digitization'.
That can be achieved without credit.
European countries have been doing it for a long time.
Canada has 'Interac'.
There is utterly no need for VISA/MC.
A fairly simple banking standard could make it so that you could pay for stuff with some kind of card + PIN and that's it. There'd be a tiny fee which would help take care of fraud. Done. It already works in large economies.
The US has regulatory capture by large corporations.
Interop is different.
Unless you're a visitor who doesn't have access to the local system.
As a traveller, it's now possible to travel to other countries and never touch local cash, because everything can be paid for by credit card. In the US, tips have historically been the outlier, but while Venmo is increasingly taking over, that's not something you'll have access to without a US bank account.
One or two other thing I love about these UPI payments is that it doesn't seem to incur any 2 or 3% commissions(1) which is both great for the consumer and the merchant (as these costs would eventually be passed to the customer anyway). Also almost every cc machine, website and panwala has a the QR codes now so no need to carry a wallet or plastic cards. I can make payments of Rs.5 and that's fine.
I don't even carry a wallet anymore to a mall or any place since my driver's lic/reg is in the digilocker app(2) and the credit card is the gpay/phonepe app.
(1) Not really sure if there is or will be later, since I'm not a fintech person, but from what I can tell I don't see any commission on UPI payments yet.
(2) https://www.google.com/search?q=digilocker+license+valid
I showed it to an investor. His only response was, "This is a very fast way to end up dead."
You don't fuck with monopolies that bring in hundreds of billions to trillions of dollars in profit a year. People get killed for way less.
On a secondary note, when I was working in payments, I once met the SVP of Payments for Wells Fargo. I got him drunk. He told me that when WF internally separated out their business units P&Ls, payments/interchange made up 64% of WF's total public Net Income.
I am still actually wondering if this would get you killed or you would face simply an uphill battle in the market and never get traction.
In a sense it is similar to the two party system in the US. I wonder if there isn't a viable third party still today because people are so used to voting Republican or Democrat, and because all the institutions (including media) are set up in a way that makes it very hard to start a third party or because third parties that actually want to change the game are infiltrated and threatened behind the scenes.
He didn't mean that a corporation would literally kill you, because that comes with the possibility of unimaginable risk. He meant that they had effectively-infinite resources to fight you for decades with an army of lawyers and politicians.
https://en.wikipedia.org/wiki/Robert_Kearns
https://www.opensecrets.org/orgs/visa-inc/summary?id=D000029...
https://www.opensecrets.org/orgs/mastercard-inc/summary?id=D...
It's not.
1 out of 2 homicide is unsolved in the US: https://www.statista.com/statistics/194213/crime-clearance-r...
As for straight murder, it's the cause of death of 5 persons out of 100000 (https://ucr.fbi.gov/crime-in-the-u.s/2019/crime-in-the-u.s.-...). Diabetes is 20/100000 in comparison (https://www.cdc.gov/nchs/products/databriefs/db427.htm).
And that's mostly by people with no master plan for the killing in the first place.
If you die, NCIS will not come to your house to do a full tv show like murder solving. They will send an average joe cop, probably eating a sandwich on the murder site putting his print and crumbs everywhere, he will suspect your close ones, and ask a bunch of questions, because that statistically the only thing that works well. If the killer is obvious, it's solved. If not, nobody will ever know.
He also made it clear (and demonstrated) he had very high connections at the FBI to make sure he would never be investigated.
I wouldn't have believed it either until I experienced it first hand.
I've had my life credibly threatened before over business in big deals. It comes with the territory and isn't as uncommon or unbelievable as people think.
This is wrong and not possible. WF is a public company so you can look up their financials: https://finance.yahoo.com/quote/WFC/financials/
You can see that interest revenue > non interest revenue always so there is no way interchange can account for 64% of their revenue.
All these fintech companies wanting ACH access to my bank account? If a transaction gets fucked up (i.e. someone puts the decimal in the wrong place) it's my immediate and hard to fix problem. I have to deal with my bank's bureaucracy and their goodwill. In the meantime I have no access to my money. If someone fucks up the same using my credit card number it's one call and the company takes care of it and because it's in arrears I still have all my cash.
Nope. It'll be a cold day in hell before I give any fintech get direct access to my checking account for payments.
In Germany, very few people have credit cards, and mostly for online purchases. Everything else is done via direct debit. Fraudulent charges can be reversed just like a CC payment.
It's true though that using "real" credit cards is relatively uncommon.
Even certain kebab/doner shops located near bahnhofs now accept cards, but inner area ones are still cash-only. Most asian shops are generally cash-only sadly.
ewallets are taking over.
0% for peer to peer transactions
0% to transfer from your bank account to WeChat
0.001% to transfer from your WeChat to bank account
I can put a $100 bill through the washing machine and it's still perfectly usable. When I can do that with a phone, maybe I'll switch.
I ran a credit card through the washer and dryer last month, and even though it got bent, and the stripe doesn't work anymore, the chip does. And the numbers can be punched into a POS terminal if all else fails.
E-wallets are putting your finances into a single point of failure. Tech people should know better.
This is the -- pretty common -- failure case I worry about. And yes, I know it's also possible for physical wallets to be stolen. But cash doesn't "break" or run low on charge. Software bugs or internet access issues don't cause paying with cash to fail.
Example of stupidity: I can pay for transit in my city with my phone. However, there are newer payment readers on a small percentage of trains here that just don't like my phone, and insist "Invalid Card". The company that manages support for the readers has been unable to help me. The older readers on older trains work fine. The older readers on all the buses work fine. But I have to carry a physical transit card with me all the time anyway, and -- amusingly enough -- it's more convenient to tap the card than to unlock my phone and hope it works.
Main thing stopping this would be that most phone OS doesn't seem to support guest logins, but that is an easy technicality to fix as long as there is demand for it which there will be as phones becomes more important.
A smartwatch would be more convenient than taking out the phone/card.
Hell most apps are good enough that people are backing up these things without even realizing it.
And even with backups, you still need to buy a new (minimum $100?) device if yours gets lost, stolen, or broken. Should it really cost $100 to replace a payment card? For many of us here, $100 isn't a big deal, but for a lot of people, that amount determines whether or not they eat this week, or manage to pay rent this month.
Actually, multiple single points of failure.
Real Standard Oil situation there.
Not that our own duopolies aren't also problematic.
Of course, as a business, you want to be a monopoly.
Credit card usage has been declining in India.
You can pay by scanning a QR-code, or a mobile number, or a UPI ID. There's also an effort to allow "scanning" an audio-signal to enable non-smartphone devices.
Few years back the central bank realised that depending on a foreign company for such a basic thing might not be the best idea. And they were proven right with the Russia/SWIFT episode.
Interestingly both Visa and MasterCard are currently lobbying (bribing) with the US government against RuPay
However I wish Govt fixed UPI glitches like as of now UPI doesn’t fail/succeed decisively at the time of payment attempt (this often causes huge inconvenience and sometimes monetary losses) and they must bring chargeback option to UPI.
Pretty much all banks use mainframes to do batch processing. "SFTP runs the world".
I got heavy into fintech a couple years ago, and at first I thought "This is all insane." I was coming from a SaaS world where it's easy to think about transactional guarantees with API calls.
I finally "got it" when I realized that pretty much all of our financial system in the US is based on the digitization of manual processes from the 50s and 60s. If you think of how banks worked before computers (e.g. large binders of ledgers that were manually reconciled), that's basically how it still works today, those big binders have just been turned into digital files that are processed by machines.
I'm no fan of crypto, but the one place where I can see real utility for blockchain is as a backend settlement service for banks.
So... what does the crypto provide there that a simple authenticated communication protocol with a few redundant centralized servers doesn't?
Seriously? You would trust billions of dollars to this?
https://web3isgoinggreat.com/?theme=hack
To be clear, the cryptographic underpinnings of blockchain seem solid, it's just that both implementations and actual usage are by fallible humans. And because everything is irreversible, even if you manage to guard against hackers, you still can straight up incinerate money by (say) mistyping a receiving account number (wallet).
This isn't an anachronism. Batched net settlement is inherently cheaper than real-time gross settlement.
Canonical example: if I send you $10, then you send me $5 and I send you $2, in net settlement, there is a single $7 transaction; with RTGS there are three transactions of $17. The first system not only has lower transaction costs, it also scales better on account of needing less capital. TL; DR If there is a real-time settlement system, it is always possible to build a net settlement system on top of it that's cheaper (albeit slower).
Every dollar that crosses a payments platform has a non-zero chance of creating some combination of legal, regulatory and customer-service costs. Frictionless transactions are as real world as their physics counterpart.
> would argue batch processing makes no sense
It does, from a deeply fundamental level. The only case where RTGS is equal to net settlement is if we make some Econ 101 assumptions (frictionless transactions, infinite borrowing and lending capacity) together with zero or negative rates. (Even then, one could be a stickler about the cost of computation.)
> you might have already been bankrupt
Clearinghouses.
My point isn't that net settlement or RTGS are inherently better. They're not. But they're fundamentally tied, and net settlement on top of an RTGS rail will always be cheaper in the real world than that same underlying rail. On the cost side, net settlement will win. On immediacy and counterparty risk, RTGS. A strong system offers both options.
Yes, but pretty much all of those costs are a factor of the originating individual transactions. In reality net settlement is just one additional transaction where things can go wrong.
Again, I'm no fan of crypto (WRT how it's currently used, scams, etc), but there is no reason a permissioned blockchain couldn't do millions of transactions a second, all with real-time settlement, at a cost lower than batch processing.
As long as operating a connection between two accounts has a non-zero cost and resolving consistency problems has a non-zero cost net settlement will be cheaper and easier.
Correct, to a degree. Hub-and-spoke systems (clearinghouse, with banks at the periphery) are cheaper and more efficient than an everything-connected topology. The clearinghouse can run cheap rails because it knows it has pushed those problems to the periphery. The main missing factor, however, is float.
Float makes RTGS more expensive than batched settlement. If you give me RTGS rails, I can batch on top of it and recycle the yield on float into savings, possibly rebates (or credit, e.g. how banks front credit against deposited cheques).
The batch mechanism will always be cheaper under real-world conditions. That's what I want to emphasize. This isn't an artefact. It's fundamentally inescapable.
The bank where you deposited a check would in fact be lending you the amount of the check until the settlement was complete - hence the daily deposit limits and such to limit the bank's exposure.
The Eurozone has been working on SEPA Instant Credit Transfer for a few years now. It allows transferring of money within 10 seconds, even to a different bank in a different country. The maximum time is 20 seconds in exceptional circumstances. How would this work with batch processing?
You want to have 100% uptime for authorize, but correctness isn't strictly required; if you allow too much in charges, you'll probably end up collecting user fees, which is not a negative for the bank. On the other hand, you want exactly once processing for capture, and you don't really need that to have 100% uptime, since the financial industry is built around batch processing.
Non affiliated video about it: https://youtu.be/B_AY4a3_-GQ
This is bizarre to me. When the Citibank Double Cash credit card exists for no annual fee and pays 2% back...
why does anyone ever use any card that provides less? The only cards I use besides that one are the ones that give me 3% or 5% back in special categories.
The idea that people average only 0.6% back is absurd to me. Am I missing something here?
And we're not talking college students here with no credit history. This is households making more than $135K a year. Are people just not bothering to pick up free money?
But, there are multiple answers:
1. Some cards have features other than cash back that people want instead. i.e. promotional interest rates.
2. Some people carry a balance, in which case the benefits of using a lower interest card may way outweigh any cash back
3. Not everyone with incomes 135k+ have good credit scores.
The subscription to the network is 150 NOK/month, with each transaction costing 0,21 NOK each, before volume rebates. 1 EUR/USD is worth roughly 10 NOK at the time of writing, so about 15/0,021 for the subscription/transaction cost. I don't know much about VISA and MasterCard costs, but I would hazard a guess they're higher.
I think the only time I ever use VISA is when purchasing things online, and even then I'm not quite sure it's always VISA. Fun fact, BankAxept stopped accepting the magnetic strip in 2011. Now chip & pin or NFC are the two main ways of paying, with NFC transactions under 500 NOK not requiring the PIN to be entered, except periodically for verification.
Average Amex cardholder already charged to their card roughly 10x of what the average non-amex cardholder charges.
Being government owned, it has 0 MDR.
An open wireless tap protocol for cryptocurrency hardware wallets would do it, and then there would have to be a delegation wallet / cash register version where you can delegate payment collection to an employee without giving them the whole bank account, and then some kind of insurance to backstop inevitable fraud, and a market for securitzing and trading the bonds for that insurance, all with transaction fees that are competitive with cards and interac. Nothing current crypto exchanges and companies can't do today.
I actually foresee these becoming popular as a reaction to CBDC's and the cashlessness that will very severely marginalize people and cut them out of the economy. Further, I could see shops themselves polarizing, where just like you may not go to a McDonalds (I haven't been in one in decades), there are places you go, and places you don't, and the places that only accept govt fiat will be the places you go when you don't have a better option. It will be like going to a small town greengrocer who accepts crypto or gives credit by private arrangement repayable in crypto vs. some globalized big box store. There's a floor on how stupid and overreaching regulations can be before the economics of peoples individual risk/reward calculation switches to evading them. It's literally the mechanism behind pervasive low level corruption in authoritarian regimes, where past a point, governments themselves have invented the incentives for citizens to evade them, and created massive underground economies as a result. Worse, the state benefits from the black market money and turns a blind eye to the criminals who support it, and that's how you get places like Chicago, Baltimore, LA, and to a lesser extent, Vancouver.
Yes, the duopoly will be broken, but it will be the side effect of emerging cashless society policies from some spectacularly naive policymakers.
Rupay is a direct alternative to Visa and MasterCard. UPI is peer to peer payment system for any bank account linked with a phone and debit card.
So far government has been successfully in both of these endeavours.
https://en.wikipedia.org/wiki/RuPay?wprov=sfla1
https://www.business-standard.com/article/economy-policy/rup...
Possibly not for long - https://www.thehindubusinessline.com/money-and-banking/rbi-m...
It is mostly a novelty here. It allows simple payments to be made using a smartphone, smartwatch... you can use an app to transfer money from one person to another. Basically everybody is using it now. You can buy popcorn in the streets and pay via pix. In many places it is common than paper money and, I think, it is already more popular than credit cards. It also pays much less taxes.
I do think the credit card duopoly can be broken.
+ where can startups take the edges off the market, without taking them on front-on? certain segments, use cases, etc.
+ what tech innovations exist today (or are on the horizon) which a startup could leverage faster/better than visa/mastercard to better serve certain use cases better than v/m (e.g Dell (when they were a startup) was so much faster than IBM to incorporate Intel's new tech every cycle, which resulted in Dell customers getting more capable and less expensive pcs)
This would challenge both Visa-Mastercard and SWIFT.
[0] https://www.bloomberg.com/news/articles/2022-07-06/revolut-p...
As far as I understand, Mercado Pago's big thing is installment plans. You can buy almost anything in Brazil "em ate 12x sem juros" or up to 12 installments without fees.
Biggest issue I see is that the larger banks might not offer this to their customers so as to not cannibalize their credit card businesses and/or in-house payment system.
Cheap?! That's $300/yr, and is more expensive than most credit card annual fees (for cards that even have annual fees). And with FedNow you don't get any credit card benefits. I mean, I pay $550/yr for one of my credit cards, but I get like $2k of value out of it per year in benefits. Why would I want to pay $300/yr for something that lets me do something I can already do, for free or "cheaper than free"?
This is all illustrative, of course. My salient point is that monopolies are only really held in check by the law. In this case, at least there's a significant competitor.
1: https://www.searchenginejournal.com/social-media/biggest-soc...
- Coke-Pepsi duopoly be broken?
- Google-Baidu?
- Nearly any professional sport is a monopoly (NFL, NBA, etc)
And soooo many more.
Dr.Pepper, Monster Beverage, Redbull, Asahi, Arizona, and thousands of other smaller players exist.
> Google-Baidu?
Google is a search monopoly for English speakers. Steps should be taken to remove Google's ability to enforce via Chrome and Android, or prioritize adsense sites. Perhaps the DOJ can split their business units or force third party offerings to be required.
> Nearly any professional sport is a monopoly (NFL, NBA, etc)
If sports aren't fungible, XFL. If they are, there are thousands of leagues. Did you know Michael Jordan played golf?
Dr Pepper is often bottled and distributed by Pepsi or Coke, especially outside of the US. Coke has a competing "pepper" drink (Mr Pibb), but mostly markets it in areas where the Coke distributor doesn't have rights to Dr Pepper.
The new FedNow https://www.frbservices.org/financial-services/fednow/about.... system might take a significant part of Visa/Mastercard business.
American Express IP
First Data Corp - FDC - FDMS - North Platform (CardNet)
MasterCard Internet Gateway Service - MIGS USA
Nova - US Bancorp
TSYS - VITAL (VisaNet)
First Data Corp - FDC - FDMS - Nashville Platform (ENVOY)
First Data Corp - FDC - FDMS - Omaha Platform (FDR)
First Data Corp - FDC - FDMS - South Platform (NaBANCO)
NOVUS (Discover)A thought on how to do it.
1. Create a stable coin
2. Create a credit card that uses this token
3. Tie using it to some reward, supercharge it with VC if you have to
4. Release a QR payment component where vendors don't have to pay to receive payment, get rewards and payees earn double rewards
5. Integrate that bad boy far and wide
Worth noting that Stripe, Shopify and Square are also well placed to use a similar strategy
Don't worry, Visa and probably Mastercard already have a crypto department. They've been digging into blockchain (and buying startups) for a while now.
Why does it have to be a blockchain instead of a government-mandated nonprofit (e.g. FedNow) to operate it? Wouldn't that have more oversight and less chances of massive fraud?
I’m highly doubtful that FedNow will be able to compete in terms of innovative new features. Say what you will about blockchain, there’s a lot of builders out there aggressively churning out new tech without anyone’s permission.
Keeping blocks artificially limited at 1mb doesn't make it more decentralized, it actually makes it more centralized, since barely anyone in the world can use the network or pay the fees when a bunch of people are using it at the same time.
Can you point me to any evidence of it not having 100% uptime since the fork? Or have you fell for another lie just like "one node taking down the lightning network"
Blockspace is scarce and valuable, and that's the way it has to be to be decentralised. And yes they can use it, on the layer 2 lightning network. It works great, I use it all the time, for pennies in fees even when there's a mempool queue.
In any case, BCH simply works 100% of the time, it's instant, extremely reliable and cheap to use, and it's actually being used as cash in the real world (unlike BTC). That's the most important thing in my opinion.
> it's actually being used as cash in the real world (unlike BTC)
Simply not true, on both counts. Sorry.
And after the fork BTC still makes you overpay ridiculous fees and the network is almost always extremely slow (except when no one is using it of course). Paying more than the 1c it was designed for is basically the norm now. That's why people like you try to gaslight everyone else into believing in the mythical LN that solves everything (allegedly, but not really).
Here's the proof:
https://bitinfocharts.com/comparison/bitcoin-transactionfees...
See how it never even gets close to 0 even after the fork? Now compare with BCH.
That is not true by any meaningful use of the word "decentralization". The LN system is markedly worse: https://www.youtube.com/watch?v=sbD0kiTddEs
>If you're a sockpuppet then nobody is buying it sorry, your coin is dead.
If you are concerned about sock-puppet shills, don't be: I have never owned BCH, BTC or any other bitcoin variant and I will attest to the parent comment's arguments. As a bitcoin outsider, it's pretty clear to me that the path BTC took has irreversibly doomed cryptocurrency. If you are a bitcoiner, your coin is dead also.
Bitcoin is the bigger scam. The problem with bitcoiners not taking the BCH/XT fork isn't that the block sizes aren't large enough. It's that the remaining bitcoin community is dedicated to never make a hard fork again. This is not sustainable in the long-run.
Good cryptocurrencies (like cryptonote, zerocoin, etc.) regularly agree on reasonable compromises to improve the security and efficiency of the network (including changes in block size, etc.). With BTC, reasonable discussion has gone out of the window. It completely defies satoshi's original intention. Your community is no longer a good steward of the network. You are just bagholders trying to protect your investements.
Ah, you've got shitcoins to hawk.
The Cryptonote[2] and Zerocoin[3] whitepapers were published back in 2013/2014 and made some pretty important security improvements to the bitcoin network. I suggest giving them a read. Many of the systems that were once designed for Bitcoin, such as P2Pool now work on projects like cryptonote[4]. We have also designed a proof-of-work system that is completely CPU-bound (you can mine it on your home computer as satoshi intended)[5].
Also, the cryptonote/zerocoin-derived cryptocurrencies are hardly shitcoins seeing as they have effectively displaced Bitcoin's original use-case as of this year.
[0] https://en.bitcoin.it/wiki/CryptoNote
[1] https://en.wikipedia.org/wiki/Zerocoin_protocol
[2] https://web.archive.org/web/20190214045623/https://cryptonot...
[3] https://spar.isi.jhu.edu/~mgreen/ZerocoinOakland.pdf
No business wants to use a volatile asset that loses its value when a person or institution refunds and immediately sells hundreds of thousands of Bitcoin(s) and takes the whole market down with it for payments at scale in the long term.
We have given it years for them to mature and none of them have the safety / security or standardisation compliance required to be credible enough for regular businesses to being using it and I'm sorry it is not early days.
I would say a cryptocurrency / blockchain project that aids or is faster than the current system, complies with regulations, has a trusted and centralized stablecoin on the network like (USDC) and is able to scale whilst allowing cheap payments will also be able to compete with the Visa-Mastercard duopoly.
That is, the ISO 20020 standard and compliant cryptocurrencies which are highly likely to be used for payments (with USDC) in the long term.
DAI is doing pretty well.
A separate network is not Bitcoin. And Bitcoin doesn't require intermediaries. The only network that fits Bitcoin's definition is BCH.
Dude, you need to chill, you ruined BTC for everyone and now you are hostage to your own failed investment. Remember it was supposed to be cash. Accept your loss and stop lying to people, BTC doesn't work as cash, and neither does LN. Find something else to do with your life.
BCH is not as scam, it's cash, it's advertised as cash, and has always worked perfectly as cash.
BTC and LN are false advertisement.
Both Bitcoin, and Ethereum have both proven that they are unsuitable for payments. Both with their demonstrably slow, expensive and unscalable layer 1 and their ducktaped contraptions of their non standard layer 2 solutions.
I can only see a few cryptocurrencies that are suitable for the payments use-case which the ones considered for this are part of the ISO 20020 standard.
Harder to imagine any L1 blockchain ever being able to reach the throughput needed without dramatic trade-offs in decentralization, censorship-resistance and security. At that point you might wonder how it would be any different than a centralized Visa or Mastercard network.
Agreed. And there are loads of hi-speed, low-cost "coins".
Like all entrenched systems, the only way beyond them is to circumvent them. Circumventing the financial system is what bitcoin did.
So no, you can't solve it, but you don't need to.
Unless you mean the Apple Card, in which case it's a Mastercard.