Comment by RC_ITR | Hacker News Reader

Comment by RC_ITR | Hacker News Reader

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You can think of payments networks as secure messaging infrastructure where the operator says “you can trust us that this payment is legit” to varying degrees of certainty and with varying degrees of fraud protection.

Debit networks (oversimplification) are basically ATM networks where your bank gets a note saying “user” supplied their card and pin to authorize a withdrawal of $X. This is why you can also pull out extra cash on these transactions. Banks ofc want to be reimbursed for the onerous task of giving you your own money, so they usually charge a consumer-facing fee for these transactions.

Credit (really Visa/Mastercard) transactions tell the bank “user” gave us their card and a signature, our fraud algorithms tell us this is probably fine, and we’ll settle this payment in bulk with the rest of your users’ purchases in 1-3 days. Banks, again wanting their cut, are paid via merchant-facing fees (interchange and merchant discount rate).

Stores keep the debit option up because some people like to draw extra cash and they get the benefit of not paying the fee even though their prices already incorporate the cost of credit card processing.

That is also why all the “financial advice” sites say to run things as credit, but honestly I’m not sure how current the above is given recent regulations.

> even though their prices already incorporate the cost of credit card processing.

That's not yet the case everywhere. In Germany, girocard (a federated debit system, run by merchants and banks together, with basically no fees) is so common that prices do not include credit card fees.

Now MasterCard is forcing banks to stop issuing girocards or MasterCard will stop working with those banks, in turn trying to destroy girocard. But this means prices for everything will jump another 1-2% to account for the new fees which are added by switching to the MasterCard network.

Would you be surprised to learn that in the US, banks capture 85%+ of the fee you're talking about (in their roles as card issuers and merchant bankers).

I'm serious, you can even do the math from Visa's disclosures - they make $30bn of revenue on $10tn of transactions (i.e. 0.3%).

The reason Mastercard and Visa exist (I'm serious, both used to be wholly owned by the banks) is to have a fall guy so that banks can blame someone else when they want more of the transaction settlement pie.

Do not assume German banks are somehow "the good guys" unless interchange and merchant discount rates don't go up, because there's nothing about Visa or Mastercard that forces them to take the interchange (in fact, one of the weirdest parts of the US is that wealthy customers just get that interchange given back to them).

German banks have been running their own card system, independently of VISA or MasterCard, for 20 years now. With 0.125% total fees.

I’m aware. You can even look in my comment history for many big discussions on why we should use a similar system in the US! Not every transaction needs the fraud protection that card networks charge for!

But the lions share of fees you talk about would go to those same banks, so I’m just saying Mastercard maybe isn’t the villain you think they are (I feel like I’m just restating my earlier comment?)

In Australia quite a lot of stores place an additional fee for using any kind of card (but they must be capped to actual fee, though some smaller vendors will add a minimum 50c fee).

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