Visa and Mastercard agree to lower average credit card interchange fee below 1% | Hacker News Reader

Visa and Mastercard agree to lower average credit card interchange fee below 1%

ca.news.yahoo.com

269 pointsgregsadetsky294 comments

Visa and Mastercard don't keep much of interchange at all and never have.

The vast majority is paid to issuing banks to pay for loan origination, fraud and, most significantly, to return in the form of cash back or points.

These networks charge 0.2% for debit and 0.3% for credit in Europe as per regulation, you just don't get rewards there.

Kinda sounds like they're just going to squeeze issuing banks. Cash back and points cards in Canada (already pretty weak offerings compared to the US) are going to get further watered down. I've no real opinion on this, tbh.

Some napkin math that may not be right: Visa processed 11.6T in payment volume last year. Net revenue was $29B. Opex was $9.3B. Net income was $16B. That means their net revenue is about 0.25% and their net income is like 0.137% of transaction volume. This passes the smell test given their EU-mandated numbers. [1]

[1] https://annualreport.visa.com/financials/default.aspx

These numbers are not public, but the grapevine is that visa/mastercard keeps about a third of all interchange.

Credit card rewards are a regressive tax on the poor -- literally, only those like us here on HN with good credit can get 2% cashback on everything, the rest who pay with debit/cash effectively subsidise our 2% discount. I enjoy my 2% cashback, but really would rather see a world where, like the EU, interchange got slashed to 30bps and it all went away.

Take a look around the rest of the world -- Alipay in China is 55bps, TNG is Malaysia is 50, Pix in Brazil (I can't find concrete numbers, but seems to be around 22bps), etc. 2-300 bps is outrageous, we should demand better.

I don't know what's the solution here. I'm weary of government intervention in capping prices, but I'm not sure what's the alternative here -- force each card to be available over multiple networks and for them to bid the interchange per transaction? Durbin amendment style caps? I don't know. But I do know that the status quo cannot stand.

Edit: see the classic Boston Fed paper https://www.bostonfed.org/publications/public-policy-discuss... for a more through explanation of my point

I think the EU model - and as you say the Durbin model - is completely reasonable.

I will say the Durbin exemption for banks with under $10B in assets is pretty silly.

Are there some abusers of the exemption out there?

I kinda like smaller orgs getting a small leg up against bigger ones. Discourages excessive consolidation. It’s like an anti-oligopoly provision.

Before Durbin there used to be a lot of banks that offered points-earning debit cards. After Durbin, for many years SunTrust had a debit card that earned Delta miles. I think that's since moved to Truist. [1]

I guess it depends on what you mean by 'abuse.'

Is Truist abusing non-Durbin status by giving out points for PIN debit transactions? Or are all the other non-Durbin banks who give back nothing abusing the exemption by keeping the interchange?

[1] https://www.truist.com/checking/debit-cards

Being non-Durbin enables Truist to compete with bigger banks by being able to offer things like cash back on debit. That seems less like abuse and more things working as intended.

From what I can tell, the exempt interchange fees were unregulated. So don’t know if they went out of control or not.

But even Durbin wasn’t perfect: before many cards would charge more of a percentage model, but after Durbin, raised them per swipe fee to the max. Which can be unfortunate for small purchases.

> Credit card rewards are a regressive tax on the poor

Maybe credit card loyalty systems are specifically, but if you want to make comments about the entire system of credit cards then you should look at the entire system of credit cards to figure out who’s subsidising who. On the other side of credit card rewards the fact that revenue from high spenders subsidises credit account defaults. If you chose to only focus on that single element of the system you could just as reasonably say that credit cards are a progressive tax on the rich.

Do you mean high debtors? A good number of high spenders rinse all of their transactions through credit cards to collect the rewards and then pay them off every month. I haven’t paid a fee in at least 18 years, and typically collect several hundred dollars a year in rewards on spending I would do anyway.

When local vendors give me a cash discount, it’s typically 3%, better than most rewards programs, and I take that.

The few cards that offer 5% in other categories have to be getting that from interest payments or promotional retail agreements as opposed to transaction fees. Hitting one of those on a high spending category is like hitting the lottery!

Well that too, but there’s plenty of money made off the transaction processing fees. My point is that if you want to make comments about a complex system, that you can’t just take one component of that system and ignore everything else. If you wanted to make claims about what income brackets contribute what revenue (and what liabilities), and to who by using credit cards, then create a model to show your work. Focusing only on one component that you might find objectionable isn’t enough to draw such a conclusion.

I think you misread the point GP was making. The poor-poor don't have credit cards. They have cash and debit cards. They pay the same as we do at most[1] merchants, despite credit card transactions nominally costing the merchant more money than cash or debit transactions. Most merchants budget the cost of credit card fees into their regular prices that all people pay regardless of method of payment.

[1] - https://www.thebalancemoney.com/credit-card-surcharges-31542...

TLDR: The existence of credit cards is basically an automatic 2-3% inflation on prices. As a fraction of income, this hurts the poor the worst. The better off get this 2% back as rewards. Cash payers get nothing back.

> The existence of credit cards is basically an automatic 2-3% inflation on prices.

If you want to draw this conclusion you’d have to calculate the cost of the alternative. What would the impact on prices be if there were no electronic payments? What would the impact on prices be if every bank had to implement its own electronic payment system with every merchant? The credit card system integrates a huge portion of the worlds merchants with nearly all of the worlds banks. It’s massively more efficient than the alternatives, apart from other conceptually similar systems that have exactly the same type of costs. Your claim that removing this efficiency would lower prices seems entirely implausible and to me.

Canada already has a national electronic system called Interac. It was established in 1984 and has a somewhat complicated fee schedule that generally maxes out around 35 cents per transaction. https://www.interac.ca/en/business/support/understanding-fee...

The world you described exists, and it’s called Alipay (in China), TNG (in Malaysia), Pix (Brazil), etc (that's why I listed them in my original comment). Alipay and Wechatpay is the standard in China, a country with a population triple that of the US, and only charges 55-60bps, a quarter that of the US. So yes, I do believe that we can gain efficiency by switching.

Also note that interchange is capped in the EU at 30bps, and they seem to do just fine without 2% cashback on every purchase. One might start to think that we can do with something similar here in the US.

I use several such systems, including TNG, and they have all of the same fee structures as credit cards.

The TNG cash back program: https://fintechnews.my/33848/e-wallets-malaysia/fave-offers-...

The TNG loyalty program: https://www.touchngo.com.my/promotion/redeem-your-points/

The TNG cardholder fees: https://www.touchngo.com.my/policies/touch-n-go-card-fees-an...

There’s also merchant fees (which are confidential). All of these systems are just reinvented credit cards. They often try to compete with credit cards on merchant fees, but you’re still paying for exactly the same thing. This “alternative” is just the same thing with a different name. You might find a few base points difference in merchant fees here and there (especially during the growth phase of these technologies), but the alternative isn’t to eliminate the premium charged for processing credit cards, it’s simply to allocate it to a different service provider.

This is the relevant number here: https://merchantsupport.tngdigital.com.my/hc/en-us/articles/...

Merchants are charged 0.5%. Compared to 2-3% in the US credit card scheme.

That’s a promo rate, and only available to certain merchants. Wait until it becomes profitable in “3 to 4 years”. The only real opportunity these systems have to increase efficiency is to not offer consumer fraud protections, which is obviously of questionable value to the consumers.

EU interchange rates are regulated to 0.2% for debit and 0.3% for credit and they offer fraud protection just fine

> If you want to draw this conclusion you’d have to calculate the cost of the alternative. What would the impact on prices be if there were no electronic payments?

The alternative is credit or debit cards with a tenth of the fees and no cashback, just like in every other country.

The alternative is not "no credit cards", it is "credit cards, but with lower interchange fees"

> What would the impact on prices be if there were no electronic payments?

According to the local gas station, 10 cents cheaper per gallon. Which is about 2%.

It’s a flat fee of 0.000025 and takes about a second for payments to go through on current gen blockchain L1s, many of which have retail Point of Sale systems.

You are failing to price in counter-party risk, exchange rate risk, and myriad other risks. Not to mention the cost of having a whole separate point of sale for a currency nobody has - or the fees for converting it back into a currency you can pay your suppliers and taxes with. Or the cost associated with reporting.

You can pay a very similar flat 1/3 of a cent fee for an instant FedNow payment with none of those risks or costs starting in July.

Cash, bank transfers, etc don't price in counter-party risk either. The only thing that does is Visa, and that's a layer on top of your existing statutory rights. Agreed re: fiat onramp/offramp.

0.3c is still far in excess of 0.0025c but maybe that won't matter.

The wild fluctuations in exchange rate and having a terminal for a currency nobody uses are a dramatically bigger risk than 0.3c - and yes, your counter-party risk is a non-issue in legacy finance.

Actually, what you say is that the middle class pays for the cashbacks of the top spenders and for the defaults of the most poor. Unless somehow you get the cashback and you are still the one paying for the credit risk of others?

Different CC brands target different parts of the demographic. Amex targets superprime, BoA/Chase is more prime-subprime, Discover leans subprime, etc.

Different brands also have different business models. Amex relies very heavily on interchange, Chase is a balanced mix iirc, Citi is more interest, and different companies have everything in-between. This is a deliberate strategy -- issuers split people into transactors, who never carry balances and pay off their CC bills every month, and revolvers, who carry balances and pay interest. It's a core strategic decision to target how much of your customer base you want to be one vs the other.

To a first order, defaults are subsidised by the high interest rate that they pay. Transactors primarily earn the banks interchange revenue, which is a more stable part of the business, and revolvers primary earn the banks interest, which obviously carries with it much greater credit risk. To a second order, some issuers securitise their portfolios into different tranches, and the default risk is thus pushed to the debt purchasers. It gets much more complicated from there, with different scoring models to determine spending patterns, default risk, bust-out risk, etc. (As an aside, there's a fascinating story around Synchrony switching from FICO to VantageScore a while back, thus making it much more complicated to securitise their CC portfolio)

But, in general, credit card interchange is a cost built into everything you buy, and on which the prime-superprime consumer receives a rebate.

For those not understanding this comment, think about microtransactions. Who "subsidizes"? The people that can spend a lot but are also addicted. Connection? People that spend a lot on credit cards and gather late fees but not enough to ruin their credit or lose their card.

You know who banks love? That person who has 5 overdraft fees on their checking account per month while maintaining a healthy balance in their savings account. Know who banks hate? Poor people defaulting on their loans that won't get collected. Know who banks love the most? People who park large amounts of money in them. That money makes banks bank. Banks and credit card companies aren't just leeching off the poor. They have various sources of income.

There's more nuance to the system than just "fuck the poor" and framing it that way just muddies the waters.

Yes, of course there's more nuance than "fuck the poor". I almost never attribute malice to any actor -- the structural effects of systems are mostly organically evolved over time, nobody woke up one morning and designed the system to fuck over anybody in particular, just to make money.

I'm basing my view on the classic Boston Fed paper https://www.bostonfed.org/publications/public-policy-discuss... . I don't keep up much with the literature, so you can probably find rebuttals and more complex models in the last 13 years of economic research, but I think the big picture largely stands -- all prices are increased by 200bps, and super-prime customers get most of it back as a rebate on their credit cards.

In my experience credit score isn't based on how much money you transact/owe, but how well you manage whatever debt you have.

I.e. I have two 2% cashback credit cards even though I make <$30k/yr.

Studies show you buy more with a credit card than cash. You think you're saving 1-3% but you would easily save that with slightly more conservative spending.

It's also worth mentioning the real business is analyzing the consumer data you give them for pennies.

I'd love to see the distribution on this. My bet is that most people don't spend more and a minority spend a lot more.

It's something as small as throwing in a milk shake with lunch. you don't experience the money leaving.

I'm still not sure. I don't use a credit card for most purchases, only big things, and I think a lot of people are in that boat.

> I'm weary of government intervention in capping prices, but I'm not sure what's the alternative here

Instead of capping prices, you could simply require any fees to be paid by the cardholder. Combine that with a standard for payment processing so that lots of companies could compete for payment processing and fees would drop really fast.

If someone is using a POS terminal like Toast or Square, it should be trivial for them to support lots of new payment companies if they're all adhering to a standard. If consumers have to pay the fee, they're going to shop around for the lowest-fee card (just as many shop around for the highest-reward card now). You wouldn't need government caps.

You could tell stores "once you accept payments with the new system, the consumer is responsible for the fees." This would drop fees really fast - even for stores that didn't upgrade their credit card machines. If Walmart, Target, CVS, etc. all update their machines quickly, I'm going to find a card with a low fee. Then when I use that card at a non-upgraded shop, they have to pay the fee, but it's a much lower fee since I had shopped around for a low fee.

The issue right now is that the person choosing the card doesn't feel any of the pain. As the article notes, Visa (Canada) charges 1.25% for a regular consumer card or 2.08% for a premium card. I will pay with a premium card since it will give me nice rewards and I don't feel the additional 0.83% that the store has to pay. If I did have to feel it, I would make different decisions.

If you're looking to change behavior, align people's incentives. Another commenter said that they're capped at 0.3% in Europe. Consumers might hate the idea of paying 0.3% additional, but I think credit card companies would drop below that cap if consumers had to pay it. I think they'd look to make it up on interest or other things. As you note, credit cards can come with 2% rewards so they're essentially giving you the whole interchange fee back already. Make consumers shop around for the lowest fee cards.

The problem is that stores need to take the cards that consumers have with little option to forgo the fees. If Bank of America had a no-fee card while Chase charged 1.5%, consumers would move to BofA if they felt the fee.

You won’t sell this idea in Europe. Here the price tag for anything is the full amount you pay - including all commissions and taxes. People use debit cards, the paid amount is immediately deducted from bank account. If customers are forced to calculate how much they actually will spend on each transaction, they will instantly switch back to cash.

You can show the full price and the breakdown at the same time. That’s how it works eg in the Airbnb app: I see the price host charges and the fee I pay to Airbnb. The taxi apps show their fee as well.

That doesn't work in a brick and mortar store where they wouldn't know your card's fee until you go to pay.

Also doesn't work online if you're not signed in, or if it's the first time you've visited that store and you haven't given them a card number yet.

but they would know how much tax the customer would have to pay.

In Denmark, the additional fees charged for foreign (non-EU I think) or corporate cards are passed on to the customer.

The price says 100DKK, but they pay 101.50DKK or whatever it is.

That's probably not the card fees, but the currency exchange.

No, that’s the card fee. At point of sale you usually choose which side does the currency exchange (you choose on the terminal if you want to pay in home or local currency)

Here's a sticker from a self checkout at a large supermarket (Føtex): https://imgur.com/a/w9sg1ey

It says (roughly) "Payment cards without fee: All Danish and foreign debit cards"

"Payment cards with fee: 0.9375% Danish issued; 1.75% foreign issued."

Wow, so that's even worse. Then you can only avoid this fee using ATM cards or cash.

Very few people pay the fee, most people pay with a debit card or cash.

People trying to get air miles, cashback or similar have to pay the cost of that.

Visa electron/maestro are they debit cards now? Back in the day they were only for ATMs and very few businesses.

Don't most people have the normal visa/mc debit cards there?

Yup. Visa Electron and Maestro are quite normal debit cards. I have one of those as well. Apart from renting cars you can pay for just about anything with it. Maestro has an ATM withdrawal fee even when you use it in the emitting bank's ATMs, which is a reason why I avoid it like the plague.

> Back in the day they were only for ATMs and very few businesses.

That was pretty much specific to German-speaking countries (or at least they were the only one, where I noticed that). Elsewhere, there was no such thing as ATM-only card (or even ATM-only PIN).

> Visa electron/maestro

Don't even exist in many places anymore. e.g. in the EU country where I live both were replaced ~8 or so years ago by Visa/Mastercard Debit (since they removed embossed characters the only way to distinguish them is the word 'debit' written in a tiny font.

Maestro is literally starting to wind down this year, supposedly they've decided to switch everyone towards Debit Mastercard products.

I assume there's gradually less and less appeal for a card that isn't as broadly accepted, and if it encourages more fee generation, all's the better.

Curious what the justification is for 0.9375% (very precise number), given the report 0.3% interchange fee cap in EU noted in this thread? The vendor can charge you more than it costs them to accept the card?

I'm not sure. I don't have a personal credit card to check.

I know there are extra fees for business/corporate credit cards, and these are specifically excluded from the EU cap. (The cap was for consumer protection, so business transactions aren't regulated.)

Foreign (non-EU) fees are also not part of the EU cap, as there's no way to control those.

It could be poor wording on the sticker, or it might be including the other fees. The 0.3% is just Visa/MasterCard's fee, there's also the fee from the card processor — HN is familiar with Stripe, but there are many companies offering this.

Danish banks already have ridiculous comissions for wire transfers to other EU countries. Like 8€ for a 1500 DKK transfer.

The price tag in Europe already has at least one exception in some countries like Germany: bottles and cans subject to the deposit system usually have the deposit added on top of the listed price. Of course, one can recover the deposit by returning the bottle or can to a suitable store, but at the point of sale it is usually added on top of the listed. (The price listing often acknowledges this addition explicitly, with text like "zzgl. 0,25€ Pfand".)

But yeah, I guess that doesn't differ by payment method, so it wouldn't affect the choice of payment method. And it's not a percentage, so it's easier mental math.

Yes, deposit is different: it is fixed absolute amount on a single specific product, it is refundable, so in the end your expense will be the price without it. Also it is much higher than any transaction costs. Transaction fees on the other side do require some calculation effort and you have to remember the percentage.

But a) those prices are straightforward, 0.08, 0.15 and 0.25 are the options depending on the type of bottle, b) as you said, you get the money back, and most importantly c) the deposit money is included on the price sticker.

Aldi already does a credit card surcharge in some countries.

That’s not the case on the US (tax is added after the fact) and there hasn’t been a massive switch to cash. Convenience is a powerful thing.

Consumer behavior in different countries is different and depends on many factors - culture, mindset, local customs and habits, structure of taxes and regulations etc. American system will not be convenient for Germans, for example (I personally do not understand how it can be convenient).

> personally do not understand how it can be convenient

It can be very convenient for retailers since sales can vary in different counties let alone states:

https://en.wikipedia.org/wiki/Sales_taxes_in_the_United_Stat...

just try to imagine what a mess it would be if any advertisement, price sticker etc. would have to show the full price.

It wouldn't be difficult at all. Price stickers are printed/managed in store often enough. Any company that allows you to purchase online already had to deal with differing sales tax, and everything is owned by like one company right now anyway so they already have systems in place to deal with differing tax rules in different states.

But it's not just states. In California (and I guess many other places) towns in the same country can have different tax rates. Sure price stickers is not an unsolvable issue but advertising prices including tax publicaclly would be almost impossible.

> everything is owned by like one company right now anyway so they already have systems in place to deal with differing tax rules in different states.

Yeah I agree it would generally be a much higher burden for small businesses than for Amazon.

Why is calculating the price with correct tax possible but not the advertising of that price? What is the physical bottleneck?

GP has it wrong. It's entirely physically possible to advertise prices including tax, but it's illegal to do so.

I see it as a mess in the tax system being projected to customers. I do not understand the choice of taxpayers to have such system.

Well local jurisdictions are funded by sales taxes they themselves set. You live in a tourist town? Well higher sales tax results in more funding for local services and possibly lower property taxes and you could just drive to the next town if you want to save the 1-2%. What's not to like?

There’s so much wrong with this, that I don’t know where to start. So let’s start with the elephant in the room: driving to next town to buy something that is available locally is generally a red flag of market economy failure, because it is incredibly inefficient and environmentally harmful.

Then there’s an incentive to produce higher inequality: high sales tax affects mostly poor, while low property tax usually benefits rich. Poor people are usually underrepresented in democratic institutions, so it would not be surprising if inverse redistribution would be a frequent problem.

Finally, local tax as a way to fund communities is not the only alternative and relying on it would mean that some communities will never get out of financial trouble. Tourist towns are minority, after all. Other countries just keep some of the collected VAT locally and redistribute excesses from richer to poorer communities through federal transfers (German solidarity tax did exactly that, for example).

And people in Europe are usually puzzled why you’d have such a crazy system, yes.

Largely due to inertia, consumer psychology where lower sticker prices encourage more purchases even when consumers know the checkout price will be higher, and the fact that taxes can be different based on the type of item you are buying and the exact jurisdiction you are buying it. Two identical stores across the street from each other can have different tax rates if they are in different tax jurisdictions.

The stores have the info to calculate this, and do at checkout, so it's really the first two points mostly.

The two of my (American) kids who've gotten old enough to buy stuff on their own, even if it's just us sending them into a convenience store with money for something, have immediately recognized this system as idiotic, and they frequently complain about it. It's so plainly-stupid that, literally, even a child can see it.

Because sales taxes are ussually set by the local jurisdiction.

So it could 10.25% in one place, 9.75% in the next town 8.750% and 8.975% if you drive for another 15-20 minutes. Imagine if you run a business, have multiple locations and want to buy a TV/Billboard/etc. ad with the price how would that work? You'd also need to make different price stickers, won't be able to print the price on the packaging etc.

You could set one tax included price, so the actual revenue you get would vary slightly in different places. Costs already vary based on location so I don't see a huge issue there.

Of course this does change the incentives for localities setting their sales tax, and they might be inclined to set them higher if the cost isn't borne by local residents. I don't know if that's a bad thing, if that money improves local services and / or lowers other taxes.

That's because it has never been that way in the US, or at least not during my lifetime (I'm over 40). Having the fees be added on wouldn't be much different from an increase in sales tax or having your phone bill be more because the quoted prices don't include tax. Cash already has surprise totals.

Convenience isn't even a factor.

Compared to other places, where the price is what you pay (in most cases). You would be adding inconvenience and a little uncertainty to one form of payment. Americans would switch too, if this were the case.

The fee could be done annually from the credit card company itself. (ie: You made 300 transactions this year, that is $300).

As a sidenote I hate that sales tax is not shown on the price tags here in the US. I strongly believe that you should be able to walk out of the store paying the price shown on the price tag -- not a cent more. This obviously clashes with the obvious solution of making credit card surcharges a thing and letting consumers deal with it. I genuinely don't know what's the best solution here -- I think the EU did a good job, but I'm skeptical of government intervention generally, so I'm trying to come up with more structural solutions that make it so it's competition that drives the price down, not government price caps.

Edit: Actually I think there's a simple solution: the fee should be assessed on the consumer side, not on the merchant side. Your issuing bank charges you 200bps on your end instead of taking it from the merchant cut. The net effect is the same.

People would hate it, and it would never happen, but it's fun to think about :/

The sales tax surcharge does seem awkward

On the other hand, that's probably why sales tax is around 5%? whereas VAT is 20%+

There's a great map of the US on Wikipedia showing the Sales Tax by County ( https://en.wikipedia.org/wiki/Sales_taxes_in_the_United_Stat... )

Sales Tax ranges from 0% through to 12%

But still OP's point stands. If the VAT was more visible, people might be less accepting of it, like with credit card fees.

I'm in Norway. There is no real way to avoid knowing what the VAT on things are.

I have to pay it if I order from Amazon or Etsy, for example. If I order from the US, I pay later.

Every sales receipt has the VAT right on the receipt. I can see it every single time. If I order from inside the country, I can see it before I pay.

It isn't hidden. It isn't secret.

It wasn't even secret to an immigrant that didn't yet understand enough Norwegian to know.

What I do get is to be reasonably certain what I'm going to pay when I get to the cash register. I don't have to do mental gymnastics with a total if I'm tight on money - like I have many times in the US. It won't change if I'm in a different part of Norway. There simply aren't as many price surprises like that.

I think this comes down to you being Norwegian (ie getting good quality govt services in exchange for your taxes). Now imagine being Greek. If folks realised they're paying 22.5% to the govt on top of everything they purchase... they wouldn't be very happy.

Oh, I'm not Norwegian. I'm American, I just moved here some years ago. Considering everything, I'm probably paying fewer total taxes than I did in the US - if anything, because I'm getting stuff like healthcare for my tax money now.

Greece is in the EU, which means they are paying at least 15% VAT on most stuff, assuming everyone is paying their taxes (which might or might not be). Trust me, even being built into the cost, everyone knows how much they are paying in taxes on goods. Greek folks aren't unintelligent. This sort of tax isn't a secret any more than sales tax was in the US.

Competition drives prices down in a fair market, but the credit card business is an oligopoly - with huge regulatory and structural barriers to entry. That is, despite Visa and MasterCard’s enormous profits, there is little chance of new players entering the market and increasing competition.

Regulation is warranted in monopoly/oligopoly situations. Either by changing the rules to favour/promote increased competition, or, as the EU has done here, by capping the fees which they can charge.

Here in Asia we have alternatives to Visa and Mastercard popping up.

Merchants are typically happy to take them, because their fees are lower.

> Regulation is warranted in monopoly/oligopoly situations. Either by changing the rules to favour/promote increased competition, or, as the EU has done here, by capping the fees which they can charge.

I suspect you might want to look into lightening regulations, so that upstart competitors have an easier time entering the market. Instead of piling on ever more regulations that only those who are big enough to afford an army of lawyers and accountants and lobbyists can manage.

Right. That’s exactly what I mean by “changing the rules to promote increased competition”.

This is unlikely to happen in the US, however, where market-dominant corporations have huge lobbying power and can ensure the rules are written in their favour, and any potential upstarts drowned in a sea of red tape.

Yes. My emphasis was that the specific rule changes you want are probably the removal of special rules, whenever possible.

Part of the cost of a tax is cognitive. That’s why VAT is a great tax. Build it into the systems.

Instead, private credit cards are built into the system. That makes no sense to me. The US system of credit cards does very little for economic stability or growth. It has clear harms to the vulnerable and it hardly benefits the economically stable. Instead, there should be a system of frictionless debit payment. Governments shouldn’t pick winners and losers, but they should build infrastructure for healthy markets.

Signing credit card slips? What is that? Clearly irrational. Visa and Mastercard are not just normal market players. American capitalism would function better without the excessive role of credit cards in commerce.

> Instead, there should be a system of frictionless debit payment

Here in the UK we have frictionless debit payments and we all use credit cards. Credit cards have a safety net in case of fraud. Much better.

Do we all use credit cards? I know people who use credit cards specifically for large purchases. I know very few people who use one regularly for groceries, etc.

Seems crazy not to, just because of the risk of tapping a debit card that gets cloned. I only use a debit card to (occasionally) draw cash.

Debit cards are 48% of all payments in the UK, and credit cards 8%.

Cash is 15%, the rest are various types of bank transfer. Note this is all transactions, online and in-person, including things like subscription renewals.

(How can a debit card be cloned, anyway? I'm not aware of any case of this, only a possible problem in the USA where data is 'cloned' onto a magstripe card.)

https://www.ukfinance.org.uk/system/files/2022-08/UKF%20Paym...

Accordingly to ukfinance.org[0] 13% of card transactions are CC and the rest are debit. I'm surprised it's that high for CC, but still, I think it's reasonable to say a lot of people use them.

Er yes, you're right about debit card cloning I think. I'll retract that one :) However if purchase something that doesn't work your CC company is jointly liable (crazily enough) and if your card details leak you have protection against fake purchases. Neither is the case for debit card use.

[0] https://www.ukfinance.org.uk/data-and-research/data/card-spe...

The reason sales taxes are not posted is at least in part because there can be several independent authorities that can and do change the sales tax on a whim. The sales tax you pay is the aggregate of these separate authorities. There is no central sales tax authority that keeps these changes on a sane and sensible cadence, which is one of the reasons sales tax is highly variable and hyper-local in the US.

In this scenario, it is much easier to change the sales tax at the register than to reprice the entire store every time one of the several sales tax authorities decides to change the rates or rules.

> Instead of capping prices, you could simply require any fees to be paid by the cardholder.

This has begun. Many restaurants near me have a credit card fee, as does at least one car repair place.

No fee of paying with cash/debit.

That is usually against the card-processing agreement. If you want to have fun, you can report them to Visa/MC and watch that go away within a few days.

Nope, this is completely (laws vary by state) legal as of ten years ago.

https://www.lawpay.com/about/blog/credit-card-surcharge-rule...

Legal, yes, you're not going to go to jail for it. However, in accordance with the contract they signed to get access to the card network… they probably are not allowed to do this. Each card issuer has a dedicated form to report this activity.

Parent provided you a link explaining how this changed 10 years ago. You are unequivocally allowed in the United States to pass along credit card surcharges in all but two states. It's permitted by law, and it's permitted by merchant agreements!

If you don't believe parent, and you don't believe me, I hope you believe Visa's own FAQ.

> Q. Can I add a surcharge to card transactions?

> As a result of a legal settlement to resolve claims brought by a group of U.S. merchants, merchants in the U.S. and U.S. territories may add a surcharge to certain credit card transactions, starting January 27, 2013. Merchants who choose to surcharge must follow consumer disclosure and other requirements agreed to as part of the settlement.

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

Hmm, I think we are talking past each other. It isn't allowed without notice to MC/Visa, the cap is ~4% of the total, IIRC (which is usually far less than what I remember seeing when I last reported it a few years ago), and they require advance notice to the customer (before consumption) along with a line-item on the receipt.

Just because it is legal, doesn't mean they are doing it right -- and in my limited experience, they usually aren't.

They’re doing all of the above correctly, it’s placarded, and it’s obvious that since it’s all done similarly that there’s groups detailing how to do it.

You realize that contracts can't contain illegal clauses right? They aren't enforceable in any court.

I thought we already established that it wasn't illegal? You can, however, create contracts that restrict your abilities or for things that are perfectly legal. For example, we can sign a contract that you're no longer aloud to walk, or buy candy. That's a legally enforcable contract.

In this case the contract is that 1) you tell them you're doing this and 2) that it is capped to a certain amount and 3) you are visibly doing it and the customer is properly informed.

These are all pretty reasonable contractual terms, IMHO.

For example, we can sign a contract that you're no longer aloud to walk

No, I can't.

If you have me sign a contract that says "refurb agrees to no longer walk in exchange for $50,000", that will not be enforceable in court.

https://blog.ipleaders.in/unenforceable-contracts-what-you-n...

You said "If you want to have fun, you can report them to Visa/MC and watch that go away within a few days.", so no, if they are following the contract terms, it won't go away.

And Visa isn't able to include a blanket ban on surcharges due to changes in the law that would make such a contract illegal and unenforceable.

Can't this by circumvented by giving cash customers with a discount? It's like how things are sometimes offered interest-free, but a discount is given if you pay for it outright.

I believe so, but it could also vary state-to-state.

Cash discounting was blanket permitted in all 50 states under Durbin. [1] It also de facto invalidated any clause in a merchant agreement that precluded this practice.

[1] https://www.atlantafed.org/blogs/take-on-payments/2018/04/30...

Only places I've ever seen do this are gas stations. And I've calculated the discount, I've never seen it be more than the cashback I get on gas purchases from my card. Usually, it is way less. And that is without getting into losing the time saving/convenience of paying at the pump.

That is largely not the case at all. In fact charging such is explicitly legal but also regulated: https://www.accc.gov.au/consumers/pricing/card-surcharges

The exception to that is American Express directly issued cards and American Express merchant contracts have had such terms at least in the past. Not sure if they still do.

Back in 2005, I bought a car in India. I was trying to pay a part of the purchase price using my credit card. My auto dealer wanted me to add a surcharge. When I called up my card company and complained about this, i was asked to pay the surcharge by my card issuer's call center employee :-(

The parent is likely referring to AMEX cards, which is the only issuer that enforces it as a global policy.

And hence why in developing countries only luxury and ultra-luxury establishments accept AMEX cards.

It's not a global policy. It's regional.

Source?

I was in Manhattan earlier in the year and a lot of restaurants had that written at the bottom of the menu!

This is pretty much what Australia does: credit card surcharges have to be clearly disclosed and must be commensurate with the actual fees.

Nevertheless, partly thanks to COVID, cash usage is way down and many people seem happy to pay the standard 1.6%-ish for the convenience.

Where I'm from in the EU, many shops are happy to go card-only because the card fees (with the aforementioned EU regulation) are lower than the costs and crime risk of dealing with cash (which for supermarkets etc that handle a lot of it might mean paying a security company to show up with an armored truck, having to prepare change, staff pocketing some of it, etc)

So if we're making customers pay the fees for their preferred payment method, is it also OK to charge cash customers a surcharge?

> Instead of capping prices, you could simply require any fees to be paid by the cardholder.

This already happens in Australia. The price is the price, until you go to pay and if the shopkeeper sees you pull out a credit card, would adjust the total to include a 1.5% surcharge (Visa or Mastercard, and you'll likely be turned away if you pull out a different card like Amex).

The problem with this is that especially since Covid, a massive percentage of in person sales are done via contactless credit card payment, sometimes even with the screen of the terminal not even in view of the cardholder. Some sellers have caught on to this and are charging _much_ more than the 1.5% -- three sushi handrolls at the store around the corner of my workplace would cost about 9 AUD to buy (already includes GST), but the shopkeeper then added a whole 1 AUD on top for surcharge. I protested and have not shopped there since, but there's still plenty of customers at that store.

More and more stores are adding 50c or 1 AUD on top to cover surcharge for items well under 10 AUD, I'm guessing because calculating 1.5% is not trivial for a lot of people, and are ripping off their customers. Calculating 2.08% in your head to make sure the shopkeeper is not pulling a sly one on you unfortunately is not something a lot of people are going to do.

The excessive fees have been illegal for a few years now. They can only charge the actual cost incurred. Worth a lodging a complaint about them: https://www.accc.gov.au/consumers/pricing/card-surcharges

> The price is the price, until you go to pay and if the shopkeeper sees you pull out a credit card, would adjust the total to include a 1.5% surcharge (Visa or Mastercard, and you'll likely be turned away if you pull out a different card like Amex).

That's not required in AU, btw, it's optional. It's up to the merchant.

I much more value the consumer protection laws that prevents surcharges to be added to the advertised price. If we open that door we will end up with tons of junk fees.

Visa & Mastercard do not keep any of the interchange fee. It all goes to the issuer of the card. Visa & MC charge "scheme fees" which are much lower (except for cross-border txns).

Interchange is public information: https://usa.visa.com/dam/VCOM/download/merchants/visa-usa-in...

Maximum interchange is public, but most of those numbers are lies -- big merchants negotiate their own rates, and big merchants are a big chunk of most CC spend (Amazon does not pay a number that appears on that sheet, for example). Costco (in)famously negotiated that number down to basically zero.

It's true that Visa/MC technically doesn't keep any of the interchange -- but the interchange goes to the issuing bank, and then visa/mc turns around and charges their scheme/network fees, which basically means that the issuing bank only gets to keep about 2/3rds of the interchange (that was set and negotiated by Visa/MC). You can dice it up into the processor fee, the network fee, the whatever fees, but I believe that the general consensus is that the networks keep about a third. I don't quite remember where I read that, so if you have better info please let me know.

I’m pretty sure their average take is the number I provided from their FY2022 statement.

The link shows their consolidated revenue across the entire world. If you have a source that breaks it down to the US, and specifically US revenue on their credit products (Visa is by far the largest issuer of debit cards, for example, and debit cards got their fees capped by the Durbin amendment), I would love to take a look.

I'd love to see it too - maybe I'm having trouble following your point.

If those are their maximums, then that's the worst case for the customer right? It is these rates that would yield the biggest spread between cash and credit.

Merchants that are able to negotiate better rates inherently have less of a spread between cash and card prices right, and are therefore able to offer a better relative deal to all customers including cash customers. Walmart can better control their costs than a mom-and-pop shop, has more volume, and hence more leverage against $V. So if you're a low-income person at Walmart, you're going to be least relatively affected by card surcharges. Definitely at Costco as you point out, I think Citi actually went below cost to take the portfolio from Amex.

Even in the case of smaller shops, Square, Stripe, Adyen, etc have done a ton to level the playing field by aggregating volume and using it against networks.

Visa takes zero from interchange but charges volume based service fees in the single-digit basis points (each) to the acquirer and issuer. Visa makes additional yield from cross-border payments and grosses up revenue from value-added services such as issuer or merchant processing (e.g Cybersource) and from other value add services like risk/fraud tools, consulting etc. Source: 12 years at Visa. Around 20something bps yield on volume averaged-out is correct math.

Cash is more expensive to take as a payment method than interchange unless you’re cheating on taxes.

Nationalize a universal payment interface like india did. India, a very corrupt, bureaucratic place with billions of people did it. There’s no excuse but lobbying.

Credit card rewards are evil. They incentivize crafty behavior to secure miles or whatever and shaft normal people who just want to live life and get what’s equitable without playing shenanigans. I’d rather live in a world where when you pay for a coffee, you pay for the fucking coffee. Not a million equations of cashback and miles with perverse incentives.

> Nationalize a universal payment interface like india did

> a very corrupt, bureaucratic place with billions of people did it.

You're not making a great sell here... you're just saying that this is a thing that a corrupt country does and therefor others should.

I said it’s something even a corrupt country was able to do that is universally loved and accepted. The fact that the US isn’t able to do it suggests it’s in someways far more corrupt than even India.

The U.S. has legalized corruption in the form of lobbying. This wasn’t so bad as long as donations to politicians were capped, but since Cotizens United there is no limit, so the corruption has gone through the roof as well.

> I said it’s something even a corrupt country was able to do that is universally loved and accepted.

I still don't understand why this is a convincing argument. As an example, many countries with dictatorships have people that love and support the dictator (no matter how cruel they are). Dictators will also try to make this look universal.

This isn't a comment on the banking system (or even India), this is a comment on your argument. You're trying to convince others that a thing is good by connecting it with corruption. For me, this just doesn't follow.

Are you American? Have you lived abroad? Here in Thailand (a "poor" "third-world" country) all individuals and businesses can send instant money transfers with no fees at all 24/7. It's an incredible system. I think the truth is that it has less to do with corruption and more to do with the fact that people who implement technology first end up later with, on average, worse technology. (If you build the first rail system in the world you'll have the worst rail system in 50 years.)

The US banking system is lightyears behind the rest of the world in banking, where they still use paper checks and transfers take multiple days. I show my family (who still lives in the US) my banking app and they gawk as if it were some magical thing they'd never even imagined. With a tap of a button in my bank account, I can split a restaurant bill in however many slices I want. Restaurants don't even split bills here (like they do in the US), someone just pays the full amount and splits it in the bank account.

Read my comment again but remove any reference to countries or even credit systems. My comment would apply to any thing that the parent was arguing for. The logic is "corrupt and evil country did x. Therefor anyone can, and should, also do x." The sentence correlates "x" with corruption. If "x" isn't corrupted, then the argument should be different. But I'm just saying that the argument, presented in that way, is unconvincing.

FedNow is launching soon. It won't support chargebacks or reversals, which merchants would love, so they may offer it as a payment method (if this is possible). Consumers will then be able to save a few % at the expense losing their ability to contest the transaction. Unless credit card agreements mandate the price be the same regardless of payment method, or something.

I suspect fednow is why visa and MC are moving now to reduce fees.

I can’t wait.

It almost certainly isn't. Nobody's taking FedNow at point of sale.

Nobody is doing anything with FedNow yet because it's not out. But if it works it will grow, just like in the EU where they have similar things and they're used.

When I said "nobody is taking FedNow" I meant nobody is going to be taking FedNow at the point of sale after launch in July. It'll work just fine, but it enables things like Cash App, Zelle and Venmo to avoid using debit rails. It's quite unlikely it'll actually exist at cash registers. Out of curiosity which product are you referring to in the EU? To my knowledge they just use Visa/MC Debit or local debit schemes at point of sale.

Lots of larger purchases use the equivalent of what would be in the USA a routing number and a bank account number.

At which retail point of sale?

I suspect it’s fast cryptocurrency networks. There’s L1s where you can pay on your phone and the transaction goes through in a second and a whole bunch of payment startups.

With 3d secure and SMS verification I would argue that any standard crypto payment is faster than credit card as has been for a while. At least online.

Most debit cards cost the merchant 0.05% for interchange and provide consumers with fraud protection.

That sounds great. We all know how secure credit cards are and that nobody ever gets fraudulent charges.

In China most payments cannot be reversed. By contrast, the security of payment methods are much more stringent in China.

I was surprised when I first learnt that you could spend money online with a VISA card by only card number, expiration date and a 3(!) digit CVV. Those are hardly secure and printed out on the card that anyone can see. Then the US merchants have so many rules about fraud detection but all of them are just heuristics with many false positives and false negatives.

When Internet companies constantly invents new methods to both increase security and usability (two step authentication, pass keys, FIDO-U2F), the payment industry in the US is just stuck in the past.

Many of the large American companies involved in payments (Visa, MasterCard, Stripe, Square, PayPal) also operate in Europe, and implement the modern security practices required here. 2FA for credit/debit payments made online, for example, and chip payments since... 2004 or something.

American payment systems are shockingly outdated and have been so for decades.

Just because things are different doesn’t mean they’re “outdated”.

The optimal amount of fraud is not zero. Merchants, and consumers, both benefit from the equilibrium where there is much more commerce, backstopped by bank fraud detection.

Credit card fraud is just not a large problem in the US, and the extra commerce encouraged by continuing to use a relatively insecure system generally outweighs the benefits of tightening security.

Tokenized NFC payments are even more convenient than swiping credit cards, and they’re gradually replacing the old system, but there is no urgency here.

Stripe and Paypal are annoying. They refuse payments with virtual debit cards, debit cards issued in other jurisdiction than your shipping (or IP?) address, etc. I'm usually put off when I see a Stripe or Paypal checkout screen.

The entire US banking system is built around debits, delayed settlement, and reversible transactions (as contrasted with bearer tokens, like cash). If a digital payment method doesn't support chargebacks/reversals, then it's not going to be exposed to consumers in its raw form. Rather it will have conventions layered on top of it that do support these things - like your bank contacting the receiving bank and saying "this transaction was unauthorized, please send the money back".

I haven't read too much on FedNow, but I would expect this will take the form where accounts that can receive payments assent to their bank reversing transactions for various reasons (and then using another non-reversible FedNow transaction to send the money back). So at the consumer level, chargebacks will still exist (for better and for worse).

Miles just allow airlines to transfer portion of business expense for personal use.

And tax free too

Yes, I always wonder how this is both legal and allowed by corporations.

Sounds like a kick-back from suppliers directly to employees.

Instead of air mileage, just give us the coffee. We can't afford the time off, but we can drink that damn coffee.

> Nationalize a universal payment interface like India did. India, a very corrupt, bureaucratic place with billions of people did it.

Didn't you just contradict your own argument?

I'm not objecting to credit cards and promoting cash instead -- I'll happily support a total cash ban (quite an unpopular opinion around these circles, I believe, but that's a story for another time). I'm objecting to the cost of 2-300bps on credit cards, when it is trivially shown that they can be 30-50bps (Alipay, EU caps, etc) and everything will work just fine, just without 2% cashback.

Significant number of people below the povery level are unbanked and live off cash which is why some jursidictoons ban retailers from not accepting cash.

What's your opinion on Buy now Pay Later for online retailers? fee is close to 5% but allows customers to pay for items with interest free installments over 90 days.

In some countries, citizens have the right of opening a bank account though

> I'll happily support a total cash ban

So if you say something negative about the govt and the govt bans your access to e payments, would you still support that?

It will never happen anyway.

We are never going to ban cash in the US because government officials need the anonymity of cash just as much if not more than your local drug dealer.

This is a perpetuated lie based on half-information. It is technically correct. If you are comparing a place that only takes cash, and a place that only takes plastic. This place does not exist. This thing exists, is called a vending machine, and it is indeed cheaper for my bag of chips to be cashless.

If a business takes both cash and cards, allowing cards In Addition to already taking cash, does not cost more. It costs a lot less.

But don't take my word for it. Just look at how many places kept trying to offer discounts for cash, how hard and for how many decades the card companies lobbied against that, and how many places do that now since it became illegal for credit cards to force that into their vendor agreements.

Let me give you an example of the logic used for the statement. A 5 ton truck is faster than a porshe 911.

When the truck is cruising on the highway and the porshe is starting off a red light.

What is your argument here?

I believe the oft-cited reason cash is more expensive is primarily due to shrinkage, which is on the same order as the credit card fees (unless you’re a family-run business or have only amazingly trustworthy employees). Cash-only discounts can be just as easily explained by the “flexibility” cash provides — you can’t assume the conclusion as a fact. The fact that most cash discounts are greater than 1% generally supports this idea, since a business offering a 3% cash discount definitely earns less than taking plastic. (But the accounting “flexibility” is worth more than that 3%.)

Are you saying this is not true, and cash shrinkage is less than the fees?

What I am saying, is what I said. Which has little to do with that to which you are replying. Please read it, and reply to that if you so choose.

You just asserted it was a lie, but didn’t say why. I want to know how you are refuting the “cashless is cheaper” argument? All of the business owners I know value cash only for the ability to declare a bit less, the fees are a wash with the complexity of dealing with cash. If you are arguing that there is another reason it’s cheaper but not saying how — please tell us! Or are you talking about the every-day, minor tax fraud that makes it cheaper?

Multiple restaurants around me only take card. Also airlines. I work for a dtc company and we would go cashless at our stores unless we are forced to by mall management. Cash is expensive to handle.

https://www.usatoday.com/story/money/2018/04/15/cashless-res...

Got it - I was wrong about that second part. The restaurants around you don't serve people who are poor, or people under 18. Smart choice.

Several restaurants around you (I've never seen one, ever) being bigoted and rejecting business, does not mean your general statement is true. 99.(99999?)% of physical businesses also take cash. A blanket generalization, like the statement to which I replied, is based on - umm - the general case. a .0001% case of it being true doesn't make it true.

Trees you see, don't grow on land. Because I saw one growing through the water in a shallow lake once.

Here in the real world, the polar opposite of what was stated is actually true. In fact, I'll bet you a lot more businesses Only take cash than only take credit. Adding credit to a business that does cash (most businesses), is expensive. Adding cash to a business that does credit (count them on one hand) is also expensive.

You seem to not understand that, so I do have more tree and fern examples - just ask. You'll have to wait a couple of days if you want other kinds of flora however, as my brain turns slowly.

This is mostly a myth. If your business has high revenue, that is a lot of money in fees to CC processors. Of course if you prefer CCs then you can invent a bunch of imaginary costs for handling cash.

This idea of businesses that are handling cash are cheating on taxes is about as right as saying men with moustaches are burglars.

+1 for Pix. It's great, amazing that the Brazil Central Bank pulled that off, it's better than what people have in most developed countries.

You are talking about fractions of a percent, for transactions where banks in aggregate take some risk, while Google and Apple keep their 30.000/100.000 ransom on all transactions...

Because it’s a relatively insignificant market? However it’s pretty remarkable that Apple only makes a few billion less than Visa from its AppStore despite of the processed amount being 100x+ lower.

I guess the problem with the 30% is that it seemed like a very good deal for developers back in ~2010 compared to all other options.. but well it there is no incentive to lower it even more since there is no competition

Then again Steam and GOG for instance can still take 30% despite operating on perfectly open platforms so they must provide some value.

This is a bank to bank fee. The merchant's bank will charge the merchant a higher fee than this. The banks take no risk here because normally they any fraud get's paid by the merchant through charge back. The only risk is that the merchant goes away completely, but banks have to deal with that possibility all the time.

The payout to the merchant is delayed, isn't it? So if they go away, they don't get paid anyway?

That's one of the ways merchant's banks mitigate the risk, yes. But you have 120 days to make a chargeback, and I think most banks don't delay the payment that long.

I believe bigger merchants with better credit ratings can normally negotiate faster repayments.

Still don't understand why US is so obsessed with credit cards. Debit is much more easy and straight forward, it's the standard in EU. Most of us only have cc to purchase stuff from US sites. Why such a complicated solution? Looks like a bank product.

You can't use a US debit card online, because functionality for that just doesn't exist in the US banking system.

Edit, for clarity: You can't use it as a debit transaction. You can plug it into credit card systems, where it's run as a credit card transaction and interchange fees apply.

[edit] Edit, for clarity: You can't use it as a debit transaction. You can plug it into credit card systems, where it's run as a credit card transaction and interchange fees apply.

That's not actually true. Card-not-present debit is a separate transaction category than card-not-present credit. Durbin requires that debit routing be available for all debit transactions, not just PIN debit. Further, as of October 2022 the Fed amended the Regulation II rule to extend Durbin debit least-cost routing to card-not-present transactions. [2]

[1] https://www.cardrates.com/advice/atm-card-vs-debit-card-vs-c...

[2] https://cmspi.com/nam/en/resources/content/card-not-present-...

You absolutely can use USAmerican debit cards for online purchases. You just expose yourself to massive risk by doing so (e.g. getting your checking account drained).

Your liability is strictly limited in this case - similarly to credit cards, but not identically. Unfortunately you're out the funds until a resolution is reached which can be challenging to say the least.

What is the difference with credit cards? Just recently YouTube charged me 10 times for something and drained my credit card. My bank was clueless and explained I get the money back within 4 weeks. Only because YouTube doesn't suck so bad I got the money back within a few days.

I never paid for anything on YouTube. Nobody ever explained how that could happen

There's a few high-level and a few silly low-level differences.

(1) With a credit card, your fraud liability is almost always zero (but technically $50). With a debit card, it varies - I think by law it's $0 if you report the card lost or stolen before it's used, $50 if you report it within 2 days, $500 if you report it within 60 days and unlimited after 60 days. For card-not-present I think it's 60 days for zero liability.

(2) With a credit card, you simply don't pay the fraudulent charge until resolved. With a debit card, the money is out of your account until resolved.

(3) There's some weird arcana in the Fair Credit Billing Act about common carrier bankruptcy. In some cases, you're not liable if an airline goes bankrupt after you book but before your trip. This doesn't apply to debit cards. [2]

[1] https://www.nerdwallet.com/article/credit-cards/credit-card-...

[2] https://www.transportation.gov/airconsumer/service-cessation...

I'm confused - this commenter says the only reason some population of the EU have a credit card is to purchase stuff from US websites. Which to me implies that their EU debit card only works locally.

In my corner of the EU - I don't recognise this at all as every debit card you would get from a bank here (as an adult with no bad credit judgements) is Visa branded and works just fine anywhere worldwide that would be set up to handle Visa (electronically at least).

People who make a habit of purchasing stuff abroad might well seek out a bank with a low/no currency exchange fee - and it could be that a credit card is more effective here, but it's nothing to do with the fundamental debit vs credit, and once again, simply isn't something that's generalise-able across the entire EU.

I believe they're being phased out everywhere now but historically debit cards were something like Maestro, "Visa Electron", EC Card, Girocard, etc. Maybe the GP is still somewhere where those are still in use. I believe Germany is one of the big laggards in this space.

Same here in Switzerland. Most cards I see now have dual use and work as debit and credit card with visa or master.

My card works everywhere and even credit card transactions appear as slow debit transactions.

I also don't pay any fees for any of that. Only the merchants do in my case.

European debit cards work as debit cards, the distinction is the network used.

My Danish debit card supports both Visa and Dankort, the Danish network. Danish companies will generally put the transaction through Dankort, as the fees are lower, but it's still a debit transaction if it goes through Visa's network.

Dankort only cards begin with the number 5019. Visa+Dankort with 4571.

https://en.wikipedia.org/wiki/Payment_card_number

Debit is actually terrible and I've never used it. If there is an error, it your money that is gone until it's fixed.

Slightly related, I never allow direct debit from my bank account for things like utilities. It's blanket permission to take money they think they are owed. A friend had a problem with his electricity, the public utility came out, said the meter was tampered with, replaced it and charged him $1000 right from his account.

Of course they were wrong. He got the money back, two months later.

Not true. It depends on how you pay. Most automatislc payments in EU are actually SEPA Payments and are much easier to revert. One click in your bank app or online, within 3 months no arguing.

Yes, I'd like to see a world without silly credit card cashbacks, too. And ideally they'd slay that beast by removing regulations, not by piling more on top.

> I don't know what's the solution here. I'm weary of government intervention in capping prices, but I'm not sure what's the alternative here -- force each card to be available over multiple networks and for them to bid the interchange per transaction? Durbin amendment style caps? I don't know. But I do know that the status quo cannot stand.

Perhaps make it easier for new payment providers to enter the market? Here in Asia we have lots of alternatives popping up (like Grab pay). And merchants are happy to support them, because they typically charge lower fees than Visa and Mastercard.

I don't see why everyone in thread is so allergic to regulating it. I vote for the representatives I do precisely because I want these types of practices controlled.

I think there is a strong case for credit card fees to be zero for all involved, and the government paying some fixed amount for the running of basic payment processing systems.

Just like the government pays to produce bank notes and coins today.

Brazil does just that with Pix.

https://en.m.wikipedia.org/wiki/Pix_(payment_system)

They charge more yes, but make of the credit cards in the US also provide a lot more: travel insurance, Trip interruption insurance, purchase protection, extended warranty, etc.

For people who can obtain such cards and pay them off, yes.

What is bps?

Basis points.

Thank you!

You're correct about Pix, it averages at 0.22% [1]. It's free for personal transactions and some card/POS machines have zeroed the fees when you scan a Pix QR code to pay at small shops. It's currently the most popular payment method in Brazil (credit card is second) [2]. It's slower than just tapping my Apple Watch to pay, but tap-to-pay with Pix is in development and I can't wait for it. Installments are also coming. Our Banco Central is really pushing it and the big banks are not liking it, at all. Good.

A nice side-effect of it all is that many credit cards are offering great rewards without any annual fee. I get year-round access to VIP lounges at any airport here, car/travel insurance AND cashback/miles for $0, it's a very different scenario from say 5 years ago.

[1] https://www.infomoney.com.br/minhas-financas/pix-e-mais-bara...

[2] https://febrabantech.febraban.org.br/temas/meios-de-pagament...

India could be a good model here. Basically, the likes of Venmo/Zelle have replaced everything. They are not allowed to charge a transaction fee (I’m pretty sure…and if they are, it’s set very low), and they are required to work across platforms (so a Venmo user should be able to pay a Zelle user directly without having to download Zelle).

Pix and other types of instant payments systems are very different products from credit cards. I'm not sure if it is a fair comparison.

A bunch of fintechs are going to die :(

A bunch of fintechs are going to die :)

Fintechs seem to do just fine in Europe, so I would suggest this is a pretty myopic take. Have you seen Adyen (Dutch, $ADYEY)? PayPal? Like it or not those companies provide value to their merchants so they're able to charge for their services. That isn't going to change with lower interchange.

They are low level infra companies that exist because of regulatory capture. I am referring to companies like X1 and to some extent Ramp. The high level fintechs driving consumer innovation like electronic wallets, interesting rebate card models, better banking UXes all require interchange fees. This is also why most consumer fintechs start in the US and UK first before expanding elsewhere.

I guess I would flip that around and say that the fintechs are providing services that are worth paying the mark-up for - not the other way around.

The UK was part of the EU until recently, and still maintains the card transaction fee cap regulation.

No it doesn't. It was one of the first "Brexit freedoms" the government took advantage of. That's why Amazon had a spat with Visa: https://ca.news.yahoo.com/visa-mastercard-agree-lower-averag...

The article is wrong here.

Interchange in the UK remains capped at the same 0.2% for debit and 0.3% for credit rate that applied in the EEA prior to Brexit. What changed was that this cap only applies when the issuer, acquirer and merchant are within the UK. Therefore, UK-EEA transactions are no longer covered. [1]

[1] https://www.barclaycard.co.uk/content/dam/barclaycard/docume...

The UK didn't scrap the Interchange Fees Regulation; but as a matter of law there became two separate IFRs, one covering the EEA-cards-in-EEA and one covering UK-cards-in-UK

(To put it bluntly, a big amendment was automatically applied to most UK laws on exit day replacing EU & EEA with UK; and of course in the EU the definition of both of those words changed)

So why did Amazon threaten to stop taking Visa cards? Do they not have a UK bank account?

> Adyen (Dutch, $ADYEY)

I never realised Adyen was Dutch. The name had me thinking they were from a country in Asia!

Why should there even be something like cash back or points programs? These programs are taking money from the merchant and giving it to the end-consumer, while the middle-men keep a cut.

I believe a world without these programs (or as you said “watered-down” versions) is more fair for the merchant and others shoppers not using such cards. Especially if the merchant is not allowed to charge the end-consumer with this added fee.

The programs don’t take money from the merchants - they raise their prices to cover the fees.

The reality is that they exist largely because the people earning the points aren’t paying the bills. Most CC Rewards programs target the professional class of travelers - people who travel for work where the employer pays the bill. It’s essentially taking from consulting companies’ clients to give to the employees.

They would exist without the interchange fees. The money is coming from revolvers, not the merchants or interchange

I'm in the UK and I have had (still have) rewards on MC, Visa and Amex. This was the case when we were still in the EU as well.

As a counter point, I’ve been here for fifteen years and never have.

I and others have shown that such cards exist, correcting the person who I replied to, who claimed they did not.

Amex doesn't count - they run their own system end to end and charge retailers stupidly high fees. That's why most retailers don't take them.

As for rewards on MC and Visa, which card are you on? In my experience, either the rewards are very small, or they are for specific retailers only, where the Bank has done a deal directly with the merchant. Occasionally they are a loss leader for the bank, working on the principle that you are

The article is wrong about the UK capping interchange fees. Removing the EU cap was one of the first EU rules that the government decided to abolish after Brexit. At one point it meant you weren't going to be able to use a Visa card with Amazon, you'd have to switch to Mastercard.

The UK didn't scrap the Interchange Fees Regulation; but as a matter of law there became two separate IFRs, one covering the EEA-cards-in-EEA and one covering UK-cards-in-UK

(To put it bluntly, a big amendment was automatically applied to most UK laws on exit day replacing EU & EEA with UK; and of course in the EU the definition of both of those words changed)

Amex is a different model, their customers are card holders and not businesses. In their view of the world businesses must pay to access their customers.

It will be interesting to see Google or Apple's long term play in this market, I would love it if they started providing banking services. Just so it interrupts the currently market where the middle men provide little to no real value to the general public.

Amex has credit cards with no annual fees, they have the same incentives as other networks and issuers.

Their no fee cards are not their primary card base. As a vertical provider, they simply charge merchants more, and use that money to look after their customers more so than other majors. In general try to do a charge back with Amex vs other majors and watch what happens. Amex usually screws merchants more much than other payers, at least in APAC and EMEA. I don’t know American markets as much but I assume the model holds true.

Chase offers a cashback card. Here is a link to their T&C: https://www.chase.co.uk/gb/en/legal/Cashback-FAQs/

https://www.doctorofcredit.com/credit-cards/best-credit-card...

If you are in the US and aren't getting atleast 2 to 5 percent back on all your credit card transactions, you have a bad mix of credit cards

All the rewards I've ever had were points or cashback at or below 2% of spend. These are/were all zero annual fee cards - there might be more rewards at higher tiers.

> Net revenue was $29B. Opex was $9.3B. Net income was $16B.

This, people, is what a duopoly looks like.

Credit card reward systems are one of the dumbest ideas that humanity has invented. It's amazing/terrifying that it's legal.

How much is it for the EC card? Probably zero?

For anyone reading this thread and not knowing what the terms being tossed around mean, but curious, there was recently a thread here [0] with some resources that you can check out to understand the space a bit. I devoured two of the three books [1], [2] in about 4 days total, they're really easy to get through, definitely recommend.

[0] https://news.ycombinator.com/item?id=35714145

[1] https://www.amazon.com/Field-Guide-Global-Payments/dp/057829...

[2] https://www.amazon.com/Anatomy-Swipe-Making-Money-Move/dp/16...

As usual, thank hn for being educational (occasionally in a good way)

This is also a good summary written by the ex CTO of Adyen:

https://tebi.co/blog/of-cards-and-costs/

Looks like this is an agreement between Visa/Mastercard and banks with the Canadian Federal government to lower credit card transaction fees for small businesses.

The government's press release is here: https://www.canada.ca/en/department-finance/news/2023/05/gov...

Applies to annual charges below $300K/$175K CAD for Visa/Mastercard.

They still will charge higher fees to large businesses. "As part of these new agreements with Visa and Mastercard, Canada’s large banks have agreed to protect Canadians’ reward points."

Notably, this seems to be a partial extension to a 2018 agreement with Visa, Mastercard and Amex to lower fees to 1.40% for five years for "small and medium sized businesses": https://www.canada.ca/en/department-finance/news/2018/08/new... The prior agreement was for medium businesses with credit sales under $5 million CAD and small businesses with sales under $1 million CAD.

The 2018 agreement claimed that it would save businesses "$250 million [CAD] per year", while the 2023 agreement claims "$1 billion [CAD] over five years". Since less companies are covered in the 2023 agreement, I assume rates will be going up for some businesses that no longer qualify under the voluntary agreement.

How isn't this price fixing?

It is, but it's government sanctioned.

> That means on a $100 purchase, if a customer pays with a credit card, the retailer will get at least $99, where they previously would have kept as little as $97 in some cases.

I absolutely love the heavy lifting “as little as” is doing here.

> Businesses with annual Visa sales volume below $300,000 will qualify for the lower fee, as will those who do less than $175,000 from MasterCard.

That’s revenue, not profit. So your business basically needs to be casual or failing to get the lower rate.

> needs to be casual or failing to get the lower rate.

Or in a positive version - it may be just starting up, so every $ matters.

I bet this is mostly so that very small business who might have switched to Venmo or some other P2P payment system (Interac in Canada?) stay with Visa/MC

I love how tech margins are so insane we think going from 3% to 1% isn't that much, meanwhile entire industries built on the margins that fit in said gap...

It is a lot for most small businesses and they tend to pass on the cost.

> I absolutely love the heavy lifting “as little as” is doing here.

My understanding is that grocery store margins are typically between 1% and 3%, so even "small" shifts in the interchange rate can have massive impacts on their bottom line.

I would assume that grocery store margins are that low because they price competitively, so this will just drop prices by a few % and the grocery store margins will stay the same.

Not to mention parent poster neglected to take the wider picture into account.

That $2 dollar difference comes out to $20 over ten transactions, $200 over a hundred transactions, $2000 over a thousand transactions, and so forth. That is a huge difference.

What I often find surprising is people or shops complaining about the fees, and then trying to use cash everywhere. Dealing with cash is so incredible expensive, just because you don't see the fee doesn't mean it's not there.

Like my parents had to deal a lot with cash before. That meant thataafter every shift, you had to spend time counting it, and whole processes around that. Safe storage, extra security, extra threat of robbing. Then have to spend time taking the money to a bank, and purchasing rolls of change.

Most shops accept both cash and credit, and the costs of dealing with cash don‘t go down by much just because half your customers pay cashless.

As for my parent, it's 99% cashless. Might be one person a week or so using cash. So can now skip most of the time waste of dealing with cash. But Norway has had a high card usage for decades, so this might not be as prevalent other places.

(I lost my wallet ~2 years ago, including my cards. Everywhere is contactless, so I had no issues just using my watch/phone to pay everywhere I went, until I now recently finally replaced my cards. Even my driver's license is an app now)

Complete loss of privacy. Personally went back to mostly cash, although it’s not clear how long it will be available.

- There are machines to count cash.

- Storage and security doesn't have to be expensive if you're smart about it.

- You can set your prices so that you don't keep running out of a certain coin.

- You are not obliged to take the money to the bank.

It really is not "incredibly expensive" to deal with cash.

> It really is not "incredibly expensive" to deal with cash.

Yes, it is. Cash counters cost money to buy and operate. Storage and security has a cost, and even if it is not "expensive" in isolation, storing and securing cash doesn't happen in a vacuum. You really can't set prices to avoid running out of certain coins, because people buy different mixes of items that may or may not be taxable. And you are obliged to take your money to a bank if you want to pay your suppliers and employees, who all expect a check, direct deposit, or ACH.

It is not incredibly expensive. I've owned businesses that take cash and CC payments. Storage and security are completely dependent on location and other factors. Yes, a business that has a huge revenue might be interesting to robbers, making you have to invest in some security. But if all that huge revenue was paid with CCs you'd also have huge fees for that.

If you keep running out of a certain coin, you can usually find that a certain product or common product combination is causing it. This could also depend on your country and what coinage you have. You can also offer every customer to pay part of their purchase in coins and part by card.

> Cash counters cost money to buy and operate.

Hardly a huge cost for any business that spends a lot of time counting cash.

Many employees are fine with getting part of their salary in cash or their bonus in cash. It can also be used for other business expenses, or just your profit if you're a small business. It's mainly with small businesses customers spend cash.

It might be we're just from different parts of the world, hence our different views. But not in my entire life have I ever gotten paid any other way than a direct deposit to my bank account. To me getting paid in cash is completely alien. And since it's over a decade since I last used cash (at least..), I'm not even sure what I would do if someone gave me physical money. Like, I have no way of carrying it around comfortably. And most places I just use self checkout which is cashless.

Most people do not have or tie monetary costs to their time. Only to goods

> where they previously would have kept as little as $97 in some cases

Or lower. A number of years ago I worked in an Apple reseller, and there were Apple products that wouldn't break even when the customer paid with AMEX, and that's only based on margin/card fees, not counting all other business costs.

IIRC AMEX could reach as high as 5% and Apple's wholesale discount could be as low as 5%. Possibly the worst two companies to be stuck between as a retailer!

Yeah as much as I like my amex I fully understand when retailers tell me no amex accepted

I think it works against them so much. I barely use mine because I can't use it at many small shops, can't use it abroad (because it's ~2% exchange fee), and often buy flights in other currencies to save so can't use it for those (big purchases).

...in Canada

This really should be put in the title.

Where we also get surcharged +2% when using a credit card for USD purchases and no one seems to care what a massive ripoff that is.

The last time I checked, most UK banks add 2.75% to the Visa/MC wholesale rate.

Occasionally, a bank will create an account whose debit card has 0% FX loading, to help gain customers. Then, once they've gained a bunch of customers, they'll change the terms of the account.

The market is still ripe for disruption, this is a defensive move based on fear and the eventually that the era of free money for these players is coming to an end. These middle man are going to be cut out sooner than even they expected, since every smart phone is a PoS device e.g., the move with iPhones in Australia https://www.smartcompany.com.au/industries/retail/apple-ipho...

It's already started, unsurprisingly in countries like China, India or Brazil, that didn't have widespread card acceptance and could push mobile payments faster.

The EU has more or less given up on creating a new competing card payment scheme (EPI) and wants to support mobile payments instead. The EMPSA has already started federating a few domestic networks, and should also eventually be interoperable with AliPay, WeChat, UPI and so on.

This is only in Canada and only for small businesses (<$300k on Visa, <$175k on Mastercard).

It’s 2023 and we are still letting these companies take money from EVERY SINGLE TRANSACTION.

This is the single greatest open scam in the world.

They provide a service. Handling payments is never free. It's up to governments to do their job and cap fees where the market cannot do it on its own.

I get what you're saying, but those systems don't pay for themselves. How should payment processing be funded if not per transaction?

> How should payment processing be funded if not per transaction? reply

Taxes? Do you pay a toll to use each and every road for your car?

Do something like what India has done.

The "road toll" may not be the best example.

At least in New York, you pay a toll every time you cross most bridges and every time you enter/exit a thruway (aka "freeway" in other parts of the country)

So in New York do you have to pay a toll for each and every road, if not then its a good example.

It only made sense when banks were much smaller and we didn’t have smartphones and cheap internet.

You’re paying for a network that’s lost value. You’re paying for a brand at this point. It’s a scam.

Even a flat fee would be better. Cost doesn't really increase with higher dollar transactions; cash doesn't physically move just because a card was used.

Let's be 100% clear on this - nobody is forcing the merchants into accepting credit cards. In fact, many don't. They do fine as cash-only businesses.

The hard economic reality is that accepting credit cards increases your sales, presumably enough to make the interchange fees worth it.

At last, Afterpay, Affirm etc. charge 600 bps (6%) interchange for their 4 split payments offer. Again, no one forces merchants to accept these payment methods, but the ones that do clearly see the benefit to the top line resulting from higher conversions.

The article says:

  On Thursday, the government announced a deal with the two card companies that will reduce interchange fees for in-store transactions to 0.95 per cent, on average.

And then claims that this means:

  That means on a $100 purchase, if a customer pays with a credit card, the retailer will get at least $99, where they previously would have kept as little as $97 in some cases.

This is wrong! Interchange is what banks pay to other banks. It's not what retailers (the acquiring bank's customers) pay.

So, the retailer's bank will get at least $99.

The article is suggesting:

* Customer pays $100

* Retailer's bank pays $0.95 cents to the cardholder's bank

* Retailer gets $99 or more.

If this were true, the retailer's bank would be left with 5 cents or less. This seems implausible. The retailer will almost certainly get less than $99.

You don't want to see the Australian interchange rates…

https://www.visa.com.au/about-visa/interchange.html

Australia is the only country I've ever been at that heavily discourages using a credit card because almost every single shop charges you 1-2% MORE for using a credit card, including international hotel chains, restaurants etc. THAT is something that should be outlawed.

That should not be outlawed. The merchant is getting 1-2% less, and so they should be able to charge 1-2% more. Using a credit card at my shop is not a fundamental human right. It's much more arguable that I have the right to choose my pricing though. If you want to pay in gold I'd charge a fee for that also.

It's nice to see the cost of credit card processing being limited to credit card users, instead of everybody having to pay it through increased baseline prices with some "premium" credit card holders getting it back through "rebates".

Pricing transparency is a good thing. It makes sure incentives for everyone are correctly aligned.

Even as a fan of the rewards points system I'm fine with this. My only beef is that I wish the credit card price was the list price and cash had a 2% discount. A fee that affects nearly everyone isn't a fee (see resort fees), a cash discount reduces surprise and cognitive load.

In the past (decades ago), before the EU capped processing fees, I had pretty good success just asking for a discount when paying cash, even in supermarkets.

And yes, "it can only become cheaper" has a much lower cognitive load than US style payments where the advertised price is just a lower bound.

I agree. I wish the credit card networks didn't give into this, even if I might agree with other parts of the recent reforms. Cash discounts were always allowed.

I think the real problem is that merchants don't want to discount cash, because it still costs money. So now they can have their cake and eat (some of) it, too.

Why? If the merchant is paying an extra 1-2% for your purchase in cc transaction fees, why should they be expected to eat the cost? Why should your service be subsidized by people whose transactions don't have that overhead?

They are paying even more to manage cash but don’t have a separate fee for it. Why should credit card users subsidize that?

(Personally I think it’s fine to charge any which way you want as long as your terms are clear. But I think this answer makes clear it’s not so obvious as you suggest?)

With cash, merchants can show less income and then pay less tax.

Bank of Canada studied it and found that credit costs were over double the cash costs. Debit is the lowest-cost option for merchants.

https://www.bankofcanada.ca/wp-content/uploads/2017/11/boc-r...

Isn't this price fixing and collusion?

Not surprising, the issue of extra charges for credit cards has been a recent issue in Canada.

I know the whole world is struggling with inflation and rising costs, but it feels like Canada is getting particularly screwed. Our housing prices are out of control, rents sky high, price of food way up when things like dairy are already high because of protectionism and sold by companies that have been caught price fixing things like bread, price of telecommunications a special kind of crazy, our infrastructure stretched to the limit, our roads maxed out... It's bad.

I love my American Express but this is why small businesses do not; less than a million a year is 1.6~2.85% merchant fees.

https://merchantcostconsulting.com/lower-credit-card-process...

Not sure why the original URL wasn't submitted? https://www.cbc.ca/news/business/visa-mastercard-fees-1.6848...

Could you please put Canada in the title? I scared everyone at work with this article.

Headline is slightly misleading:

> Businesses with annual Visa sales volume below $300,000 will qualify for the lower fee, as will those who do less than $175,000 from MasterCard.

This will probably only actually apply to large volume stores. My guess is that your average Stripe or Square merchant won't see any difference.

You would be wrong, this lower fee only applies to business with annual charges below $300K/$175K CAD for Visa/Mastercard.

> Companies agree on product pricing.

Shouldn't a free market handle that with competition?

It happens in smaller countries, where local payment schemes manage to get traction.

On global level it's A LOT harder. Main challenge is that fees are invisible for end users, so they will default to most widely accepted payment method. Today that's Visa/MC by a landslide.

To really threaten them you would have to be accepted at virtually 100% of merchants that accept them today. Even a few percent behind and most of the people will not use your solution. That means connecting billions of banks, merchants and intermediaries both from technology and business perspective.

The dream of crypto was supposed to make this near zero

Wow, what happened here? These 2 companies are usually cutthroat. Has debit card transactions cut into their profits that much?

Visa and Mastercard operates many global debit networks, too. Visa Interlink, Mastercard Maestro, Discover Pulse for instance. 72% of US card present debit volume.

Not in Canada, mind you, that remains squarely Interac for card present transactions. Even on dual-branded cards with Visa-binned card numbers.

Reply on news.ycombinator.com