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Comment by ragnot | Hacker News Reader

I'm glad the US is finally catching up the rest of the world...India already has the Unified Payments Interface (UPI) [0]. Additionally, I think fears of this turning into a CBDC are overblown. Banks already have to settle transactions between banks through reserve transfers via the Fed...this will just help automate that process so we can send money from bank account to bank account. Like a Zelle or Venmo, but government backed!

[0] https://en.wikipedia.org/wiki/Unified_Payments_Interface

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> India already has the Unified Payments Interface (UPI) [0]. Additionally, I think fears of this turning into a CBDC are overblown.

Yet, India is already working on E-RUPI [0] which is a CBDC on top of UPI by the Reserve Bank of India, also shown in the same Wikipedia link you just used. Eventually, FedNow will just be the rails for a US dollar CBDC.

The next time a protest happens in India after their government does something extremely unpopular, you'll see why CBDCs are a nightmare not to be ignored. This is why governments around the world are working with many central banks with pilot schemes to test them out and eventually roll their own.

> Like a Zelle or Venmo, but government backed!

Look where that went for Zelle. [1] A vehicle for rampant fraud on the system.

[0] https://indianexpress.com/article/explained/what-is-e-rupi-d...

[1] https://www.nytimes.com/2022/03/06/business/payments-fraud-z...

> Eventually, FedNow will just be the rails for a US dollar CBDC

This is unfounded. FedNow is a faster classical payment rail. CBDCs involve the central bank taking on a customer-facing role. The Fed has no desire, nor frankly basis in law, to do that. The only reason the two are linked is crypto (a) prompted the first serious discussion about American payments modernization and (b) promoters are using it as a thread by which to hang onto a dream of mainstream crypto.

The central bank digital currency concept has little to do with FedNow. It's denominated in dollars, and is cleared by all parties keeping ledgers which are compared if they differ. But between the crypto people and some right-wing conspiracy mongers, the two are being connected in some social media.

India’s system is more usable, though, apparently. This seems like an improvement but it doesn’t do the same thing?

> Because UPI is designed to be intermediated by computers rather than by humans, transactional information gets captured by the payments company while the transaction is in progress, and that can tell the clerk (or cron job) that the payment succeeded without them needing access to the bank account.

> This is a fun engineering challenge in many countries, which are often overlaying bank transfers as a payment method on top of bank transfers as a settlement method.

[…]

> Bank transfers are an extremely small percentage of customer-to-business payments in the U.S. In addition to the speed issue, which might get improved by FedNow when it launches (wags have referred to it as FedLater), bank payments have no consistent way to receive metadata, and despite being no-cost they compete with well-developed credit card ecosystems which credibly offer better-than-free pricing through rewards schemes (to the customer, who generally gets to choose which payment method they use to transact).

https://www.bitsaboutmoney.com/archive/bank-transfers-as-a-p...

Reward schemes are funded by interchange fees funded by higher product prices. They are a tax on the entire economy. Merchants can push the CC fees to customers who opt to pay with CCs vs cheap or free instant payment systems. T-Mobile has dropped autopay discounts if you use a credit card vs deposit/bank accounts for payment, for example. Walmart wrote public comments on this topic supporting the FedNow implementation.

Reward systems won’t last as merchants push towards FedNow as a payment alternative and charge you to use a credit card. Nor should they last.

https://news.ycombinator.com/item?id=36012866

> Walmart has observed a severe misalignment of incentives that has plagued the payments system in the United States for decades. Certain incumbents and large participants enjoy massive profits by stifling innovation in payments, ensuring that account access is limited to a small number of networks, and perpetuating barriers to entry for alternative solutions. Controlling this access allows the dominant players to extract rents from other payments system participants, ultimately resulting in higher costs for all consumers, particularly consumers who are unbanked or underbanked.

My Citi Custom Cash card gives me 5% back on gas station purchases (my highest category), even paying the higher price at the pump for credit cards I still come out ahead. I'm fairly certain Citi is not making 5% on interchange fees

It’s a loss leader that is usually capped. They are marketing against other cards in your wallet. Most consumers use a card or two so the habit of buying gas drives more spend.

Discover does the same thing with quarterly promos. They are paying 5% for the first $1500 of Apple Pay/Google Pay transactions… an incentive to add Discover to your wallet.

Gas is also unique. Our local supermarket chain gives you gas discounts for spend. People are always annoyed about gas so they fixate on saving $1/gallon, forgetting that they spent $1000 at the most expensive grocery chain so they can save $12-20 for a fillup. That $12 probably cost them $50.

Isn't it easier to assume Citi is recovering the 5% via interchange fees versus Citi is losing money every time a customer uses an advertised card feature.

Citi is definitely not earning 5% via interchange fees, this is known. While they might lose some money on the 5% for some credit card users that use it correctly, it is most likely more than made up for by other credit card users who either use the credit card for other types of purchases and receive much less in rewards, resulting in a net gain.

Or citi has figured out that certain users of the card carry a balance and they spend more on interest than it costs in Citi in rewards. If the situation changes and Citi is losing money, then they change the reward amount.

It is almost certainly from compound interest.

You could think of credit card rewards as a form of price discrimination similar to coupons. Whether you get the higher or lower price depends on what you do. Credit cards with high rewards are discount cards.

There are many ways to pay and they have different discount rates. Some places have a cash discount, for example.

As a "tax," this falls on people who don't shop around for whatever reason. Some of them are wealthy and can't be bothered to play this game. Others might not find playing the game feasible for other reasons.

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