Hacker News Reader

Comment by lotsofpulp | Hacker News Reader

> I don't love that I also have a 3% tax going to VISA/Mastercard/Amex/...

You don’t. The merchant you are buying from is choosing to pay 3% for credit card payments because they believe incentivizing people to pay with credit cards will result in them earning more (via higher prices or higher margin goods) than incentivizing them to pay with debit/cash.

If a merchant wanted to, it would be trivial for them to give you a 3% discount for paying with debit. In fact, Target gives you 5% off for paying with debit via their Redcard, but I suspect they do not advertise it because they still want their non savvy buyers to use credit cards. And they want to funnel their rewards seeking savvy buyers to the 5% discount since they bet the cost benefit for those people does not work out.

View on HN

> > I don't love that I also have a 3% tax going to VISA/Mastercard/Amex/...

> You don’t. The merchant you are buying from is choosing to pay 3% for credit card payments because they believe incentivizing people to pay with credit cards will result in them earning more (via higher prices or higher margin goods) than incentivizing them to pay with debit/cash.

Today I picked up flooring from a place that gave a 5% discount for paying with cash or check. Many gas stations around here are around 3% less when paying with cash. At such places you pay extra for the convenience of the card.

Many places you are paying with cash also push for that option to skirt on reporting taxes.

You’re not alone. I just paid for something that added a 3% convenience fee for paying with a card. I don’t see it frequently but the behavior is out there.

Otherwise I think the incentive point is exactly right. My town allows you to pay for parking with a mobile app and CC. I’m sometimes charging a dollar total to the card for parking. Not much left for the town after the fees. But I always have my phone and can pay vs carrying cash or coins to pay.

My guess is the town makes more overall in parking fees because of that app

Many apartment complexes charge convenience fee of 2-3% for paying with card. They don't take cash either, so I paid with money orders while living in the US.

> If a merchant wanted to, it would be trivial for them to give you a 3% discount for paying with debit.

I don't believe that a merchant is allowed to do this? Probably very dependent on your deal with credit card processors but my understanding is that the default contract between a merchant and a credit card processor stipulates that you are not allowed to offer discounts to not use credit cards differently.

Of course if you are Target-sized, you get special treatment. My understanding is stuff like Redcard is basically just Target "giving back" their cut of processing fees...

> I don't believe that a merchant is allowed to do this? Probably very dependent on your deal with credit card processors but my understanding is that the default contract between a merchant and a credit card processor stipulates that you are not allowed to offer discounts to not use credit cards differently.

I think this was in the past or no longer enforced. I lost count now of the stores that will charge you a 2-3% fee for paying with a card.

if credit card processors started enforcing this rule of the contract, would they be at risk of legal trouble?

I think some countries are starting to make it this illegal (I think Australia and some in the EU?). So maybe that's why credit card companies are turning a blind eye.

In the U.S. credit card surchages are no longer banned by the credit card processors due to a settlement between retailers and Visa/Mastercard in 2013: https://smartpay.gsa.gov/content/surcharges

> I don't believe that a merchant is allowed to do this?

A federal law was passed over 10 years ago allowing this.

https://www.ftc.gov/business-guidance/resources/new-rules-el...

> A PCN cannot stop you from offering your customers a discount or another incentive for using a certain method of payment, as long as you offer it to all your customers and disclose the offer clearly and conspicuously. For example, you can offer your customers a discount or a coupon if they pay with cash or a debit card rather than a credit card.

Amex sued the government about this though. Not sure the outcome but it is more complicated than “government banned banning credit card fees”

No, they did not. It was about merchant agreements prohibiting different surcharges for different PCNs, i.e. charging more for AmEx than for Visa.

https://en.wikipedia.org/wiki/Ohio_v._American_Express_Co.

The FTC site is pretty clear, and they are the regulator.

Nothing prevented merchants from offering a cash discount. Terms used to prevent merchants from adding a surcharge solely because they were paying with a credit card.

A class action lawsuit was filed, and the networks settled by allowing merchants to charge a fee only up to what they actually paid to process the charge if they inform the networks first. I gather most merchants don't inform the networks. And when they do charge surcharges, the fee they charge is obviously higher than the payment actually costs them.

Assuming that's correct, that effectively boils down to the same thing? Prices would be somewhat lower if merchants didn't need to consider the ~3% disappearing in the payment processor.

That doesn’t necessarily follow though. Consumers are more likely to go to a store that takes credit cards and spend more once they are there than a store that accepts only cash. If the merchant has to pay 3% in credit card fees for a 20% increase in revenue, that’s likely a good deal for the merchant.

There's a huge network effect that's effectively led to a 3% tax on the economy. Since every other store accepts credit cards, you need to too. It's not a case where a credit card allows someone that was going to buy a $500 TV to now spend $1,500. It's that you won't sell anything if you're a cash only business. And with Covid fewer people want to handle cash.

Debit cards exist and partially solve the inconvenience of holding cash. But, they're really inconvenient in other ways. As a consumer I'll prefer credit cards most of the time just for the security benefits. If there's a breach at a merchant and my number is stolen I don't have to worry about my checking account being screwed up for however long it takes to sort things out.

It'd be nice if we had another option for cashless payments. Particularly, one that doesn't impose such a large financial burden on everyone. Yeah, rewards are nice but they're disproportionately allocated as well. I think it's fairly evident going forward cash will be handled less and less. Credit card companies are the incumbents and path to least resistance to accepting cashless payments, but they don't need to be the only option.

With real competition I suspect we'll see those swipe fees suddenly decrease. Unfortunately, some of the bigger attempts at non-credit card payments (e.g., PayPal) charge commensurate fees. So, maybe I'm off and 3% is the minimum needed by the middlemen to stay afloat.

> There's a huge network effect that's effectively led to a 3% tax on the economy. Since every other store accepts credit cards, you need to too.

The point of the whole sub thread is that a merchant can always accept a credit card but still incentivize use of debit or cash by giving a discount.

> Debit cards exist and partially solve the inconvenience of holding cash. But, they're really inconvenient in other ways.

What inconveniences?

> The point of the whole sub thread is that a merchant can always accept a credit card but still incentivize use of debit or cash by giving a discount.

I was replying to the point made by the parent; it wasn't a meta comment for the whole thread. Most merchants aren't happily accepting a 3% surcharge because it's causing customers to spend more. While that happens and it's a big reason store-branded cards exist, I'd hazard to say most credit card transactions are for the same amount someone would pay with cash and the store just needs to eat the 3% because people don't like carrying cash.

>> Debit cards exist and partially solve the inconvenience of holding cash. But, they're really inconvenient in other ways. > What inconveniences?

I gave an example further down in that paragraph: "If there's a breach at a merchant and my number is stolen I don't have to worry about my checking account being screwed up for however long it takes to sort things out." It doesn't even need to be a security issue. There's been no shortage of incidents where a merchant double-charges, charges the wrong amount, doesn't release a hold in a timely manner, etc. where my cash is locked up with no recourse. To limit such impact, I have a daily spending limit set. That's helpful, up until I need to make a large ticket purchase. I'd love to see a debit card system that addresses these problems.

My point is that merchants do not NEED to consider the 3% disappearing. They can post a sign right now telling people “3% discount for using debit”.

The merchants that do not offer lower debit prices choose to pay the extra 3%. It is up to the customer to decide if prices at merchant that gives debit discount or merchant that does not give debit discount are better.

The merchants never pay, you do: prices all increase by exactly 3%. You think employees accept a 3% salary decrease because suddenly all clients pay by cash ? Absolutely not: prices will increase to cover the risk of this happening, and neuter the cost of the payment processor: it's one more cost, and you are the one paying. The merchant RECEIVES your money. He will not OFFER anything to you or the payment processor just for the sake of it.

Target also gives you a 5% discount for using their RedCard. It's your typical store-branded loyalty card. Except, instead of giving you "points" on your purchase you get an upfront discount. Target is unique in that they make this option available through a branded debit card for those that don't want or don't qualify for a credit card. But, it's not a discount specifically for paying with cash.

> If a merchant wanted to, it would be trivial for them to give you a 3% discount for paying with debit.

It makes more sense to me for it to be a surcharge for using a credit card, but the last I knew the credit card companies disallow that in their agreements. Discounts get confusing and bump up against weird cases like minimum advertised pricing and potential taxation on the discount.

Debit cards can get a bit weird when they function as credit cards. A customer may use a debit card but swipe it as Visa or Mastercard and the fees the merchant pay will be different, setting up a constant source of frustration at the register.

> Discounts get confusing and bump up against weird cases like minimum advertised pricing and potential taxation on the discount.

I have never heard of this. Merchant gets the revenue, merchant pays the tax. If the debit price is $10, then the sales tax is on $10, and if the credit price is $13, then the sales tax is on $13.

> Debit cards can get a bit weird when they function as credit cards. A customer may use a debit card but swipe it as Visa or Mastercard and the fees the merchant pay will be different, setting up a constant source of frustration at the register.

Visa and Mastercard are payment card networks (PCN), they can perform both debit card and credit card transactions. If the card says debit on it, then it will be a debit card transaction with debit card fees. And no one should be swiping anymore, so I do not know what “swiping it as visa or Mastercard” means. It either says Visa or MC on the card, and that’s the PCN it’s going to use.

> And no one should be swiping anymore, so I do not know what “swiping it as visa or Mastercard” means. It either says Visa or MC on the card, and that’s the PCN it’s going to use.

Debit cards are multi-branded. STAR is a popular debit network. Running a transaction over a debit network is far cheaper; often the merchant only incurs a flat fee for the transaction, and most card terminals give the customer a choice.

Not to mention, cash transactions are slow and frustrating and fraught with fraud and risk of burglary. 3% is a positive ROI investment

so are cards https://youtu.be/FdtJResj1A8?feature=shared

don't forget skimmers

Why are you putting the onus on the retailer? Don't assume malice or intent from them.

I operate online businesses; so 99% of my sales are credit card. I get the occasional wire/ACH or a check in the mail. I'd love to not pay 3% of all my revenue to credit card processors, but most people want to use credit card / PayPal / etc. because it's more convenient for them.

I'm happy to offer a discount if someone wants to pay via a non-credit card, but I don't raise my prices because of it. I just have to suck it up and eat that cost. My margins are not high and I would've made about 27% more last year had I not had to do that. You're welcome.

> Why are you putting the onus on the retailer?

Because it is their choice.

> I'm happy to offer a discount if someone wants to pay via a non-credit card, but I don't raise my prices because of it

This makes no sense to me. As the leader of the business, you have the option to

1) deny all credit cards

2) accept all credit cards, but not offer discount for debit cards

3) accept all credit cards, but offer a discount for debit cards

It is just a business decision, and if you are not choosing 3, one would hope it is because you are earning more profit by going with option 2.

My payment processors (Shopify, PayPal, Klarna, etc.) don't treat debit cards any differently than a credit card. Those are all huge payment processors; so it's not like a special snowflake here.

Since we're on HN, I'll mention Stripe. I don't use Stripe - but they act the same way.

All of these don't bill for "credit card" they bill for "card".

You're dreaming if you think the merchant is abandoning margins to finance card companies because they bring business he's convinced he wouldn't have had otherwise: he's making everyone, cash payers included, pay the 3% premium, keeps his margin, fattens the credit providers, the credit consumers get their 3% back, the cash payers do not, the merchant doesn't give a damn and is paid his margin as before, plus a bit more for cash payers.

You thought... prices were dynamically changing per acquisition channel, or that credit borrowers were "privileged" because they took a credit risk and got a "reward" coming from... the merchant ??? Man, what a beautiful world that would have been :(

And this practice is super common but it's usually worded in the reverse and more when dealing with business where being able to accept cards isn't a selling point, like your rent or government services. They'll just the 3% direct to you. One of the weirder examples was when paying a fee for a permit I needed. They charged me $x for the service, then $y separately to cover the fee for $x.

Reply on news.ycombinator.com