Visa, Mastercard $30B swipe fee settlement rejected by US judge
reuters.com
reuters.com
In Europe it is capped at 0.3%. So much for market forces in the land of the free!
https://eur-lex.europa.eu/EN/legal-content/summary/fees-for-...
There is also a new EU law on the books mandating the provision of instant digital payments across the market. The critical paragraph in the law is that providers are *not allowed* to charge more for instant payments than delayed cleared payments. This will effectively drive the cost of retail instant digital payments to zero.
https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=OJ:L...
Quote from link:
``` PSUs are very sensitive to the level of charges for substitutable payment methods. The level of charges can therefore steer them towards or away from a given payment method. In national markets where higher transaction-level charges for instant credit transfers in euro have been applied, when compared to charges for other credit transfers in euro, the uptake of instant credit transfers is low. That has prevented the attainment of the critical mass of instant credit transfers in euro that is necessary to realise the full network effects for both PSPs and PSUs. Therefore, all types of charges applied to payers and payees for the execution of instant credit transfers in euro, including pertransaction charges or lump-sum charges, should not exceed such charges applied to the same PSU for corresponding types of other credit transfers in euro. It would be undesirable that PSPs circumvent the aim of that requirement. When identifying corresponding types of credit transfers, it should be possible to use criteria including the payment initiation channel or the payment instrument used to initiate the payment, customer status, and additional features or services. ```
Wow that's pretty high, no wonder the number of crypto bros imagining taking on Visa through crypto.
On the bright side, at least they don't add tips. It could have been %3.5 + %20 = %4.2 total.
i think the US system is probably better for wealthy people who always use cards and actively play the game (and for the credit card processors of course). Euro system is better for everyone else
ps: is there some sort of contract that stops vendors from adding a "credit card processing fee"? maybe banning those clauses would be the best way to let market forces sort the issue out - once people see that they're paying 3.5% more to use a 2% cashback card, they'll start asking for other options
I'm totally okay with not paying higher prices so merchants can pay fees that subsidise credit cards benefits for a few.
It’s a great coup of US credit card companies to convince credit card users that they are getting “free money” when it’s the exact same money they paid in transaction fees.
In any case, I don't pay transaction fees the merchant does. They're often not allowed to give cash or particular types of cash-in-kind store discounts. This actually just raises the prices for everyone.
The payoff for the merchant is it reduces some of the risk of taking cash money and stabilizes some of their transaction flows through their account. It's all probably worth slightly more than what the EU caps it at, but the solution to improve this discovery is to increase the number of transaction networks, not arbitrarily cut them off at the knees and ensure the market never grows to this point.
It's at least one reason to love bitcoin and other crypto. You don't need permission to conduct a transaction. Which, given the extreme costs of transactions there, was clearly sorely lacking in the current artificially scarce market.
Unless you're one of those operating small businesses.
> It's at least one reason to love bitcoin and other crypto.
Sure but what happens in case of fraud, or if I need to initiate a dispute ? What are the fees for that transaction ?
Well, yea, exactly. I'm pointing out two systems that are diametrically opposed and nothing in the middle. It highlights the fact the market is broken. This is one consequence of that.
> Unless you're one of those operating small businesses.
Ironically, I never took credit. Cash or Check only. Handling costs don't apply because the chain of custody is just myself.
I’m ignoring checks because those aren’t a thing anymore. Only people in their 70s might still use them.
In at least some countries you can totally get away with being cash only (although less so since the pandemic).
It’s just not an option. You must accept traceable payments either via cards or direct bank transfer.
Given the interchange cap (0.3%) and current interest rates, this interestingly looks like a losing product at a first glance (the cost of capital for an average due date of 6 weeks after the purchase date is higher than 0.3%).
The transaction fees aren't explicitly added to only credit card transactions - they are baked into the price so people who pay cash and debit are also paying a fee. Credit card rewards therefore reallocate money from people who use cash/debit cards to people who use "reward (credit) cards".
ps: is there some sort of contract that stops vendors from adding a "credit card processing fee"?
What are Visa and Mastercard's net take rates in the U.S.? (As in, out of that 3.5%, how much do they keep on average and for premium cards?)
In EU it is not allowed to charge the customer any kind of extra fee for using a card. Though obviously it only works well together with the 0.3% cap on the actual fees the vendor pays.
https://europa.eu/youreurope/business/finance-funding/making...
> You're not allowed to charge your customers extra for using a credit or debit card. This applies to all card purchases (in shops and online) made throughout the EU.
... and yet, in practice, passing card payments through something like Stripe still eats up 10%.
How is this not market forces? Europe is using anti-market forces regulations to artificially lower the price, while the US is letting the market (ignoring some monopoly and collusions arguments of course) find the 'natural' price of a product. "Market price" doesn't necessarily mean lower price.
These include low barriers to entry, strong competition, perfect elasticity on both the consumer and producer side, and no mono/duo/oligopolies that prevent those from working correctly.
This is a classic oligopoly where the free market does in fact not work to find the "natural" price.
Yeah, 25% VAT is much better than 3.5% fee that you mostly get back via cashback & free credit.
[edit] tbh the 0% on staple food isn't really allowed by the EU (it is ultimately a liberal institution) but it's tolerated.
From a technological perspective at least, even the basic per-transaction cost is more than the overhead of processing a transaction and making a basic determination of the risk level of the customer identified, how variant the customer is from past behavior, and maybe even send the customer's known phone number a text to check for transaction authorization if it's even slightly risky. If it's a really large quantity maybe even connect them human to human and record the call. Those extra steps might even warrant a tiny extra charge; for the fraud reduction I suspect most businesses would approve.
Now, insurance and what not? Shouldn't there be competition in that market? That should be some other fee entirely.
This, plus reasonable limit that require special checks to be lifted, brings cost of fraud to almost 0.
Oh, and there is no credit risk, you just check the account balance, and only process the payment after blocking the amount on the account. No credit risk.
Completely insane to take 3% for that.
3D Secure and other technologies are pretty inexistent because people pay with credit cards and not debit cards. Credit cards have a very simple process of disputing transactions, fraud insurance and other things, and by moving the risk to the bank/merchant, they eliminate the friction that comes with using 3D Secure and other multi-factor authentication solutions. Win for the customer.
More practically: this is still a dispute process. You still have to fill in forms, you still temporarily don't have your money, you still might not get it back. Why take that risk when you could just have a popup on your phone that you click "allow" on? 15 seconds max.
Regarding your last question, about the 15 seconds friction, you should work for a bit in online commerce to see how fast people give up paying if there's even a little inconvenience in the checkout process and go somewhere else they perceive it makes their shopping experience easier. The biggest drop in conversion rates happens at the checkout stage.
Both chargebacks and zero liability are practically available on effectively all US debit cards.
Legal protections might be a bit less than for credit cards, but still far from “you have the burden of proof”.
Actual dispute resolution can take quite long and you’re not even directly dependent on the outcome. For example, if you lose a card and it gets used in a physical store fraudulently, your bank will most likely not be able to win a dispute, but they’ll usually still have to reimburse you.
The thing that matters to you as the cardholder is only fraud liability; if and how your bank is made whole by the merchant is their concern. That’s the same across credit and debit.
> 3-D Secure is a protocol designed to be an additional security layer for online credit and debit card transactions.
3DS on every transaction would definitely be frustrating (and not even EU banks/merchants do it); 3DS on no transaction just shifts the friction elsewhere.
I get a popup on my phone via the issuers app
CONFIRM DENY
This is online only. On site payments of ca. 100$ or less are tap and done. For higher value transactions a PIN is required.
In Europe, 3D Secure (when it is used) is used when you pay with both credit and debit card. From a transactions point of view there is no difference between a credit and debit card.
From a technical perspective you are right - it is a transaction, but from a dispute perspective it matters a whole lot, so it is actually more convenient for Americans to use a credit card with no second factor authentication than go through the hassle of being asked for a code or whatever second factor the bank decides to use.
(probably somewhere in https://en.wikipedia.org/wiki/Payment_Services_Directive )
That's usually handled with an app on your phone and is pretty much frictionless.
This is not a win for the customer, btw, because the credit card fees get baked into the prices.
Yes, I’m willing to pay $100 for a liter of water if you’re the only one selling it. I get a lot of value out of it!
In a competitive market, competition eventually drives down prices to a price that somewhat approaches the cost of providing the service.
This isn’t happening in payment, due to insurmountable network effects.
The payment card system is a miracle of system design and global commerce. I also want to see processing costs come down over time, but 3% is a bargain for the value you’re getting, and if you wanted to stifle any further innovation out of the industry, then regulating the profit out of it would be a good start.
And yet, fees are 0.3% in Europe, and VISA, Mastercard and Amex are still happy to do business here. And customers can STILL pay with a single FaceID with Apple Pay.
So maybe all 0.3% of trillions of Euros moved is still enough to do all this.
But all of this is secondary to the point, which is your claim that a 3% processing fee is insane. The way the system works is insane, if you said today that you wanted to build the type of system that the card bands have built, nobody would believe that it would be possible. Especially not all for a 3% processing fee. If the payment networks didn't exist, everything you buy would be a lot more than 3% more expensive, and your quality of life would be very notably reduced. The value you're getting from them is a lot more than what you're paying to use them.
Out of the latter, three parties are paid: The issuer, the merchant acquirer, and the network.
Merchants pay significantly more than 0.3% to accept card payments even in Europe.
That said, US interchange rates (i.e. what the issuer gets) are much higher than 0.3%, which is why there’s credit card rewards.
Much of that goes back to cardholders in the form of cash backs. That is evidently friction not necessary to run the system.
The 3.5% get split among issuer (how much they get is public information), network, and acquirer. We also know how much issuers roughly pay out to cardholders as cashback/rewards.
The EU took that information and acted on it by outright capping the issuer portion (i.e. the interchange).
One half of the US approach for debit was similar – Durbin capped debit interchange to an extremely low percentage – but the proposals from this (now rejected) settlement look different and more market-based in that they'd allow merchants to effectively collect back the cardholder cashback in surcharges.
Durbin also has a less-known component of trying to create competition between networks by mandating debit cards to have two independent networks. Extending this to credit cards could possibly help drive down actual network fees, but this has arguably not even worked that well for debit. Also, as many people have mentioned before, the interchange slice of the swipe fee cake is by far the largest and would probably make more sense to tackle first.
The outcome of this sort of regulation is that nobody wants to invest in establishing or innovating large networks like this. Which is why all the recent innovation in payments has been centred around terrible, highly fragmented, in-app payments and EMIs, and that’s certainly not a win for consumers.
That's certainly much more than just the cost of running the technical network, but also, as we can see from the above calculation, clearly one of the smaller components of the 3.5% (since the lion's share goes to the issuers).
In that sense, the networks really do compete – for the issuers' business! Issuers then compete with each other for cardholders by paying out cashbacks, but what many find missing is competition with these dynamics as a whole.
Making that cost explicit in the form of credit card surcharges might have been a path there (I'm not sure if I'd have been a fan myself), but since this settlement is now off the table, let's see what the next move is.
Note: it's 0.04% and 0.07%. Not 0.4% and 0.7%. I had to re-read it twice to make sure.
Essentially, nothing changes.
My understanding here is that Mastercard/Visa aren't charging customers, they are charging vendors who take that payment. Some vendors build that into the price of items, some eat the cost, some do indeed pass the cost to the consumer. But the latter is rare except for small businesses (which this case seems focused on).
TBH I'm suprised they even bothered with an anti-steer approach. Visa/Mastecard are about as objective a duopoly as we can get in the world of financial transactions. They can control entire industries because removing the vendors' ability to take their cards is a death kneel.
EU banks can only dream of the ways US banks get to freely completely rip off their customers (and commit major banking and trading frauds that crash the world economy without anybody going to jail).
Money gets lost. Either really or because you've experienced shrinkage. Tellers are not perfectly accurate. Customers will try to scam you with fake money, if you notice, that's your loss. If you pass enough of it on, you will at least have to answer some questions. If coins are involved in your change you're going to have a bad time.
Retail in the 80s was not particularly fun. Running register tapes to look for missing money was an effective nightmare.
It's probably that credit cards have filled an effective void for so long we haven't developed cash handling and tracking technologies to the same level. We almost got there. Remember for a few years when almost all grocery stores had automated change dispensers?
We optimized for a particular solution and ignored the other.
It was only when companies themselves were paying the transaction fees that they started optimizing the cost of transaction fees.
12.20 billion UPI transactions in a month (January 2024).
If it takes nine or ten years for alleged antitrust behaviour to get to a settlement, then the settlement should restrict future behaviour for at least twenty years. Otherwise this is just a means to allow such behaviour to continue immediately after the settlement agreement shortly expires.
Most Americans just call this a checking account.
> According to the Fed’s 2022 Economic Well-Being of U.S. Households survey released Monday, some 37% of Americans lack enough money to cover a $400 emergency expense, up from 32% in 2021. That means nearly one in four consumers would have to use credit, turn to family, sell assets, or get a loan in order to cover any major unexpected cost.
I must be the most unlucky person in banking history; I've yet to see this across 6 banks.
What banks are doing conditional anything, on any inputs besides time-frequenced wires?
Often it's a part of the overdraft settings.
Both credit and debit policies by almost all banks exceed the legal requirements a lot (e.g. no issuer that I know actually charges the deductible allowed by law).
They have been "sleeping on it" because it has existed for over half a century now.